UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD
FROM TO
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Commission file number:
001-33882
ONCOTHYREON INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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26-0868560
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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2601 Fourth Ave, Suite 500
Seattle, Washington 98121
(Address of principal
executive office, including zip code)
(206) 801-2100
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Exchange on Which
Registered
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Common Stock, $0.0001 par value
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The NASDAQ Stock Market LLC
(The NASDAQ Global Market)
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 o No þ
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 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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of the
Form 10-K
or any amendment to this
Form 10-K. þ
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):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
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 aggregate market value of the voting and non-voting stock
held by non-affiliates of the Registrant, based on the closing
sale price of the Registrants common stock on the last day
of its most recently completed second fiscal quarter, as
reported on the NASDAQ Global Market, was approximately
$87 million. Shares of common stock held by each executive
officer and director and by each person who owns 5% or more of
the outstanding common stock, based on filings with the
Securities and Exchange Commission, have been excluded from this
computation since such persons may be deemed affiliates of the
Registrant. The determination of affiliate status for this
purpose is not necessarily a conclusive determination for other
purposes.
There were 25,753,405 shares of the Registrants
common stock, $0.0001 par value, outstanding on
April 22, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
ONCOTHYREON
INC.
ANNUAL REPORT ON FORM 10 K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS
-i-
EXPLANATORY
NOTE
On March 8, 2010, following consultation with and upon the
recommendation of management, the audit committee of our board
of directors determined that the financial statements as of and
for the year ended December 31, 2008 contained in our 2008
Annual Report on
Form 10-K,
the condensed financial statements for the quarters ended
March 31, June 30 and September 30, 2009 contained in
our Quarterly Reports on
Form 10-Q
(collectively referred to as the affected financial statements)
and the related report of our independent registered public
accounting firm contained in the 2008 Annual Report on
Form 10-K
should no longer be relied upon.
In arriving at this determination, we determined that we had
changed our revenue recognition policy for
up-front
license payments and contingent payments received from license
agreements under which a license deliverable qualifies as a
separate unit of accounting from recognition over the applicable
amortization period (the Proportional Performance
Model) to recognition upon commencement of the license
term (the Specific Performance Model), assuming all
other revenue recognition criteria have been met. We failed to
provide the required disclosures under Financial Accounting
Standards Board (FASB) Accounting Standards
Codification (ASC) 250, Accounting Changes and
Error Corrections, with respect to such change. Accordingly,
the consolidated financial statements as of and for the year
ended December 31, 2008 have been restated to reflect the
disclosure of a change in accounting policy. The restatement as
it relates to the failure to provide the required disclosures of
the change in accounting policy did not change the
Companys balance sheet, statements of operations, changes
in stockholders equity or cash flows as of and for the
year ended December 31, 2008, or the condensed consolidated
financial statements for the interim periods ended
March 31, June 30 and September 30, 2009. Other
related and unrelated error corrections were made by us in
connection with the correction of the disclosure error discussed
above. Information regarding the effect of the restatement is
provided in Note 2
Restatement 2008 Change in Accounting Policy Not
Previously Reported and Other Error Corrections of the
audited consolidated financial statements appearing in
Part II Item 8 Financial Statements and Supplementary
Data included in this Annual Report on
Form 10-K
for the year ended December 31, 2009.
-1-
PART I
This
annual report on
Form 10-K,
including the Managements Discussion and Analysis of
Financial Condition and Results of Operation section in
Item 7 of this report, and other materials accompanying
this annual report on
Form 10-K
contain forward-looking statements or incorporate by reference
forward-looking statements. You should read these statements
carefully because they discuss future expectations, contain
projections of future results of operations or financial
condition, or state other forward-looking
information. These statements relate to our, or in some cases
our partners future plans, objectives, expectations,
intentions and financial performance and the assumptions that
underlie these statements. These forward-looking statements
include, but are not limited to, statements that we:
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identify
and capitalize on possible collaboration, strategic partnering,
acquisition or divestiture opportunities;
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obtain
suitable financing to support our operations, clinical trials
and commercialization of our products;
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manage
our growth and the commercialization of our products;
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achieve
operating efficiencies as we progress from a mid-stage to a
final-stage biotechnology company;
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successfully
compete in our markets;
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effectively
manage our expenses;
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realize
the results we anticipate from our pre-clinical development
activities and the clinical trials of our products;
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successfully
resolve the issues surrounding Mercks suspension of the
clinical development program for Stimuvax;
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succeed
in finding and retaining joint venture and collaboration
partners to assist us in the successful marketing, distribution
and commercialization of our products;
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achieve
regulatory approval for our products;
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believe
that our product candidates could potentially be useful for many
different oncology indications that address large
markets;
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obtain on
commercially reasonable terms adequate product liability
insurance for our commercialized products;
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adequately
protect our proprietary information and technology from
competitors and avoid infringement of proprietary information
and technology of our competitors;
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assure
that our products, if successfully developed and commercialized
following regulatory approval, are not rendered obsolete by
products or technologies of competitors; and
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not
encounter problems with third parties, including key personnel,
upon whom we are dependent.
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All
forward-looking statements are based on information available to
us on the date of this annual report and we will not update any
of the forward-looking statements after the date of this annual
report, except as required by law. Our actual results could
differ materially from those discussed in this annual report.
The forward-looking statements contained in this annual report,
and other written and oral forward-looking statements made by us
from time to time, are subject to certain risks and
uncertainties that could cause actual results to differ
materially from those anticipated in the forward-looking
statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the following
discussion and within Part I. Item 1A Risk
Factors of this annual report.
Overview
We are a clinical-stage biopharmaceutical company focused
primarily on the development of therapeutic products for the
treatment of cancer. Our goal is to develop and commercialize
novel synthetic vaccines and targeted small molecules that have
the potential to improve the lives and outcomes of cancer
patients. Our cancer vaccines are designed to stimulate the
immune system to attack cancer cells, while our small molecule
compounds are designed to inhibit the activity of specific
cancer-related proteins. We are advancing our product candidates
through in-house development efforts and strategic
collaborations.
We believe the quality and breadth of our product candidate
pipeline, strategic collaborations and scientific team will
enable us to become an integrated biopharmaceutical company with
a diversified portfolio of novel, commercialized therapeutics
for major diseases.
-2-
Until a recent suspension of clinical trials in March 2010, our
lead product candidate, Stimuvax, was being evaluated in
Phase 3 clinical trials for the treatment of
non-small
cell lung cancer, or NSCLC, and breast cancer. We have granted
an exclusive, worldwide license to Merck KGaA of Darmstadt,
Germany, or Merck KGaA, for the development, manufacture and
commercialization of Stimuvax. Our pipeline of clinical stage
proprietary small molecule product candidates was acquired by us
in October 2006 from ProlX Pharmaceuticals Corporation, or
ProlX. We are currently focusing our internal development
efforts on PX-866, for which we currently plan to initiate one
or more Phase 2 trials in 2010, and PX-478, for which we expect
to complete a Phase 1 trial in advanced metastatic cancer in the
first half of 2010. As of the date of this report, we have not
licensed any rights to our small molecules to any third party
and retain all development, commercialization and manufacturing
rights. We are also conducting preclinical development of ONT-10
(formerly BGLP40), a cancer vaccine directed against a target
similar to Stimuvax, and which is proprietary to us. In addition
to our product candidates, we have developed novel vaccine
technology we may further develop ourselves
and/or
license to others.
We were incorporated in 1985 in Canada under the name Biomira
Inc., or Biomira. On December 10, 2007, Oncothyreon became
the successor corporation to Biomira by way of a plan of
arrangement effected pursuant to Canadian law. Pursuant to the
plan of arrangement, shareholders of the former Biomira received
one share of Oncothyreon common stock for each six common shares
of Biomira that they held. All information contained in this
annual report, including the information contained in
Managements Discussion and Analysis, selected financial
data, and our consolidated financial statements and related
notes for the year ended December 31, 2007 gives effect to
the 6 for 1 share exchange implemented in connection with
the plan of arrangement. The consolidated financial statements
have been prepared giving effect to the 6 for 1 share
exchange and basic and diluted earnings (loss) per share for all
the periods presented.
The plan of arrangement represents a transaction among entities
under common control. The assets and liabilities of the
predecessor Biomira have been reflected at their historical cost
in the accounts of Oncothyreon.
Our executive office is located at 2601 Fourth Avenue,
Suite 500, Seattle, Washington 98121 and our telephone
number is
(206) 801-2100.
Our common stock trades on the NASDAQ Global Market under the
symbol ONTY.
Available
Information
We make available free of charge through our investor relations
website, www.oncothyreon.com, our annual reports,
quarterly reports, current reports, proxy statements and all
amendments to those reports as soon as reasonably practicable
after such material is electronically filed or furnished with
the SEC. These reports may also be obtained without charge by
contacting Investor Relations, Oncothyreon Inc., 2601 Fourth
Avenue, Suite 500, Seattle, Washington 98121,
e-mail:
IR@oncothyreon.com. Our Internet website and the
information contained therein or incorporated therein are not
intended to be incorporated into this Annual Report on
Form 10-K.
In addition, the public may read and copy any materials we file
or furnish with the SEC at the SECs Public Reference Room
at 100 F Street, N.E., Washington, D.C. 20549 or
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
Moreover, the SEC maintains an Internet site that contains
reports, proxy and information statements, and other information
regarding reports that we file or furnish electronically with
them at www.sec.gov.
Our
Strategy
Our pipeline of product candidates is comprised of cancer
vaccines and small molecule candidates. Our cancer vaccines
attack cancer cells by stimulating the immune system,
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while our small molecule product candidates inhibit critical
cancer-related pathways. The resulting product pipeline provides
us with opportunities to diversify risk, develop new therapies
and establish strategic partnerships. This pipeline is the
foundation on which we intend to build a valuable oncology
franchise and become a leading developer of vaccine and small
molecule therapies for cancer. Key elements of our strategy are
to:
Advance Our Product Pipeline. Our primary
focus is advancing our pipeline of product candidates: Stimuvax,
PX-866 and PX-478, which are in clinical trials, and ONT-10,
which is in pre-clinical development, on our own or with
partners. To that end, we are building internal expertise in our
development, regulatory and clinical groups. We also have
relationships with key scientific advisors, research
organizations and contract manufacturers to supplement our
internal efforts.
Establish and Maintain Strategic Collaborations to Advance
our Product Pipeline. Our strategy is to enter
into collaborations or license arrangements at appropriate
stages in our research and development process to accelerate the
commercialization of our product candidates. Collaborations can
supplement our own internal expertise in areas such as clinical
trials and manufacturing, as well as provide us with access to
our collaborators
and/or
licensees marketing, sales and distribution capabilities.
For example, in 2001 we initiated a collaboration with Merck
KGaA to pursue joint global product research, clinical
development and commercialization of Stimuvax. That
collaboration evolved over time and in December 2008, the
collaboration arrangement with Merck KGaA was replaced with a
license agreement, pursuant to which Merck KGaA has sole
responsibility for the clinical development, manufacture and
commercialization of Stimuvax. We understand Merck KGaA plans to
investigate the use of Stimuvax in multiple types of cancer,
which we would not have been able to do alone. All development
costs for Stimuvax have been borne exclusively by Merck KGaA
since March 1, 2006, with the exception of manufacturing
process development costs, which Merck KGaA also assumed
beginning on December 18, 2008. We have no further
performance obligations under our arrangement with Merck KGaA
and will potentially receive cash payments upon the occurrence
of certain events and royalties based on net sales.
Selectively License our Technologies. As a
result of our experience in cancer vaccine development, we have
acquired and developed unique technologies that are available
for license. For example, we have developed a fully synthetic
toll-like receptor 4 agonist called PET-lipid A, which we
believe to be useful as a vaccine adjuvant.
Acquire or In-license Attractive Product Candidates and
Technologies. In addition to our internal
research and development initiatives, we have ongoing efforts to
identify products and technologies to acquire or in-license from
biotechnology and pharmaceutical companies and academic
institutions. Our acquisition of ProlX in October 2006 is an
example of such an acquisition. We plan to continue
supplementing our internal development programs through
strategic acquisition or
in-licensing
transactions.
Product
Candidates Overview
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Product Candidate
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Technology
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Most Advanced
Indication
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Development Stage
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Stimuvax
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Vaccine
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Non-small cell lung cancer
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Phase 3*
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Stimuvax
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Vaccine
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Breast cancer
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Phase 3*
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PX-866
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Small Molecule
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To be determined
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Phase 1**
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PX-478
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Small Molecule
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Advanced solid tumors and lymphoma
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Phase 1
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ONT-10
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Vaccine
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To be determined
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Preclinical
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Suspended in March 2010. |
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Phase 2 trial expected to be initiated in mid-2010. |
-4-
In the table above, under the heading Development
Stage, Phase 3 indicates evaluation of
clinical efficacy and safety within an expanded patient
population, at geographically dispersed clinical trial sites;
Phase 2 indicates clinical safety testing, dosage
testing and initial efficacy testing in a limited patient
population; Phase 1 indicates initial clinical
safety testing in healthy volunteers or a limited patient
population, or trials directed toward understanding the
mechanisms or metabolism of the drug; and
Preclinical indicates the program has not yet
entered human clinical trials. For purposes of the table,
Development Stage indicates the most advanced stage
of development that has been completed or is ongoing.
Vaccine
Products
General
The immunotherapeutic or cancer vaccine approach is
based on the concept that tumors possess distinct antigens, like
the Mucin 1, or MUC1, antigen incorporated in our Stimuvax
vaccine, which should be recognized by the bodys immune
system. Immunotherapy is designed to stimulate an
individuals immune system to recognize cancer cells and
control the growth and spread of cancers in order to increase
the survival of cancer patients.
Stimuvax
Our lead product candidate currently under clinical development
is a vaccine we call Stimuvax. Stimuvax incorporates a 25 amino
acid sequence of the cancer antigen MUC1, in a liposomal
formulation. Stimuvax is designed to induce an immune response
to destroy cancer cells that express MUC1, a protein antigen
widely expressed on many common cancers, such as lung cancer,
breast cancer and colorectal cancer. Stimuvax is thought to work
by stimulating the bodys immune system to identify and
destroy cancer cells expressing MUC1. Until a recent suspension
of clinical trials in March 2010, Stimuvax was being
evaluated in Phase 3 clinical trials for the treatment of NSCLC
and breast cancer.
Lung Cancer. Lung cancer is the leading cause
of cancer death for both men and women. More people die of lung
cancer than of colon, breast, and prostate cancers combined.
According to a report of the World Health Organization, lung
cancer (both non-small cell and small cell type) affects more
than 1.2 million patients a year, with around
1.1 million deaths annually and around 500,000 in the
United States, Europe and Japan. About 85% of all lung cancers
are of the non-small cell type. Further, only about 15% of
people diagnosed with NSCLC survive this disease after five
years. For most patients with NSCLC, current treatments provide
limited success.
According to a May 2007 Espicom report, the NSCLC market was
estimated to be worth $3.7 billion in 2006 with a growth
rate of 14% year per year. There are currently no therapeutic
vaccines approved for the treatment of NSCLC. We believe
therapeutic vaccines have the potential to substantially enlarge
the NSCLC market, both because of their novel mechanism of
action and their expected safety profile. Stimuvax is currently
being developed as maintenance therapy following treatment of
inoperable locoregional Stage III NSCLC with induction
chemotherapy; there are currently no approved therapies with
this indication.
Stage I-IIIa NSCLC patients are generally treated with surgery
and radiation, while Stage IIIb-IV patients are inoperable and
generally treated with chemotherapy, radiation and palliative
care. The market is currently driven by the use of several drug
classes, namely chemotherapeutic agents (taxanes and cytotoxics)
and targeted therapies (Iressa, Nexavar, Sutent, Tarceva and
Avastin). However, there are currently no approved maintenance
therapies for inoperable Stage III NSCLC following
induction chemotherapy, the population for which Stimuvax is
currently being tested, and no approved cancer vaccines for any
indication.
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Clinical Results and Status. In the fourth
quarter of 2002, we completed the enrollment of
171 patients in a Phase 2b multi-center trial of Stimuvax
in patients with advanced (Stages IIIB and IV) NSCLC at 13
sites in Canada and four sites in the United Kingdom. All
patients had received first line standard chemotherapy and had
responded to chemotherapy treatment with either a complete
response or stable disease. Patients were randomly chosen to
receive either Stimuvax along with best supportive care, or best
supportive care alone. Second line chemotherapy
and/or
palliative radiotherapy were allowed where indicated for
treatment of progressive disease. The objectives of the trial
were to measure safety and the possible survival benefit of
Stimuvax in these patients. Secondary endpoints of the trial
were quality of life and immune response.
We reported the preliminary results from our Phase 2b trial of
Stimuvax in December 2004. The median survival of those patients
receiving Stimuvax was 4.4 months longer than those on the
control arm who did not receive the vaccine. The overall median
survival was 17.4 months for patients who received the
vaccine versus 13 months for the patients on the control
arm who did not receive the vaccine. The two-year survival rate
was 43.2% for the vaccine arm versus 28.9% for the control arm.
The two-year survival rate for patients who had locoregional
Stage IIIB non-small cell lung cancer was 60% for the vaccine
arm versus 36.7% for the control arm.
In mid-2005, we began scheduling for the manufacture of new
vaccine supplies incorporating manufacturing changes intended to
secure the future commercial supply of the vaccine. We began a
small clinical safety study of the new formulation of Stimuvax
in the second quarter of 2005. The results of this study
indicated that the new formulation is equivalent to the
formulation used in the Phase 2b trial. In mid-2008 Merck KGaA
reported that the two-year survival rate for patients in this
trial was 64%.
In April 2006, we announced that the final survival analysis of
our Phase 2b trial of Stimuvax in patients with Stages IIIB
and IV non-small cell lung cancer showed that the median
survival in the pre-stratified subset of locoregional Stage IIIB
patients on the vaccine arm was 30.6 months compared to
13.3 months observed for the same stage patients who did
not receive the vaccine, a difference of 17.3 months. These
data were obtained through ongoing, regular
follow-up of
patients enrolled in the trial.
In December 2006, we reached an agreement with the
U.S. Food and Drug Administration, or FDA, on a Special
Protocol Assessment, or SPA, for the Phase 3 trial of Stimuvax
for the treatment of non-small cell lung cancer. The SPA relates
to the design of the Phase 3 trial and outlines definitive
clinical objectives and data analyses considered necessary to
support regulatory approval of Stimuvax.
The FDA has granted Fast Track status to the investigation of
Stimuvax for its proposed use in the treatment of NSCLC. The
FDAs Fast Track programs are designed to facilitate the
development and expedite review of drugs that are intended to
treat serious or life-threatening conditions and that
demonstrate the potential to address unmet medical needs. With
Fast Track designation, there may be more frequent interactions
with the FDA during the development of a product and eventually
a company may be eligible to file a U.S. Biologics License
Application on a rolling basis as data become available.
In January 2007, a global Phase 3 trial assessing the efficacy
and safety of Stimuvax as a potential treatment for patients
with unresectable, or inoperable, Stage III NSCLC was
opened for enrollment. The trial, known as START, is being
conducted by Merck KGaA and is expected to include more than
1,300 patients in approximately 30 countries.
In June 2009, Merck KGaA initiated a global Phase 3 trial called
STRIDE to assess the efficacy and safety of Stimuvax as a
potential therapy for patients with hormone receptor-positive,
locally advanced, recurrent or metastatic breast cancer. The
trial is anticipated to enroll more than 900 patients at
approximately 180 sites in over 30 countries; the primary
endpoint is progression-free survival.
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In December 2009, Merck KGaA initiated a Phase 3 trial of
Stimuvax in Asian patients with advanced NSCLC. The trial, named
INSPIRE, is anticipated to enroll approximately
420 patients in China, Hong Kong, South Korea, Singapore
and Taiwan.
On March 23, 2010, we announced that Merck suspended the
clinical development program for Stimuvax as the result of a
suspected unexpected serious adverse event reaction in a patient
with multiple myeloma participating in an exploratory clinical
trial. This action is a precautionary measure while
investigation of the cause of this adverse event is conducted.
The suspension affects the Phase 3 clinical program for
Stimuvax, including the trials in NSCLC and in breast cancer.
During the suspension, further recruitment of patients into the
trials and ongoing treatment with Stimuvax will be on hold.
The exploratory trial in multiple myeloma is designed to
investigate the mechanism of action of Stimuvax and the effect
of cyclophosphamide on regulatory T cells which may affect the
response to the therapeutic vaccine. The adverse event occurred
in a patient receiving a more intensive cyclophosphamide regimen
than is utilized in the Phase 3 program. The patient developed
an encephalitis, or inflammation of the brain, of unknown cause,
and subsequently died of such condition. For additional
information regarding the risks associated with Mercks
suspension of the clinical development program, see Risk
Factors The suspension of Mercks clinical
development program for Stimuvax could severely harm our
business included elsewhere in this Annual Report on
Form 10-K.
ONT-10
Liposome Vaccine Product Candidate
We have developed a completely synthetic MUC1-based liposomal
glycolipopeptide cancer vaccine, ONT-10, for potential use in
several cancer indications, including breast, thyroid, colon,
stomach, pancreas and prostate, as well as certain types of lung
cancer. The ONT-10 glycolipopeptide combines carbohydrate and
peptide determinates in a multi-epitopic vaccine that evokes
both cellular and humoral immune responses against major
cancer-associated epitopes expressed on adenocarcinomas. ONT-10
is expected to be our first completely synthetic vaccine. ONT-10
includes our proprietary liposomal delivery technology. This
product candidate is currently in pre-clinical development, with
the goal of completing the studies which will enable us to file
an Investigational New Drug application in late 2011.
We currently own all rights to ONT-10. As discussed in the
section captioned, Our Strategic Collaboration
with Merck KGaA, if we intend to license the development
or marketing rights to ONT-10, Merck KGaA will have a right of
first negotiation with respect to such rights.
Small Molecule
Drugs
General
On October 30, 2006, we acquired ProlX Pharmaceuticals
Corporation, or ProlX, of Tucson, Arizona, a privately held
biopharmaceutical company focused on the development of novel
targeted small molecules for the treatment of cancer. We are
currently developing PX-866 and PX-478, which we obtained as a
part of the ProlX acquisition. We continue to evaluate new
opportunities to acquire or in-license additional small molecule
compounds designed to inhibit the activity of specific
cancer-related proteins. We believe this approach gives us
multiple opportunities for successful clinical development while
diversifying risk.
PX-866
PX-866 is an inhibitor of the phosphatidylinositol-3-kinase
(PI-3-kinase)/PTEN/Akt pathway, an important survival signaling
pathway that is activated in many types of human cancer.
PI-3-kinase is over expressed in a number of human cancers,
especially ovarian, colon, head and neck, urinary tract, and
cervical cancers, where it leads to increased proliferation and
inhibition of apoptosis, or programmed cell death. The
PI-3-kinase
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inhibitor PX-866 induces prolonged inhibition of tumor
PI-3-kinase signaling following both oral and intravenous
administration and has been shown to have good in vivo
anti-tumor activity in human ovarian and lung cancer, as well as
intracranial glioblastoma, tumor models. PX-866 may potentiate
the anti-tumor activity of other cancer therapeutics and
radiation.
We are currently completing a Phase 1 trial of PX-866 in
patients with advanced metastatic cancer. The trial is
evaluating both an intermittent and a continuous dosing schedule
of PX-866.
Based on the results we have seen in this open label trial, we
have announced our intention to move PX-866 into one or more
Phase 2 trials by the end of 2010.
PX-478
PX-478 is a small molecule inhibitor of hypoxia inducible
factor-1a (HIF-1a), a component of a transcription factor which
is an important regulator of the tumor response to hypoxia.
Normally, under conditions of hypoxia, levels of HIF-1a
increase, leading to an increase in the activity of the
transcription factor HIF-1. The transcription of a wide variety
of genes is increased by HIF-1, including genes that promote
angiogenesis, or new blood vessel growth; genes for glycolytic
metabolism, which allow cells to use glucose for energy in
conditions of low oxygen; and genes which protect against
apoptosis, or programmed cell death. Thus, the increased HIF-1
levels permit cancer cells to survive and grow. PX-478 blocks
the increase in HIF-1a levels, thus inhibiting the transcription
of these genes. For example, treatment with PX-478 in animals
has been shown to decrease levels of vascular endothelial growth
factor, VEGF, and the glucose transporter Glut-1. PX-478 is
effective when delivered orally in animal models, and has shown
marked tumor regressions and growth inhibition in such model
systems across a range of cancers, including lung, ovarian,
renal, prostate, colon, pancreatic, and breast cancer. PX-478
may potentiate other current cancer treatments including
radiation.
We have completed enrollment in a Phase 1 trial of PX-478 in
patients with advanced metastatic cancer. We are currently
evaluating the results of this trial, and have not yet
determined the next steps for this product candidate.
Market
Opportunity for Targeted Small Molecules
The market for targeted cancer drugs, both small molecules and
biologic agents, is expanding rapidly, with the approval of such
agents as Gleevec, Herceptin, Tarceva, Nexavar, Sutent and
Avastin. For example, Roche Group reported aggregate world-wide
sales for Herceptin, Tarceva and Avastin of $11.8 billion
in 2009. Our small molecule compounds are highly targeted agents
directed at proteins found in many types of cancer cells.
Therefore, we believe that these product candidates could
potentially be useful for many different oncology indications
that address large markets.
Research
Programs/Vaccine Technology
In addition to our pipeline of product candidates, we have
developed a proprietary synthetic lipid A analog, PET lipid-A, a
toll like receptor 4 (TLR4) agonist. Pet lipid-A has been
produced under current Good Manufacturing Practices, or cGMP,
conditions as an adjuvant for vaccine formulations for clinical
trials and is a component of our preclinical vaccine candidate,
ONT-10. We also have a wide range of other effective lipid-A
analogs available for our own use and for evaluation by our
licensing partners. Our synthetic lipid analogs provide strong
innate immune stimulation. These synthetic structures are easy
to formulate and manufacture. We are also open to new
collaborations to discover novel applications of these molecules
as stand-alone therapeutics and as synergistic adjuvants for
antibiotic and antiviral drugs.
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Our Strategic
Collaboration with Merck KGaA
In May 2001, we and Merck KGaA entered into a collaborative
arrangement to pursue joint global product research, clinical
development and commercialization for our then two most advanced
product candidates, Stimuvax vaccine and Theratope vaccine. The
collaboration covered the entire field of oncology for these two
product candidates and was documented in collaboration and
supply agreements, which we refer to as the 2001 agreements. In
addition to granting the license with respect to certain rights
to develop and commercialize the product candidates, the parties
agreed to collaborate in substantially all aspects of clinical
development and commercialization and we agreed to manufacture
the clinical and commercial supply of the product candidates. In
2004, following the failure of Theratope in a Phase 3 clinical
trial, Merck KGaA returned all rights to Theratope to us.
Development of Theratope was subsequently discontinued and we do
not currently plan further clinical development. Following the
discontinuation of Theratope development efforts, we continued
to collaborate with Merck KGaA with respect to the development
of Stimuvax, pursuant to the terms of the 2001 agreements.
In January 2006, we and Merck KGaA entered into a binding letter
of intent, pursuant to which the 2001 agreements were amended
and we and Merck KGaA agreed to negotiate in good faith to amend
and restate the 2001 agreements. Pursuant to the letter of
intent, in addition to the rights granted to Merck KGaA under
the 2001 agreements, we granted to Merck KGaA additional rights
with respect to the clinical development and commercialization
of Stimuvax in the United States and, subject to certain
conditions, the right to act as a secondary manufacturer of
Stimuvax.
In August 2007, we amended and restated the collaboration and
supply agreements with Merck KGaA, which restructured the 2001
agreements and formalized the terms of the 2006 letter of
intent. Pursuant to the 2007 agreements, Merck KGaA assumed
world-wide responsibility for the clinical development and
commercialization of Stimuvax, while we retained responsibility
for manufacturing process development and manufacturing the
clinical and commercial supply of Stimuvax.
In December 2008, we entered into a license agreement which
replaced the 2007 agreements. Under the 2008 license agreement,
(1) we licensed to Merck KGaA the exclusive right to
manufacture Stimuvax (in addition to the previously licensed
rights) and the right to sublicense to other persons all rights
licensed to Merck KGaA by us, (2) we transferred certain
manufacturing know-how, (3) we agreed not to develop any
product, other than ONT-10, that is competitive with Stimuvax
and (4) if we intend to license the development or
commercialization rights to ONT-10, Merck KGaA will have a right
of first negotiation with respect to such rights.
Upon the execution of the 2008 license agreement and asset
purchase agreement described below, all of our future
performance obligations related to the collaboration for the
clinical development and development of the manufacturing
process for Stimuvax were removed and continuing involvement by
us in the development and manufacturing of Stimuvax ceased
(although we continue to be entitled to certain information
rights with respect to clinical testing, development and
manufacture of Stimuvax).
In return for the license of manufacturing rights and transfer
of manufacturing know-how under the 2008 license agreement, we
received an up-front cash payment of approximately
$10.5 million. In addition, under the 2008 license
agreement we may receive additional future cash payments of up
to $90 million (which figure excludes the final
$2.0 million manufacturing process transfer payment
received on December 31, 2009, pursuant to the terms of the
2008 license agreement and $19.8 million received prior to
the execution of the 2008 license agreement pursuant to the
terms of the predecessor agreements), for biologics license
application, or BLA, submission for first and second cancer
indications, for regulatory approval for first and second cancer
indications, and for
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sales milestones. We understand Merck KGaA plans to investigate
the use of Stimuvax in multiple types of cancer. We will receive
a royalty based on certain net sales thresholds, ranging from a
percentage in the mid-teens to the high single digits, depending
on the territory in which the net sales occur. The royalty rate
is higher in North America than in the rest of the world in
return for our relinquishing our prior co-promotion interest in
U.S. and Canadian sales.
In connection with the entry into the 2008 license agreement, we
also entered into an asset purchase agreement, pursuant to which
we sold to Merck KGaA certain assets related to the manufacture
of, and inventory of, Stimuvax, placebo and raw materials, and
Merck KGaA agreed to assume certain liabilities related to the
manufacture of Stimuvax and our obligations related to the lease
of our Edmonton, Alberta, Canada facility. The aggregate
purchase price paid by Merck KGaA pursuant to the terms of the
asset purchase agreement consisted of approximately
$2.5 million, for aggregate consideration payable to us in
connection with the 2008 license agreement and the asset
purchase agreement of approximately $13.0 million.
License
Agreements
We have in-licensed targets and intellectual property from
academic institutions for use in our pipeline programs,
including the following:
Cancer Research Technology Limited. In 1991,
we acquired from Cancer Research Technology Limited, or CRTL, of
London, England an exclusive world-wide license of CRTLs
rights to the Mucin 1 peptide antigen, or MUC1, found on human
breast, ovarian, colon and pancreatic cancer and other types of
solid tumor cells for uses in the treatment and diagnosis of
cancer. MUC1 is incorporated in our Stimuvax vaccine. This
license agreement was amended and restated in November 2000.
Under the terms of the amended and restated agreement, we are
required to pay royalties on net sales of products covered by
issued patents licensed from CRTL. Based on these issued
patents, we would be required to pay a royalty on
U.S. sales of Stimuvax in the mid single digits until
expiry of these patents in the United States, which is currently
anticipated to be 2018. We are also required to pay certain
royalties on sublicense revenue received by us ranging from a
percentage in the mid to high single digits. These sublicense
royalties will be credited against minimum sublicense royalty
payments of $0.75 million made by us in 2001. To date, we
have utilized approximately $0.3 million of these credits.
University of Alberta. In 2001, we entered
into an exclusive license with the University of Alberta for
certain patents relating to natural lipid-A, an adjuvant for
vaccine formulations which we use in Stimuvax. Under the terms
of this agreement, we have made payments of CDN
$0.2 million, and are required to make progress-dependent
milestone payments of up to CDN $0.3 million and to pay
royalties at a fraction of a percent on net sales of products
covered by issued patents licensed from the University of
Alberta. Based on these issued patents, this royalty would be
due on sales of Stimuvax in the U.S. until expiry of the
patents in the United States, which is currently anticipated to
be 2018.
University of Arizona. In connection with our
acquisition of ProlX, we assumed ProlXs existing license
agreements with the University of Arizona and Georgetown
University. Pursuant to these agreements, certain intellectual
property related to PX-478, PX-866 and certain other product
candidates no longer under development by us were exclusively
licensed to ProlX. We will owe certain progress-dependent
milestone payments of up to $1.2 million if all products
reach commercialization and royalties on net sales of products
covered by the patents licensed from the universities in the low
single digits. In addition, we will owe a percentage of certain
sublicense payments received, if any, under the PX-478, PX-866
and PX-316 agreements ranging from a maximum of
sub-teen
double digits until research costs have been recouped to a
maximum of twenty percent in the case of PX-478 and PX-316 and
forty percent in the case of PX-866.
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Patents and
Proprietary Information
We seek appropriate patent protection for our proprietary
technologies by filing patent applications in the United States
and other countries. As of December 31, 2009, we owned
approximately 9 U.S. and corresponding foreign patents and
patent applications and held exclusive or partially exclusive
licenses to over 15 U.S. and corresponding foreign patents
and patent applications.
Our patents and patent applications are directed to our product
candidates as well as to our liposomal formulation technology.
Although we believe our patents and patent applications provide
us with a competitive advantage, the patent positions of
biotechnology and pharmaceutical companies can be uncertain and
involve complex legal and factual questions. We and our
corporate collaborators may not be able to develop patentable
products or processes or obtain patents from pending patent
applications. Even if patent claims are allowed, the claims may
not issue, or in the event of issuance, may not be sufficient to
protect the technology owned by or licensed to us or our
corporate collaborators. For example, claims covering the
composition of PX-478 were only filed in the United States and
Canada, which will prevent us from being able to obtain claims
covering the composition of PX-478 in other foreign
jurisdictions, including Europe.
Our clinical product candidates are protected by composition and
use patents and patent applications. Patent protection afforded
by the patents and patent applications covering our product
candidates will expire over the following time frames:
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Product Candidate
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Expiration of Patent
Protection
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Stimuvax
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2018 (patent) 2028 (patent application)
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PX 478
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2014 (patent) 2025 (patent)
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PX 866
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2022 (patent) 2030 (patent application)
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ONT 10
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2022 (patent applications) 2028 (patent
applications)
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We also rely on trade secrets and proprietary know-how,
especially when we do not believe that patent protection is
appropriate or can be obtained. Our policy is to require each of
our employees, consultants and advisors to execute a
confidentiality and inventions assignment agreement before
beginning their employment, consulting or advisory relationship
with us. These agreements provide that the individual must keep
confidential and not disclose to other parties any confidential
information developed or learned by the individual during the
course of their relationship with us except in limited
circumstances. These agreements also provide that we shall own
all inventions conceived by the individual in the course of
rendering services to us.
Manufacturing
We currently outsource the manufacturing of drug substances and
drug products for all of our products in clinical development.
This arrangement allows us to use contract manufacturers that
already have extensive GMP manufacturing experience. We have a
staff with experience in the management of contract
manufacturing and the development of efficient commercial
manufacturing processes for our products. We currently intend to
outsource the supply of all our commercial products.
As discussed above under the caption, Our
Strategic Relationship with Merck KGaA, in December 2008
we entered into a license agreement with Merck KGaA pursuant to
which we licensed to Merck KGaA the exclusive right to
manufacture Stimuvax. Prior to the entry into the 2008 license
agreement, we were responsible for the manufacture of Stimuvax
and Merck KGaA purchased Stimuvax and placebo from us for use in
clinical trials in accordance with our arrangement with them.
Concurrently with the entry into the 2008 license agreement, we
also entered into an asset purchase agreement pursuant to which
we sold to Merck KGaA our remaining inventory of both Stimuvax
and placebo. The manufacture of
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Stimuvax is outsourced pursuant to agreements with Baxter (for
the manufacture of Stimuvax) and Corixa, a subsidiary of
GlaxoSmithKline (for the manufacture of the adjuvant used in
Stimuvax). These agreements were assigned to Merck KGaA in
accordance with the terms of the asset purchase agreement. The
Corixa agreement includes royalty payments payable to Corixa
which Merck KGaA is responsible for paying. If Stimuvax is not
approved by 2015, Corixa may terminate its obligation to supply
the adjuvant. Although in such a case we would retain the
necessary licenses from Corixa required to have the adjuvant
manufactured, the transfer of the process to a third party would
delay the development and commercialization of Stimuvax. In
addition, prior to the entry into the 2008 license agreement and
asset purchase agreement, we performed process development,
assay development, quality control and
scale-up
activities for Stimuvax at our Edmonton facility; this facility
and those activities were also transferred to Merck KGaA.
For our small molecule programs, we rely on third parties to
manufacture both the active pharmaceutical ingredients, or API,
and drug product. We believe there are several contract
manufacturers capable of manufacturing both the API and drug
product for these compounds; however, establishing a
relationship with an alternative supplier would likely delay our
ability to produce material.
We believe that our existing supplies of drug product and our
contract manufacturing relationships with our existing and other
potential contract manufacturers with whom we are in
discussions, will be sufficient to accommodate our planned
clinical trials. However, we may need to obtain additional
manufacturing arrangements, if available on commercially
reasonable terms, or increase our own manufacturing capability
to meet our future needs, both of which would require
significant capital investment. We may also enter into
collaborations with pharmaceutical or larger biotechnology
companies to enhance the manufacturing capabilities for our
product candidates.
Competition
The pharmaceutical and biotechnology industries are intensely
competitive, and any product candidate developed by us would
compete with existing drugs and therapies. There are many
pharmaceutical companies, biotechnology companies, public and
private universities, government agencies and research
organizations that compete with us in developing various
approaches to cancer therapy. Many of these organizations have
substantially greater financial, technical, manufacturing and
marketing resources than we have. Several of them have developed
or are developing therapies that could be used for treatment of
the same diseases that we are targeting. In addition, many of
these competitors have significantly greater commercial
infrastructures than we have. Our ability to compete
successfully will depend largely on our ability to:
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design and develop products that are superior to other products
in the market and under development;
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attract and retain qualified scientific, product development and
commercial personnel;
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obtain patent
and/or other
proprietary protection for our product candidates and
technologies;
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obtain required regulatory approvals;
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successfully collaborate with pharmaceutical companies in the
design, development and commercialization of new products;
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compete on, among other things, product efficacy and safety,
time to market, price, extent of adverse side effects and the
basis of and convenience of treatment procedures; and
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identify, secure the rights to and develop products and exploit
these products commercially before others are able to develop
competitive products.
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In addition, our ability to compete may be affected if insurers
and other third party payors seek to encourage the use of
generic products, making branded products less attractive to
buyers from a cost perspective.
Stimuvax. Currently, no product has been
approved for maintenance therapy following induction
chemotherapy for Stage III NSCLC. However, it is possible
that existing or new agents will be approved for this
indication. In addition, there are three vaccines in development
for the treatment of NSCLC, including GSKs MAGE A3 vaccine
in Phase 3, NovaRx Corporations Lucanix in Phase 3 and
Transgenes TG-4010 in Phase 2. TG-4010 also targets MUC1,
although using technology different from Stimuvax. To our
knowledge, these vaccines are not currently being developed in
the same indications as Stimuvax. However, subsequent
development of these vaccines, including Stimuvax, may result in
direct competition.
Small Molecule Products. PX-478 is a HIF-1
alpha inhibitor and we believe that at least one other company,
Enzon, has a HIF-1 alpha anti-sense compound that is currently
in Phase 1. PX-866 is an inhibitor of PI-3-kinase and several
other companies have product candidates directed at this target
in clinical trials, including Novartis (Phase 1/2),
Roche/Genentech (Phase 1), Semafore (Phase 1), Sanofi-Aventis
(Phase 2), Pfizer and Calistoga (Phase 1). There are also
several approved targeted therapies for cancer and in
development against which our small molecule products might
compete. For example, Avastin is a direct inhibitor of VEGF,
while PX-478 is expected to lower levels of VEGF.
Government
Regulation
Government authorities in the United States, at the federal,
state and local level, and other countries extensively regulate,
among other things, the research, development, testing,
manufacture, labeling, promotion, advertising, distribution,
marketing and export and import of biopharmaceutical products
such as those we are developing.
U.S.
Government Regulation
In the United States, the information that must be submitted to
the FDA in order to obtain approval to market a new drug varies
depending on whether the drug is a new product whose safety and
effectiveness has not previously been demonstrated in humans or
a drug whose active ingredient(s) and certain other properties
are the same as those of a previously approved drug. A new drug
will follow the New Drug Application, or NDA, route for
approval, a new biologic will follow the Biologics License
Application, or BLA, route for approval, and a drug that claims
to be the same as an already approved drug may be able to follow
the Abbreviated New Drug application, or ANDA, route for
approval.
NDA and BLA
Approval Process
In the United States, the FDA regulates drugs and biologics
under the Federal Food, Drug and Cosmetic Act, and, in the case
of biologics, also under the Public Health Service Act, and
implementing regulations. If we fail to comply with the
applicable U.S. requirements at any time during the product
development process, approval process or after approval, we may
become subject to administrative or judicial sanctions. These
sanctions could include the FDAs refusal to approve
pending applications, license suspension or revocation,
withdrawal of an approval, a clinical hold, warning letters,
product recalls, product seizures, total or partial suspension
of production or distribution, injunctions, fines, civil
penalties or criminal prosecution. Any agency or judicial
enforcement action could have a material adverse effect on us.
The steps required before a drug or biologic may be marketed in
the United States include:
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completion of pre-clinical laboratory tests, animal studies and
formulation studies under the FDAs good laboratory
practices regulations;
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submission to the FDA of an IND for human clinical testing,
which must become effective before human clinical trials may
begin;
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performance of adequate and well-controlled clinical trials to
establish the safety and efficacy of the product for each
indication;
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submission to the FDA of an NDA or BLA;
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satisfactory completion of an FDA inspection of the
manufacturing facility or facilities at which the product is
produced to assess compliance with cGMP; and
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FDA review and approval of the NDA or BLA.
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Preclinical tests include laboratory evaluations of product
chemistry, toxicity and formulation, as well as animal studies.
An IND sponsor must submit the results of the pre-clinical
tests, together with manufacturing information and analytical
data, to the FDA as part of the IND. The IND must become
effective before human clinical trials may begin. An IND will
automatically become effective 30 days after receipt by the
FDA, unless before that time the FDA raises concerns or
questions about issues such as the conduct of the trials as
outlined in the IND. In that case, the IND sponsor and the FDA
must resolve any outstanding FDA concerns or questions before
clinical trials can proceed. Submission of an IND may not result
in the FDA allowing clinical trials to commence.
Clinical trials involve the administration of the
investigational product to human subjects under the supervision
of qualified investigators. Clinical trials are conducted under
protocols detailing, among other things, the objectives of the
study, the parameters to be used in monitoring safety and the
effectiveness criteria to be evaluated. Each clinical protocol
must be submitted to the FDA as part of the IND.
Clinical trials typically are conducted in three sequential
phases, but the phases may overlap or be combined. Each trial
must be reviewed and approved by an independent institutional
review board at each site where the trial will be conducted
before it can begin at that site. Phase 1 clinical trials
usually involve the initial introduction of the investigational
drug into humans to evaluate the products safety, dosage
tolerance, pharmacokinetics and pharmacodynamics and, if
possible, to gain an early indication of its effectiveness.
Phase 2 clinical trials usually involve controlled trials in a
limited patient population to evaluate dosage tolerance and
appropriate dosage, identify possible adverse effects and safety
risks, and evaluate preliminarily the efficacy of the drug for
specific indications. Phase 3 clinical trials usually further
evaluate clinical efficacy and further test for safety in an
expanded patient population. Phase 1, Phase 2 and Phase 3
testing may not be completed successfully within any specified
period, if at all. The FDA or we may suspend or terminate
clinical trials at any time on various grounds, including a
finding that the subjects or patients are being exposed to an
unacceptable health risk.
Assuming successful completion of the required clinical testing,
the results of the pre-clinical studies and of the clinical
studies, together with other detailed information, including
information on the chemistry, manufacture and control criteria
of the product, are submitted to the FDA in the form of an NDA
or BLA requesting approval to market the product for one or more
indications. The FDA reviews an NDA to determine, among other
things, whether a product is safe and effective for its intended
use. The FDA reviews a BLA to determine, among other things,
whether the product is safe, pure and potent and whether the
facility in which it is manufactured, processed, packed or held
meets standards designed to assure the products continued
safety, purity and potency. In connection with the submission of
an NDA or BLA, an applicant may seek a special protocol
assessment, or SPA, which is an agreement between an applicant
and the FDA on the design and size of clinical trials that is
intended to form the basis of an NDA or BLA. In December 2006,
we entered into an SPA agreement with the FDA for the Phase 3
trial of Stimuvax for the treatment of NSCLC. The SPA agreement
relates to the design of the
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Phase 3 trial and outlines definitive clinical objectives and
data analyses considered necessary to support regulatory
approval of Stimuvax.
Before approving an application, the FDA will inspect the
facility or the facilities at which the product is manufactured.
The FDA will not approve the product unless cGMP compliance is
satisfactory. If the FDA determines the application,
manufacturing process or manufacturing facilities are not
acceptable, it will outline the deficiencies in the submission
and often will request additional testing or information.
Notwithstanding the submission of any requested additional
information, the FDA ultimately may decide that the application
does not satisfy the regulatory criteria for approval.
The testing and approval process requires substantial time,
effort and financial resources, and each may take several years
to complete. The FDA may not grant approval on a timely basis,
or at all. We may encounter difficulties or unanticipated costs
in our efforts to secure necessary governmental approvals, which
could delay or preclude us from marketing our product
candidates. The FDA may limit the indications for use or place
other conditions on any approvals that could restrict the
commercial application of our product candidates. After
approval, some types of changes to the approved product, such as
adding new indications, manufacturing changes and additional
labeling claims, are subject to further FDA review and approval.
Fast Track
Designation / Priority Review
We received Fast Track designation from the FDA for Stimuvax for
the treatment of NSCLC. A Fast Track product is defined as a new
drug or biologic intended for the treatment of a serious or
life-threatening condition that demonstrates the potential to
address unmet medical needs for this condition. Under the Fast
Track program, the sponsor of a new drug or biologic may request
that the FDA designate the drug or biologic as a Fast Track
product at any time during the development of the product, prior
to marketing.
The FDA can base approval of a marketing application for a Fast
Track product on an effect on a surrogate endpoint, or on
another endpoint that is reasonably likely to predict clinical
benefit. The FDA may condition approval of an application for a
Fast Track product on a commitment to do post-approval studies
to validate the surrogate endpoint or confirm the effect on the
clinical endpoint and require prior review of all promotional
materials. In addition, the FDA may withdraw approval of a Fast
Track product in an expedited manner on a number of grounds,
including the sponsors failure to conduct any required
post-approval study in a timely manner.
The FDA also has established priority and standard review
classifications for original NDAs and efficacy supplements.
Priority review applies to the time frame for FDA review of
completed marketing applications and is separate from and
independent of the Fast Track and accelerated approval
mechanisms. The classification system, which does not preclude
the FDA from doing work on other projects, provides a way of
prioritizing NDAs upon receipt and throughout the application
review process.
Priority designation applies to new drugs that have the
potential for providing significant improvement compared to
marketed products in the treatment or prevention of a disease.
Hence, even if an NDA is initially classified as a priority
application, this status can change during the FDA review
process, such as in the situation where another product is
approved for the same disease for which previously there was no
available therapy. In addition, priority review does not
guarantee that a product candidate will receive regulatory
approval. To date, none of our product candidates have obtained
priority designation from the FDA.
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Post-Approval
Requirements
After regulatory approval of a product is obtained, we are
required to comply with a number of post-approval requirements.
Holders of an approved NDA or BLA are required to report certain
adverse reactions and production problems to the FDA, to provide
updated safety and efficacy information and to comply with
requirements concerning advertising and promotional labeling for
their products. Also, quality control and manufacturing
procedures must continue to conform to cGMP after approval. The
FDA periodically inspects manufacturing facilities to assess
compliance with cGMP, which imposes certain procedural,
substantive and recordkeeping requirements. Accordingly,
manufacturers must continue to expend time, money and effort in
the area of production and quality control to maintain
compliance with cGMP and other aspects of regulatory compliance.
We use, and in at least the near-term will continue to use,
third party manufacturers to produce our product candidates in
clinical and commercial quantities. Future FDA inspections may
identify compliance issues at our facilities or at the
facilities of our contract manufacturers that may disrupt
production or distribution, or require substantial resources to
correct. In addition, discovery of problems with a product or
the failure to comply with applicable requirements may result in
restrictions on a product, manufacturer or holder of an approved
NDA or BLA, including withdrawal or recall of the product from
the market or other voluntary, FDA-initiated or judicial action
that could delay or prohibit further marketing. Also, new
government requirements may be established that could delay or
prevent regulatory approval of our product candidates under
development.
In addition, as a condition of approval of an NDA or BLA, the
FDA may require
post-marketing
testing and surveillance to monitor the products safety or
efficacy.
Canadian and
Foreign Regulation
In addition to regulations in the United States, we will be
subject to a variety of foreign regulations governing clinical
trials and commercial sales and distribution of our product
candidates. Whether or not we obtain FDA approval for a product
candidate, we must obtain approval of a product candidate by the
comparable regulatory authorities of foreign countries before we
can commence clinical trials or marketing of the product
candidate in those countries. The approval process varies from
country to country, and the time may be longer or shorter than
that required for FDA approval. The requirements governing the
conduct of clinical trials, product licensing, pricing and
reimbursement vary greatly from country to country.
Under the Canadian regulatory system, Health Canada is the
regulatory body that governs the sale of drugs for the purposes
of use in clinical trials. Accordingly, any company that wishes
to conduct a clinical trial in Canada must submit a clinical
trial application to Health Canada. Health Canada reviews the
application and notifies the company within 30 days if the
application is found to be deficient. If the application is
deemed acceptable, Health Canada will issue a letter to the
company within the
30-day
review period which means the company may proceed with its
clinical trial(s).
Under European Union regulatory systems, we may submit marketing
authorizations either under a centralized or decentralized
procedure. The centralized procedure provides for the grant of a
single marketing authorization that is valid for all European
Union member states. The decentralized procedure provides for
mutual recognition of national approval decisions. Under this
procedure, the holder of a national marketing authorization from
one member state may submit an application to the remaining
member states. Within 90 days of receiving the application
and assessment report, each member state must decide whether to
recognize approval.
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Reimbursement
Sales of biopharmaceutical products depend in significant part
on the availability of third party reimbursement, including
Medicare. Each third party payor may have its own policy
regarding what products it will cover, the conditions under
which it will cover such products, and how much it will pay for
such products. It is time consuming and expensive for us to seek
reimbursement from third party payors. Reimbursement may not be
available or sufficient to allow us to sell our products on a
competitive and profitable basis.
In addition, in some foreign countries, the proposed pricing for
a drug must be approved before it may be lawfully marketed. The
requirements governing drug pricing vary widely from country to
country. For example, the European Union provides options for
its member states to restrict the range of medicinal products
for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products
for human use. A member state may approve a specific price for
the medicinal product or it may instead adopt a system of direct
or indirect controls on the profitability of the company placing
the medicinal product on the market.
We expect that there will continue to be a number of federal and
state proposals to implement governmental pricing controls. It
is difficult to determine whether such legislative or regulatory
proposals will be adopted, and whether the adoption of such
proposals, such as the recent adoption of health care reform in
the United States, would have a material adverse effect on our
business, financial condition and profitability.
Research and
Development
We devote a substantial portion of our resources to developing
new product candidates. During the years ended December 31,
2009, 2008 and 2007, we expended approximately
$6.1 million, $8.8 million and $9.6 million,
respectively, on research and development activities.
Employees
As of December 31, 2009, we (including our consolidated
subsidiaries) had 16 employees, 10 of whom are engaged in
development activities, six in finance and administration, and
four of whom hold Ph.D.
and/or M.D.
degrees. A number of our management and professional employees
have had prior experience with other pharmaceutical or medical
products companies.
Our ability to develop marketable products and to establish and
maintain our competitive position in light of technological
developments will depend, in part, on our ability to attract and
retain qualified personnel. Competition for such personnel is
intense. We have also chosen to outsource activities where
skills are in short supply or where it is economically prudent
to do so.
None of our employees are covered by collective bargaining
agreements and we believe that our relations with our employees
are good.
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Factors That
Could Affect Future Results
Set forth
below and elsewhere in this report, and in other documents we
file with the SEC are descriptions of risks and uncertainties
that could cause actual results to differ materially from the
results contemplated by the forward-looking statements contained
in this report. Because of the following factors, as well as
other variables affecting our operating results, past financial
performance should not be considered a reliable indicator of
future performance and investors should not use historical
trends to anticipate results or trends in future periods. The
risks and uncertainties described below are not the only ones
facing us. Other events that we do not currently anticipate or
that we currently deem immaterial also affect our results of
operations and financial condition.
Risks Relating to
our Business
The suspension
of Mercks clinical development program for Stimuvax could
severely harm our business.
In March 2010, we announced that Merck KGaA suspended the
clinical development program for Stimuvax as the result of a
suspected unexpected serious adverse event reaction in a patient
with multiple myeloma participating in an exploratory clinical
trial. The suspension is a precautionary measure while an
investigation of the cause of the adverse event is conducted,
but it affects the Phase 3 clinical trials in NSCLC and in
breast cancer. During the suspension, further recruitment of
patients into the trials and ongoing treatment with Stimuvax
will be on hold. As of the date of this Annual Report on
Form 10-K,
we can offer no assurances that this serious adverse event was
not caused by Stimuvax or that there are not or will not be more
such serious adverse events in the future. The occurrence of
this serious adverse event, or other such serious adverse
events, could result in a prolonged delay, including the need to
enroll more patients or collect more data, or the termination of
the clinical development program for Stimuvax. Further, the FDA
or other regulatory agencies may not allow the resumption of one
or more of the clinical trials for Stimuvax in a timely fashion,
if at all. Even if regulatory agencies permit resumption of the
clinical trials, Merck KGaA may decide not to perform any
further studies. For example, the Phase 3 trial of Stimuvax in
breast cancer was not preceded by earlier stage trials in this
indication. The regulatory authorities may require, or Merck
KGaA may decide, that such earlier stage trials are now required
before any Phase 3 trial may continue. Any of these foregoing
risks could materially and adversely affect our business,
results of operations and the trading price of our common stock.
Our ability to
continue with our planned operations is dependent on our success
at raising additional capital sufficient to meet our obligations
on a timely basis. If we fail to obtain additional financing
when needed, we may be unable to complete the development,
regulatory approval and commercialization of our product
candidates.
We have expended and continue to expend substantial funds in
connection with our product development activities and clinical
trials and regulatory approvals. Funds generated from our
operations will be insufficient to enable us to bring all of our
products currently under development to commercialization.
Accordingly, we need to raise additional funds from the sale of
our securities, partnering arrangements or other financing
transactions in order to finance the commercialization of our
product candidates. The current financing environment in the
United States, particularly for biotechnology companies like us,
remains challenging and we can provide no assurances as to when
such environment will improve. For these reasons, among others,
we cannot be certain that additional financing will be available
when and as needed or, if available, that it will be available
on acceptable terms. If financing is available, it may be on
terms that adversely affect the interests of our existing
stockholders. If adequate financing is not available, we may
need to continue to reduce or eliminate our expenditures for
research and
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development, testing, production and marketing for some of our
product candidates. Our actual capital requirements will depend
on numerous factors, including:
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activities and arrangements related to the commercialization of
our product candidates;
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the progress of our research and development programs;
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the progress of pre-clinical and clinical testing of our product
candidates;
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the time and cost involved in obtaining regulatory approvals for
our product candidates;
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the cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights with
respect to our intellectual property;
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the effect of competing technological and market developments;
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the effect of changes and developments in our existing licensing
and other relationships; and
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the terms of any new collaborative, licensing and other
arrangements that we may establish.
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We may not be able to secure sufficient financing on acceptable
terms. If we cannot, we may need to delay, reduce or eliminate
some or all of our research and development programs, any of
which would be expected to have a material adverse effect on our
business, operating results, and financial condition.
Further, since we failed to timely file this Annual Report on
Form 10-K,
we are ineligible to utilize a registration statement on
Form S-3
to raise capital and will continue to be ineligible to use such
registration statement for at least the next 12 months. Our
inability to take advantage of the benefits afforded by
Form S-3
will limit our financing alternatives and may significantly
increase our cost of capital or the dilutive impact on the
voting and economic interests of our existing stockholders. If
financing is available, the terms of such financing may place
restrictions on us and adversely affect the trading price of our
common stock and the interests of our existing stockholders.
Our near-term
success is highly dependent on the success of our lead product
candidate, Stimuvax, and we cannot be certain that it will be
successfully developed or receive regulatory approval or be
successfully commercialized.
Until a recent suspension of clinical trials in March 2010, our
lead product candidate, Stimuvax, was being evaluated in Phase 3
clinical trials for the treatment of non-small cell lung cancer,
or NSCLC, and breast cancer. In March 2010, we announced that
Merck KGaA had suspended the clinical development program for
Stimuvax as the result of a suspected unexpected serious adverse
event reaction in a patient with multiple myeloma participating
in an exploratory clinical trial. The action is a precautionary
measure while Merck KGaA investigates the cause of this adverse
event; however, we cannot assure you when or whether such trials
will be resumed. Even if, after investigation, it is determined
that the adverse event is unrelated to Stimuvax and clinical
trials resume, Stimuvax will require the successful completion
of these trials and possibly other clinical trials before
submission of a biologic license application, or BLA, or its
foreign equivalent for approval. This process can take many
years and require the expenditure of substantial resources.
Pursuant to our agreement with Merck KGaA, Merck KGaA is
responsible for the development and the regulatory approval
process and any subsequent commercialization of Stimuvax. We
cannot assure you that Merck KGaA will continue to advance the
development and commercialization of Stimuvax as quickly as
would be optimal for our stockholders. In addition, Merck KGaA
has the right to terminate the 2008 license agreement upon
30 days prior written notice if, in its reasonable
judgment, it determines there are issues concerning the safety
or efficacy of Stimuvax that would materially and adversely
affect Stimuvaxs medical, economic or competitive
viability. Clinical trials involving the number of sites and
patients required for Food and Drug Administration, or
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FDA, approval of Stimuvax may not be successfully completed. If
these clinical trials fail to demonstrate that Stimuvax is safe
and effective, it will not receive regulatory approval. Even if
Stimuvax receives regulatory approval, it may never be
successfully commercialized. If Stimuvax does not receive
regulatory approval or is not successfully commercialized, we
may not be able to generate revenue, become profitable or
continue our operations. Any failure of Stimuvax to receive
regulatory approval or be successfully commercialized would have
a material adverse effect on our business, operating results,
and financial condition and could result in a substantial
decline in the price of our common stock.
Stimuvax and
our other vaccine product candidates are based on novel
technologies, which may raise new regulatory issues that could
delay or make FDA approval more difficult.
The process of obtaining required FDA and other regulatory
approvals, including foreign approvals, is expensive, often
takes many years and can vary substantially based upon the type,
complexity and novelty of the products involved. Stimuvax and
our other vaccine therapies are novel; therefore, regulatory
agencies may lack experience with them, which may lengthen the
regulatory review process, increase our development costs and
delay or prevent commercialization of Stimuvax and our other
active vaccine products under development.
To date, the FDA has not approved for commercial sale in the
United States any active vaccine designed to stimulate an immune
response against cancer. Consequently, there is no precedent for
the successful development or commercialization of products
based on our technologies in this area.
We have a
history of net losses, we anticipate additional losses and we
may never become profitable.
Other than the year ended December 31, 2008, we have
incurred net losses in each fiscal year since we commenced our
research activities in 1985. The net income we realized in 2008
was due entirely to our December 2008 transactions with Merck
KGaA and we do not anticipate realizing net income again for the
foreseeable future. In addition, as of December 31, 2009,
our accumulated deficit was approximately $331.6 million.
Our losses have resulted primarily from expenses incurred in
research and development of our product candidates. We do not
know when or if we will complete our product development
efforts, receive regulatory approval for any of our product
candidates, or successfully commercialize any approved products.
As a result, it is difficult to predict the extent of any future
losses or the time required to achieve profitability, if at all.
Any failure of our products to complete successful clinical
trials and obtain regulatory approval and any failure to become
and remain profitable would adversely affect the price of our
common stock and our ability to raise capital and continue
operations.
There is no
assurance that we will be granted regulatory approval for any of
our product candidates.
Until a recent suspension of clinical trials in March 2010,
Merck KGaA has been testing our lead product candidate,
Stimuvax, in Phase 3 clinical trials for the treatment of NSCLC
and breast cancer. In addition, we expect to complete Phase 1
clinical trial for PX-478 in the first half of 2010 and are also
currently planning to initiate one or more Phase 2 trials in
2010 for PX-866. Our other product candidates remain in the
pre-clinical testing stages. The results from pre-clinical
testing and clinical trials that we have completed may not be
predictive of results in future pre-clinical tests and clinical
trials, and there can be no assurance that we will demonstrate
sufficient safety and efficacy to obtain the requisite
regulatory approvals. A number of companies in the biotechnology
and pharmaceutical industries, including our company, have
suffered significant setbacks in advanced clinical
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trials, even after promising results in earlier trials. For
example, the clinical trials for Stimuvax were suspended as a
result of a suspected unexpected serious adverse event reaction
in a patient. Further, Stimuvax has not previously been tested
in any trial for the treatment of breast cancer. Regulatory
approval may not be obtained for any of our product candidates.
If our product candidates are not shown to be safe and effective
in clinical trials, the resulting delays in developing other
product candidates and conducting related pre-clinical testing
and clinical trials, as well as the potential need for
additional financing, would have a material adverse effect on
our business, financial condition and results of operations.
We are
dependent upon Merck KGaA to develop and commercialize our lead
product candidate, Stimuvax.
Under our license agreement with Merck KGaA for our lead product
candidate, Stimuvax, Merck KGaA is entirely responsible for the
development, manufacture and worldwide commercialization of
Stimuvax and the costs associated with such development,
manufacture and commercialization. Any future payments,
including royalties to us, will depend on the extent to which
Merck KGaA advances Stimuvax through development and
commercialization. Merck KGaA has the right to terminate the
2008 license agreement, upon 30 days written notice,
if, in Merck KGaAs reasonable judgment, Merck KGaA
determines that there are issues concerning the safety or
efficacy of Stimuvax which materially adversely affect
Stimuvaxs medical, economic or competitive viability;
provided that if we do not agree with such determination we have
the right to cause the matter to be submitted to binding
arbitration. Our ability to receive any significant revenue from
Stimuvax is dependent on the efforts of Merck KGaA. If Merck
KGaA fails to fulfill its obligations under the 2008 license
agreement, we would need to obtain the capital necessary to fund
the development and commercialization of Stimuvax or enter into
alternative arrangements with a third party. We could also
become involved in disputes with Merck KGaA, which could lead to
delays in or termination of our development and
commercialization of Stimuvax and time-consuming and expensive
litigation or arbitration. If Merck KGaA terminates or breaches
its agreement with us, or otherwise fails to complete its
obligations in a timely manner, the chances of successfully
developing or commercializing Stimuvax would be materially and
adversely affected.
We and Merck
KGaA currently rely on third party manufacturers to supply our
product candidates, which could delay or prevent the clinical
development and commercialization of our product
candidates.
We currently depend on third party manufacturers for the
manufacture of our small molecule product candidates. Any
disruption in production, inability of these third party
manufacturers to produce adequate quantities to meet our needs
or other impediments with respect to development or
manufacturing could adversely affect our ability to continue our
research and development activities or successfully complete
pre-clinical studies and clinical trials, delay submissions of
our regulatory applications or adversely affect our ability to
commercialize our product candidates in a timely manner, or at
all.
Merck KGaA currently depends on a single manufacturer, Baxter
International Inc., or Baxter, for the supply of our lead
product candidate, Stimuvax, and on Corixa Corp. (now a part of
GlaxoSmithKline plc, or GSK) for the manufacture of the adjuvant
in Stimuvax. If Stimuvax is not approved by 2015, Corixa/GSK may
terminate its obligation to supply the adjuvant. In this case,
we would retain the necessary licenses from Corixa/GSK required
to have the adjuvant manufactured, but the transfer of the
process to a third party would delay the development and
commercialization of Stimuvax, which would materially harm our
business.
Our product candidates have not yet been manufactured on a
commercial scale. In order to commercialize a product candidate,
the third party manufacturer may need to increase
-21-
its manufacturing capacity, which may require the manufacturer
to fund capital improvements to support the scale up of
manufacturing and related activities. With respect to our small
molecule product candidates, we may be required to provide all
or a portion of these funds. The third party manufacturer may
not be able to successfully increase its manufacturing capacity
for our product candidate for which we obtain marketing approval
in a timely or economic manner, or at all. If any manufacturer
is unable to provide commercial quantities of a product
candidate, we (or Merck KGaA, in the case of Stimuvax) will need
to successfully transfer manufacturing technology to a new
manufacturer. Engaging a new manufacturer for a particular
product candidate could require us (or Merck KGaA, in the case
of Stimuvax) to conduct comparative studies or utilize other
means to determine equivalence between product candidates
manufactured by a new manufacturer and those previously
manufactured by the existing manufacturer, which could delay or
prevent commercialization of our product candidates. If any of
these manufacturers is unable or unwilling to increase its
manufacturing capacity or if alternative arrangements are not
established on a timely basis or on acceptable terms, the
development and commercialization of our product candidates may
be delayed or there may be a shortage in supply.
Any manufacturer of our products must comply with current Good
Manufacturing Practices, or cGMP, requirements enforced by the
FDA through its facilities inspection program or by foreign
regulatory agencies. These requirements include quality control,
quality assurance and the maintenance of records and
documentation. Manufacturers of our products may be unable to
comply with these cGMP requirements and with other FDA, state
and foreign regulatory requirements. We have little control over
our manufacturers compliance with these regulations and
standards. A failure to comply with these requirements may
result in fines and civil penalties, suspension of production,
suspension or delay in product approval, product seizure or
recall, or withdrawal of product approval. If the safety of any
quantities supplied is compromised due to our
manufacturers failure to adhere to applicable laws or for
other reasons, we may not be able to obtain regulatory approval
for or successfully commercialize our products.
Any failure or
delay in commencing or completing clinical trials for our
product candidates could severely harm our
business.
Each of our product candidates must undergo extensive
pre-clinical studies and clinical trials as a condition to
regulatory approval. Pre-clinical studies and clinical trials
are expensive and take many years to complete. The commencement
and completion of clinical trials for our product candidates may
be delayed by many factors, including:
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safety issues or side effects;
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delays in patient enrollment and variability in the number and
types of patients available for clinical trials;
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poor effectiveness of product candidates during clinical trials;
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governmental or regulatory delays and changes in regulatory
requirements, policy and guidelines;
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our or our collaborators ability to obtain regulatory
approval to commence a clinical trial;
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our or our collaborators ability to manufacture or obtain
from third parties materials sufficient for use in pre-clinical
studies and clinical trials; and
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varying interpretation of data by the FDA and similar foreign
regulatory agencies.
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It is possible that none of our product candidates will complete
clinical trials in any of the markets in which we
and/or our
collaborators intend to sell those product candidates.
Accordingly, we
and/or our
collaborators may not receive the regulatory approvals
-22-
necessary to market our product candidates. Any failure or delay
in commencing or completing clinical trials or obtaining
regulatory approvals for product candidates would prevent or
delay their commercialization and severely harm our business and
financial condition. For example, the suspension of the clinical
development program for Stimuvax in March 2010 may result
in a prolonged delay or in the termination of the clinical
development program for Stimuvax. A prolonged delay or
termination of the clinical development program would have a
material adverse impact on our business and financial condition.
The failure to
enroll patients for clinical trials may cause delays in
developing our product candidates.
We may encounter delays if we, any collaboration partners or
Merck KGaA are unable to enroll enough patients to complete
clinical trials. Patient enrollment depends on many factors,
including, the size of the patient population, the nature of the
protocol, the proximity of patients to clinical sites and the
eligibility criteria for the trial. Moreover, when one product
candidate is evaluated in multiple clinical trials
simultaneously, patient enrollment in ongoing trials can be
adversely affected by negative results from completed trials.
Our product candidates are focused in oncology, which can be a
difficult patient population to recruit. In addition, the
suspension of the Stimuvax trials may require Merck KGaA to
enroll additional patients which could delay such trials.
We rely on third parties to conduct our clinical trials. If
these third parties do not perform as contractually required or
otherwise expected, we may not be able to obtain regulatory
approval for or be able to commercialize our product candidates.
We rely on third parties, such as contract research
organizations, medical institutions, clinical investigators and
contract laboratories, to assist in conducting our clinical
trials. We have, in the ordinary course of business, entered
into agreements with these third parties. Nonetheless, we are
responsible for confirming that each of our clinical trials is
conducted in accordance with its general investigational plan
and protocol. Moreover, the FDA and foreign regulatory agencies
require us to comply with regulations and standards, commonly
referred to as good clinical practices, for conducting,
recording and reporting the results of clinical trials to assure
that data and reported results are credible and accurate and
that the trial participants are adequately protected. Our
reliance on third parties does not relieve us of these
responsibilities and requirements. If these third parties do not
successfully carry out their contractual duties or regulatory
obligations or meet expected deadlines, if the third parties
need to be replaced or if the quality or accuracy of the data
they obtain is compromised due to the failure to adhere to our
clinical protocols or regulatory requirements or for other
reasons, our pre-clinical development activities or clinical
trials may be extended, delayed, suspended or terminated, and we
may not be able to obtain regulatory approval for our product
candidates.
Even if
regulatory approval is received for our product candidates, the
later discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions, including
withdrawal of the product from the market.
Approval of a product candidate may be conditioned upon certain
limitations and restrictions as to the drugs use, or upon
the conduct of further studies, and may be subject to continuous
review. After approval of a product, if any, there will be
significant ongoing regulatory compliance obligations, and if we
or our collaborators fail to comply with these requirements, we,
any of our collaborators or Merck KGaA could be subject to
penalties, including:
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warning letters;
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fines;
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product recalls;
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withdrawal of regulatory approval;
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operating restrictions;
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disgorgement of profits;
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injunctions; and
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criminal prosecution.
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Regulatory agencies may require us, any of our collaborators or
Merck KGaA to delay, restrict or discontinue clinical trials on
various grounds, including a finding that the subjects or
patients are being exposed to an unacceptable health risk. For
example, in March 2010, Merck KGaA suspended the clinical
development program for Stimuvax as the result of a suspected
unexpected serious adverse event reaction in a patient with
multiple myeloma participating in an exploratory clinical trial.
The suspension will remain in effect until an investigation of
the cause of the adverse event is completed to the satisfaction
of the FDA and other regulatory agencies. In addition, we, any
of our collaborators or Merck KGaA may be unable to submit
applications to regulatory agencies within the time frame we
currently expect. Once submitted, applications must be approved
by various regulatory agencies before we, any of our
collaborators or Merck KGaA can commercialize the product
described in the application. All statutes and regulations
governing the conduct of clinical trials are subject to change
in the future, which could affect the cost of such clinical
trials. Any unanticipated costs or delays in such clinical
studies could delay our ability to generate revenues and harm
our financial condition and results of operations.
Failure to
obtain regulatory approval in foreign jurisdictions would
prevent us from marketing our products
internationally.
We intend to have our product candidates marketed outside the
United States. In order to market our products in the European
Union and many other
non-U.S. jurisdictions,
we must obtain separate regulatory approvals and comply with
numerous and varying regulatory requirements. To date, we have
not filed for marketing approval for any of our product
candidates and may not receive the approvals necessary to
commercialize our product candidates in any market. The approval
procedure varies among countries and can involve additional
testing and data review. The time required to obtain foreign
regulatory approval may differ from that required to obtain FDA
approval. The foreign regulatory approval process may include
all of the risks associated with obtaining FDA approval. We may
not obtain foreign regulatory approvals on a timely basis, if at
all. Approval by the FDA does not ensure approval by regulatory
agencies in other countries, and approval by one foreign
regulatory authority does not ensure approval by regulatory
agencies in other foreign countries or by the FDA. However, a
failure or delay in obtaining regulatory approval in one
jurisdiction may have a negative effect on the regulatory
approval process in other jurisdictions, including approval by
the FDA. The failure to obtain regulatory approval in foreign
jurisdictions could harm our business.
Our product
candidates may never achieve market acceptance even if we obtain
regulatory approvals.
Even if we receive regulatory approvals for the commercial sale
of our product candidates, the commercial success of these
product candidates will depend on, among other things, their
acceptance by physicians, patients, third party payors such as
health insurance companies and other members of the medical
community as a therapeutic and cost-effective alternative to
competing products and treatments. If our product candidates
fail to gain market acceptance, we may be unable to earn
sufficient revenue to continue our
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business. Market acceptance of, and demand for, any product that
we may develop and commercialize will depend on many factors,
including:
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our ability to provide acceptable evidence of safety and
efficacy;
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the prevalence and severity of adverse side effects;
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availability, relative cost and relative efficacy of alternative
and competing treatments;
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the effectiveness of our marketing and distribution strategy;
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publicity concerning our products or competing products and
treatments; and
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our ability to obtain sufficient third party insurance coverage
or reimbursement.
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If our product candidates do not become widely accepted by
physicians, patients, third party payors and other members of
the medical community, our business, financial condition and
results of operations would be materially and adversely affected.
If we are
unable to obtain, maintain and enforce our proprietary rights,
we may not be able to compete effectively or operate
profitably.
Our success is dependent in part on obtaining, maintaining and
enforcing our patents and other proprietary rights and will
depend in large part on our ability to:
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obtain patent and other proprietary protection for our
technology, processes and product candidates;
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defend patents once issued;
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preserve trade secrets; and
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operate without infringing the patents and proprietary rights of
third parties.
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As of December 31, 2009, we owned approximately nine
U.S. and corresponding foreign patents and patent
applications and held exclusive or partially exclusive licenses
to over 15 U.S. and corresponding foreign patent and patent
applications.
The degree of future protection for our proprietary rights is
uncertain. For example:
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we might not have been the first to make the inventions covered
by any of our patents, if issued, or our pending patent
applications;
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we might not have been the first to file patent applications for
these inventions;
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others may independently develop similar or alternative
technologies or products
and/or
duplicate any of our technologies
and/or
products;
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it is possible that none of our pending patent applications will
result in issued patents or, if issued, these patents may not be
sufficient to protect our technology or provide us with a basis
for commercially-viable products and may not provide us with any
competitive advantages;
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if our pending applications issue as patents, they may be
challenged by third parties as infringed, invalid or
unenforceable under U.S. or foreign laws;
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if issued, the patents under which we hold rights may not be
valid or enforceable; or
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we may develop additional proprietary technologies that are not
patentable and which may not be adequately protected through
trade secrets, if for example a competitor were to independently
develop duplicative, similar or alternative technologies.
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The patent position of biotechnology and pharmaceutical firms is
highly uncertain and involves many complex legal and technical
issues. There is no clear policy involving the breadth of claims
allowed in patents or the degree of protection afforded under
patents. Although we believe our potential rights under patent
applications provide a competitive advantage, it is possible
that patent applications owned by or licensed to us will not
result in patents being issued, or that, if issued, the patents
will not give us an advantage over
-25-
competitors with similar products or technology, nor can we
assure you that we can obtain, maintain and enforce all
ownership and other proprietary rights necessary to develop and
commercialize our product candidates. For example, claims
covering the composition of PX-478 were only filed in the United
States and Canada, which will prevent us from being able to
obtain claims covering the composition of PX-478 in other
foreign jurisdictions, including Europe.
Even if any or all of our patent applications issue as patents,
others may challenge the validity, inventorship, ownership,
enforceability or scope of our patents or other technology used
in or otherwise necessary for the development and
commercialization of our product candidates. We may not be
successful in defending against any such challenges. Moreover,
the cost of litigation to uphold the validity of patents to
prevent infringement or to otherwise protect our proprietary
rights can be substantial. If the outcome of litigation is
adverse to us, third parties may be able to use the challenged
technologies without payment to us. There is no assurance that
our patents, if issued, will not be infringed or successfully
avoided through design innovation. Intellectual property
lawsuits are expensive and would consume time and other
resources, even if the outcome were successful. In addition,
there is a risk that a court would decide that our patents, if
issued, are not valid and that we do not have the right to stop
the other party from using the inventions. There is also the
risk that, even if the validity of a patent were upheld, a court
would refuse to stop the other party from using the inventions,
including on the ground that its activities do not infringe that
patent. If any of these events were to occur, our business,
financial condition and results of operations would be
materially and adversely effected.
In addition to the intellectual property and other rights
described above, we also rely on unpatented technology, trade
secrets, trademarks and confidential information, particularly
when we do not believe that patent protection is appropriate or
available. However, trade secrets are difficult to protect and
it is possible that others will independently develop
substantially equivalent information and techniques or otherwise
gain access to or disclose our unpatented technology, trade
secrets and confidential information. We require each of our
employees, consultants and advisors to execute a confidentiality
and invention assignment agreement at the commencement of an
employment or consulting relationship with us. However, it is
possible that these agreements will not provide effective
protection of our confidential information or, in the event of
unauthorized use of our intellectual property or the
intellectual property of third parties, provide adequate or
effective remedies or protection.
If our vaccine technology or our product candidates, including
Stimuvax, conflict with the rights of others, we may not be able
to manufacture or market our product candidates, which could
have a material and adverse effect on us and on our
collaboration with Merck KGaA.
Issued patents held by others may limit our ability to develop
commercial products. All issued patents are entitled to a
presumption of validity under the laws of the United States. If
we need licenses to such patents to permit us to develop or
market our product candidates, we may be required to pay
significant fees or royalties, and we cannot be certain that we
would be able to obtain such licenses on commercially reasonable
terms, if at all. Competitors or third parties may obtain
patents that may cover subject matter we use in developing the
technology required to bring our products to market, that we use
in producing our products, or that we use in treating patients
with our products. We know that others have filed patent
applications in various jurisdictions that relate to several
areas in which we are developing products. Some of these patent
applications have already resulted in the issuance of patents
and some are still pending. We may be required to alter our
processes or product candidates, pay licensing fees or cease
activities. Certain parts of our vaccine technology, including
the MUC1 antigen, originated from third party sources.
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These third party sources include academic, government and other
research laboratories, as well as the public domain. If use of
technology incorporated into or used to produce our product
candidates is challenged, or if our processes or product
candidates conflict with patent rights of others, third parties
could bring legal actions against us, in Europe, the United
States and elsewhere, claiming damages and seeking to enjoin
manufacturing and marketing of the affected products.
Additionally, it is not possible to predict with certainty what
patent claims may issue from pending applications. In the United
States, for example, patent prosecution can proceed in secret
prior to issuance of a patent. As a result, third parties may be
able to obtain patents with claims relating to our product
candidates which they could attempt to assert against us.
Further, as we develop our products, third parties may assert
that we infringe the patents currently held or licensed by them
and it is difficult to provide the outcome of any such action
There has been significant litigation in the biotechnology
industry over patents and other proprietary rights and if we
become involved in any litigation, it could consume a
substantial portion of our resources, regardless of the outcome
of the litigation. If these legal actions are successful, in
addition to any potential liability for damages, we could be
required to obtain a license, grant cross-licenses and pay
substantial royalties in order to continue to manufacture or
market the affected products.
There is no assurance that we would prevail in any legal action
or that any license required under a third party patent would be
made available on acceptable terms or at all. Ultimately, we
could be prevented from commercializing a product, or forced to
cease some aspect of our business operations, as a result of
claims of patent infringement or violation of other intellectual
property rights, which could have a material and adverse effect
on our business, financial condition and results of operations.
If any
products we develop become subject to unfavorable pricing
regulations, third party reimbursement practices or healthcare
reform initiatives, our ability to successfully commercialize
our products will be impaired.
Our future revenues, profitability and access to capital will be
affected by the continuing efforts of governmental and private
third party payors to contain or reduce the costs of health care
through various means. We expect a number of federal, state and
foreign proposals to control the cost of drugs through
government regulation. We are unsure of the impact recent health
care reform legislation may have on our business or what actions
federal, state, foreign and private payors may take in response
to the recent reforms. Therefore, it is difficult to provide the
effect of any implemented reform on our business. Our ability to
commercialize our products successfully will depend, in part, on
the extent to which reimbursement for the cost of such products
and related treatments will be available from government health
administration authorities, such as Medicare and Medicaid in the
United States, private health insurers and other organizations.
Significant uncertainty exists as to the reimbursement status of
newly approved health care products, particularly for
indications for which there is no current effective treatment or
for which medical care typically is not sought. Adequate third
party coverage may not be available to enable us to maintain
price levels sufficient to realize an appropriate return on our
investment in product research and development. If adequate
coverage and reimbursement levels are not provided by government
and third party payors for use of our products, our products may
fail to achieve market acceptance and our results of operations
will be harmed.
Governments
often impose strict price controls, which may adversely affect
our future profitability.
We intend to seek approval to market our future products in both
the United States and foreign jurisdictions. If we obtain
approval in one or more foreign jurisdictions, we will be
subject to rules and regulations in those jurisdictions relating
to our product. In some
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foreign countries, particularly in the European Union,
prescription drug pricing is subject to government control. In
these countries, pricing negotiations with governmental
authorities can take considerable time after the receipt of
marketing approval for a drug candidate. To obtain reimbursement
or pricing approval in some countries, we may be required to
conduct a clinical trial that compares the cost-effectiveness of
our future product to other available therapies. In addition, it
is unclear what impact, if any, recent health care reform
legislation will have on the price of drugs; however, prices may
become subject to controls similar to those in other countries.
If reimbursement of our future products is unavailable or
limited in scope or amount, or if pricing is set at
unsatisfactory levels, we may be unable to achieve or sustain
profitability.
We face
potential product liability exposure, and if successful claims
are brought against us, we may incur substantial liability for a
product candidate and may have to limit its
commercialization.
The use of our product candidates in clinical trials and the
sale of any products for which we obtain marketing approval
expose us to the risk of product liability claims. Product
liability claims might be brought against us by consumers,
health care providers, pharmaceutical companies or others
selling our products. If we cannot successfully defend ourselves
against these claims, we will incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may
result in:
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decreased demand for our product candidates;
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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substantial monetary awards to patients or other claimants;
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loss of revenues; and
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the inability to commercialize our product candidates.
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Although we currently have product liability insurance coverage
for our clinical trials for expenses or losses up to a
$10 million aggregate annual limit, our insurance coverage
may not reimburse us or may not be sufficient to reimburse us
for any or all expenses or losses we may suffer. Moreover,
insurance coverage is becoming increasingly expensive and, in
the future, we may not be able to maintain insurance coverage at
a reasonable cost or in sufficient amounts to protect us against
losses due to liability. We intend to expand our insurance
coverage to include the sale of commercial products if we obtain
marketing approval for our product candidates in development,
but we may be unable to obtain commercially reasonable product
liability insurance for any products approved for marketing. On
occasion, large judgments have been awarded in class action
lawsuits based on products that had unanticipated side effects.
A successful product liability claim or series of claims brought
against us could cause our stock price to fall and, if judgments
exceed our insurance coverage, could decrease our cash and
adversely affect our business.
We face
substantial competition, which may result in others discovering,
developing or commercializing products before, or more
successfully, than we do.
Our future success depends on our ability to demonstrate and
maintain a competitive advantage with respect to the design,
development and commercialization of our product candidates. We
expect any product candidate that we commercialize with our
collaborative partners or on our own will compete with existing,
market-leading products and products in development.
Stimuvax. Currently, no product has been
approved for maintenance therapy following induction
chemotherapy for Stage III NSCLC, which is one of the
indications for which
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Stimuvax is being developed. However, it is possible that
existing or new agents will be approved for this indication. In
addition, there are three vaccines in development for the
treatment of NSCLC, including GSKs MAGE A3 vaccine in
Phase 3, NovaRx Corporations Lucanix in Phase 3, and
Transgenes TG-4010 in Phase 2.
Small Molecule Products. PX-866 is an
inhibitor of phosphoinositide
3-kinase
(PI3K). We are aware of several companies that have entered
clinical trials with competing compounds targeting the same
protein. Among those are compounds being developed by Novartis
(Phase 1/2), Roche/Genentech (Phase 1), Semafore (Phase 1),
Sanofi-Aventis (Phase 2), Pfizer and Calistoga (Phase 1). PX-478
is a HIF-1 alpha inhibitor and we believe that at least one
other company, Enzon Pharmaceutical, Inc., has a HIF-1 alpha
anti-sense compound that is currently in Phase 1. We believe
that other HIF-1 alpha inhibitors are in preclinical
development. There are also several approved targeted therapies
for cancer and in development against which our small molecule
products might compete. For example, Avastin is a direct
inhibitor of vascular endothelial growth factor, or VEGF, and
PX-478 is expected to lower levels of VEGF.
Many of our potential competitors have substantially greater
financial, technical and personnel resources than we have. In
addition, many of these competitors have significantly greater
commercial infrastructures than we have. Our ability to compete
successfully will depend largely on our ability to:
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design and develop products that are superior to other products
in the market;
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attract qualified scientific, medical, sales and marketing and
commercial personnel;
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obtain patent
and/or other
proprietary protection for our processes and product candidates;
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obtain required regulatory approvals; and
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successfully collaborate with others in the design, development
and commercialization of new products.
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Established competitors may invest heavily to quickly discover
and develop novel compounds that could make our product
candidates obsolete. In addition, any new product that competes
with a generic market-leading product must demonstrate
compelling advantages in efficacy, convenience, tolerability and
safety in order to overcome severe price competition and to be
commercially successful. If we are not able to compete
effectively against our current and future competitors, our
business will not grow and our financial condition and
operations will suffer.
If we are
unable to enter into agreements with partners to perform sales
and marketing functions, or build these functions ourselves, we
will not be able to commercialize our product
candidates.
We currently do not have any internal sales, marketing or
distribution capabilities. In order to commercialize any of our
product candidates, we must either acquire or internally develop
a sales, marketing and distribution infrastructure or enter into
agreements with partners to perform these services for us. Under
our agreements with Merck KGaA, Merck KGaA is responsible for
developing and commercializing Stimuvax, and any problems with
that relationship could delay the development and
commercialization of Stimuvax. Additionally, we may not be able
to enter into arrangements with respect to our product
candidates not covered by the Merck KGaA agreements on
commercially acceptable terms, if at all. Factors that may
inhibit our efforts to commercialize our product candidates
without entering into arrangements with third parties include:
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our inability to recruit and retain adequate numbers of
effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or persuade
adequate numbers of physicians to prescribe our products;
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the lack of complementary products to be offered by sales
personnel, which may put us at a competitive disadvantage
relative to companies with more extensive product lines; and
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unforeseen costs and expenses associated with creating a sales
and marketing organization.
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If we are not able to partner with a third party and are not
successful in recruiting sales and marketing personnel or in
building a sales and marketing and distribution infrastructure,
we will have difficulty commercializing our product candidates,
which would adversely affect our business and financial
condition.
If we lose key
personnel, or we are unable to attract and retain
highly-qualified personnel on a cost-effective basis, it would
be more difficult for us to manage our existing business
operations and to identify and pursue new growth
opportunities.
Our success depends in large part upon our ability to attract
and retain highly qualified scientific, clinical, manufacturing,
and management personnel. In addition, any difficulties
retaining key personnel or managing this growth could disrupt
our operations. Future growth will require us to continue to
implement and improve our managerial, operational and financial
systems, and continue to retain, recruit and train additional
qualified personnel, which may impose a strain on our
administrative and operational infrastructure. The competition
for qualified personnel in the biopharmaceutical field is
intense. We are highly dependent on our continued ability to
attract, retain and motivate highly-qualified management,
clinical and scientific personnel. Due to our limited resources,
we may not be able to effectively recruit, train and retain
additional qualified personnel. If we are unable to retain key
personnel or manage our growth effectively, we may not be able
to implement our business plan.
Furthermore, we have not entered into non-competition agreements
with all of our key employees. In addition, we do not maintain
key person life insurance on any of our officers,
employees or consultants. The loss of the services of existing
personnel, the failure to recruit additional key scientific,
technical and managerial personnel in a timely manner, and the
loss of our employees to our competitors would harm our research
and development programs and our business.
Our business
is subject to increasingly complex environmental legislation
that has increased both our costs and the risk of
noncompliance.
Our business may involve the use of hazardous material, which
will require us to comply with environmental regulations. We
face increasing complexity in our product development as we
adjust to new and upcoming requirements relating to the
materials composition of many of our product candidates. If we
use biological and hazardous materials in a manner that causes
contamination or injury or violates laws, we may be liable for
damages. Environmental regulations could have a material adverse
effect on the results of our operations and our financial
position. We maintain insurance under our general liability
policy for any liability associated with our hazardous materials
activities, and it is possible in the future that our coverage
would be insufficient if we incurred a material environmental
liability.
We have
identified material weaknesses in our internal control over
financial reporting and have had to restate our historical
financial statements.
In March 2010, we announced that we would restate our financial
statements as of and for the year ended December 31, 2008
contained in our 2008 Annual Report on
Form 10-K
and our condensed financial statements for the interim periods
ended March 31, June 30 and September 30, 2009
contained in our Quarterly Reports on
Form 10-Q
to correct our failure to make all of the appropriate
disclosures required by the Financial Accounting
-30-
Standards Boards Accounting Standards Codification 250,
Accounting Changes and Error Corrections, with respect to
a change in our revenue recognition policy regarding the
accounting for our arrangement with Merck KGaA, and to correct
for certain other errors. For additional information, see
Note 2 Restatement 2008
Change in Accounting Policy Not Previously Reported and Other
Error Corrections of the audited financial statements
appearing in Part II Item 8 Financial Statements and
Supplementary Data included in this Annual Report on
Form 10-K.
In connection with the preparation of this Annual Report, we
identified certain material weaknesses in our internal control
over financial reporting. Specifically, the material weaknesses
related to (i) a lack of adequately designed controls to
ensure appropriate accounting for and disclosure of complex
transactions under U.S. GAAP and (ii) a lack of
adequately designed and implemented risk assessment processes to
identify complex transactions requiring specialized knowledge in
the application of U.S. GAAP.
We may become the subject of private or government actions
regarding the restatement in the future. Litigation may be
time-consuming, expensive and disruptive to normal business
operations, and the outcome of litigation is difficult to
predict. The defense of any litigation will result in
significant expenditures and the diversion of our
managements time and attention from the operation of our
business, which could impede our business.
We cannot be certain that restatements will not occur in the
future. Execution of restatements like the ones described above
could create a significant strain on our internal resources and
cause delays in our filing of quarterly or annual financial
results, increase our costs and cause management distraction.
If we fail to
establish and maintain proper and effective internal controls,
our ability to produce accurate financial statements on a timely
basis could be impaired, which would adversely affect our
consolidated operating results, our ability to operate our
business, and our stock price.
Ensuring that we have adequate internal financial and accounting
controls and procedures in place to produce accurate financial
statements on a timely basis is a costly and time-consuming
effort that needs to be re-evaluated frequently. Failure on our
part to have effective internal financial and accounting
controls would cause our financial reporting to be unreliable,
could have a material adverse effect on our business, operating
results, and financial condition, and could cause the trading
price of our common stock to fall dramatically. We and our
independent registered public accounting firm have identified
certain material weaknesses in our internal controls that are
described in greater detail in Controls and
Procedures Managements Report on Internal
Control over Financial Reporting.
Remedying these material weaknesses and maintaining proper and
effective internal controls will require substantial management
time and attention and may result in our incurring substantial
incremental expenses, including with respect to increasing the
breadth and depth of our finance organization to ensure that we
have personnel with the appropriate qualifications and training
in certain key accounting roles and adherence to certain control
disciplines within the accounting and reporting function.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with U.S. GAAP. Our
management does not expect that our internal control over
financial reporting will prevent or detect all errors and all
fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. Because
of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance
-31-
that misstatements due to error or fraud will not occur or that
all control issues and instances of fraud, if any, within the
company will have been detected.
We intend to retain outside consultants to assist us (i) to
design and implement an adequate risk assessment process to
identify future complex transactions requiring specialized
knowledge to ensure the appropriate accounting for and
disclosure of such transactions, and (ii) to identify and
retain personnel with the appropriate technical expertise to
assist us in accounting for complex transactions in accordance
with U.S. GAAP. We cannot be certain that the actions we
are taking to improve our internal controls over financial
reporting will be sufficient or that we will be able to
implement our planned processes and procedures in a timely
manner. In future periods, if the process required by
Section 404 of the Sarbanes-Oxley Act reveals any other
material weaknesses or significant deficiencies, the correction
of any such material weaknesses or significant deficiencies
could require additional remedial measures which could be costly
and time-consuming. In addition, we may be unable to produce
accurate financial statements on a timely basis. Any of the
foregoing could cause investors to lose confidence in the
reliability of our consolidated financial statements, which
could cause the market price of our common stock to decline and
make it more difficult for us to finance our operations and
growth.
If we are
required to redeem the shares of our Class UA preferred
stock, our financial condition may be adversely
affected.
Our certificate of incorporation provides for the mandatory
redemption of shares of our Class UA preferred stock if we
realize net profits in any year. See
Note 10 Share Capital
Authorized Shares Class UA preferred
stock of the audited financial statements included
elsewhere in this Annual Report on
Form 10-K.
For this purpose, net profits ... means the after tax
profits determined in accordance with generally accepted
accounting principles, where relevant, consistently
applied.
The certificate of incorporation does not specify the
jurisdiction whose generally accepted accounting principles
would apply for the redemption provision. At the time of the
original issuance of the shares, we were a corporation organized
under the federal laws of Canada, and our principal operations
were located in Canada. In addition, the original purchaser and
current holder of the Class UA preferred stock is a
Canadian entity. In connection with our reincorporation in
Delaware, we disclosed that the rights, preferences and
privileges of the shares would remain unchanged except as
required by Delaware law, and the mandatory redemption
provisions were not changed. In addition, the formula for
determining the price at which such shares would be redeemed is
expressed in Canadian dollars. Although, if challenged, we
believe that a Delaware court would determine that net
profits be interpreted in accordance with Canadian GAAP,
we cannot provide assurances that a Delaware court would agree
with such interpretation.
As a result of the December 2008 Merck KGaA transaction, we
recognized on a one-time basis all deferred revenue relating to
Stimuvax, under both U.S. GAAP and Canadian GAAP. Under
U.S. GAAP this resulted in net income. However, under
Canadian GAAP we were required to recognize an impairment on
intangible assets which resulted in a net loss for 2008 and
therefore do not intend to redeem any shares of Class UA
preferred stock in 2009. If in the future we recognize net
income under Canadian GAAP, or any successor to such principles,
or if the holder of Class UA preferred stock were to
challenge, and prevail in a dispute involving, the
interpretation of the mandatory redemption provision, we may be
required to redeem such shares which would have an adverse
effect on our cash position. The maximum aggregate amount that
we would be required to pay to redeem such shares is CAN
$1.25 million.
The holder of the Class UA preferred stock has declined to
sign an acknowledgement that Canadian GAAP applies to the
redemption provision and has indicated that it believes
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U.S. GAAP should apply. As of the date of this report, the
holder has not initiated a proceeding to challenge this
interpretation; however, it may do so. If they do dispute this
interpretation, although we believe a Delaware court would agree
with the interpretation described above, we can provide no
assurances that we would prevail in such a dispute. Further, any
dispute regarding this matter, even if we were ultimately
successful, could require significant resources which may
adversely affect our results of operations.
We may expand
our business through the acquisition of companies or businesses
or
in-licensing
product candidates that could disrupt our business and harm our
financial condition.
We may in the future seek to expand our products and
capabilities by acquiring one or more companies or businesses or
in-licensing one or more product candidates. Acquisitions and
in-licenses involve numerous risks, including:
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substantial cash expenditures;
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potentially dilutive issuance of equity securities;
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incurrence of debt and contingent liabilities, some of which may
be difficult or impossible to identify at the time of
acquisition;
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difficulties in assimilating the operations of the acquired
companies;
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diverting our managements attention away from other
business concerns;
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entering markets in which we have limited or no direct
experience; and
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potential loss of our key employees or key employees of the
acquired companies or businesses.
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In our recent history, we have not expanded our business through
in-licensing and we have completed only one acquisition;
therefore, our experience in making acquisitions and
in-licensing is limited. We cannot assure you that any
acquisition or in-license will result in short-term or long-term
benefits to us. We may incorrectly judge the value or worth of
an acquired company or business or in-licensed product
candidate. In addition, our future success would depend in part
on our ability to manage the rapid growth associated with some
of these acquisitions and in-licenses. We cannot assure you that
we would be able to make the combination of our business with
that of acquired businesses or companies or in-licensed product
candidates work or be successful. Furthermore, the development
or expansion of our business or any acquired business or company
or in-licensed product candidate may require a substantial
capital investment by us. We may not have these necessary funds
or they might not be available to us on acceptable terms or at
all. We may also seek to raise funds by selling shares of our
capital stock, which could dilute our current stockholders
ownership interest, or securities convertible into our capital
stock, which could dilute current stockholders ownership
interest upon conversion.
Risks Related to
the Ownership of Our Common Stock
Our common
stock may become ineligible for listing on The NASDAQ Stock
Market, which would materially adversely affect the liquidity
and price of our common stock.
Our common stock is currently listed for trading in the United
States on The NASDAQ Global Market. As a result of our failure
to timely file this Annual Report on
Form 10-K,
we received a letter from The NASDAQ Stock Market informing us
that we are not in compliance with continued listing
requirements. Although we believe the filing of this Annual
Report will allow us to regain full compliance with SEC
reporting requirements and The NASDAQ Stock Market continued
listing requirements, we have in the past and could in the
future be unable to meet The NASDAQ Global Market continued
listing requirements. For example, on August 20, 2008 we
disclosed that we had received a letter from The NASDAQ Stock
Market indicating that we did not comply with the requirements
for
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continued listing on The NASDAQ Global Market because we did not
meet the maintenance standard in Marketplace
Rule 4450(b)(1)(A) (recodified as Marketplace
Rule 5450(b)) that specifies, among other things, that the
market value of our common stock be at least $50 million or
that or stockholders equity was at least $10 million.
Although we regained compliance with the stockholders
equity standard, we have a history of losses and would expect
that, absent the completion of a financing or other event that
would have a positive impact on our stockholders equity,
our stockholders equity would decline over time. Further,
in the past our stock price has traded near, and at times below,
the $1.00 minimum bid price required for continued listing on
NASDAQ. Although NASDAQ in the past has provided relief from the
$1.00 minimum bid price requirement as a result of the recent
weakness in the stock market, it may not do so in the future. If
we fail to maintain compliance with NASDAQs listing
standards, and our common stock becomes ineligible for listing
on The NASDAQ Stock Market the liquidity and price of our common
stock would be adversely affected.
If our common stock was delisted, the price of our stock and the
ability of our stockholders to trade in our stock would be
adversely affected. In addition, we would be subject to a number
of restrictions regarding the registration of our stock under
U.S. federal securities laws, and we would not be able to
allow our employees to exercise their outstanding options, which
could adversely affect our business and results of operations.
If we are delisted in the future from The NASDAQ Global Market,
there may be other negative implications, including the
potential loss of confidence by actual or potential
collaboration partners, suppliers and employees and the loss of
institutional investor interest in our company.
The trading
price of our common stock may be volatile.
The market prices for and trading volumes of securities of
biotechnology companies, including our securities, have been
historically volatile. The market has from time to time
experienced significant price and volume fluctuations unrelated
to the operating performance of particular companies. The market
price of our common shares may fluctuate significantly due to a
variety of factors, including:
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public concern as to the safety of products developed by us or
others;
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the results of pre-clinical testing and clinical trials by us,
our collaborators, our competitors
and/or
companies that are developing products that are similar to ours
(regardless of whether such products are potentially competitive
with ours);
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technological innovations or new therapeutic products;
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governmental regulations;
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developments in patent or other proprietary rights;
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litigation;
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comments by securities analysts;
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the issuance of additional shares of common stock, or securities
convertible into, or exercisable or exchangeable for, shares of
our common stock in connection with financings, acquisitions or
otherwise;
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the perception that shares of our common stock may be delisted
from The NASDAQ Stock Market;
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the incurrence of debt;
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general market conditions in our industry or in the economy as a
whole; and
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political instability, natural disasters, war
and/or
events of terrorism.
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In addition, the stock market has experienced extreme price and
volume fluctuations that have often been unrelated or
disproportionate to the operating performance of individual
companies. Broad market and industry factors may seriously
affect the market price of companies stock, including
ours, regardless of actual operating performance. In addition,
in the past, following periods of volatility in the overall
market and the market price of a particular companys
securities, securities class action litigation has often been
instituted against these companies. This litigation, if
instituted against us, could result in substantial costs and a
diversion of our managements attention and resources.
Because we do
not expect to pay dividends on our common stock, stockholders
will benefit from an investment in our common stock only if it
appreciates in value.
We have never paid cash dividends on our common shares and have
no present intention to pay any dividends in the future. We are
not profitable and do not expect to earn any material revenues
for at least several years, if at all. As a result, we intend to
use all available cash and liquid assets in the development of
our business. Any future determination about the payment of
dividends will be made at the discretion of our board of
directors and will depend upon our earnings, if any, capital
requirements, operating and financial conditions and on such
other factors as our board of directors deems relevant. As a
result, the success of an investment in our common stock will
depend upon any future appreciation in its value. There is no
guarantee that our common stock will appreciate in value or even
maintain the price at which stockholders have purchased their
shares.
We expect that
we will seek to raise additional capital in the future; however,
such capital may not be available to us on reasonable terms, if
at all, when or as we require additional funding. If we issue
additional shares of our common stock or other securities that
may be convertible into, or exercisable or exchangeable for, our
common stock, our existing stockholders would experience further
dilution.
We expect that we will seek to raise additional capital from
time to time in the future. For example, in connection with our
May and August 2009 financings, we sold an aggregate of
6,159,495 shares of our common stock and warrants to
purchase an additional 3,593,394 shares of our common
stock. Future financings may involve the issuance of debt,
equity
and/or
securities convertible into or exercisable or exchangeable for
our equity securities. These financings may not be available to
us on reasonable terms or at all when and as we require funding.
If we are able to consummate such financings, the trading price
of our common stock could be adversely affected
and/or the
terms of such financings may adversely affect the interests of
our existing stockholders. Any failure to obtain additional
working capital when required would have a material adverse
effect on our business and financial condition and would be
expected to result in a decline in our stock price. Any
issuances of our common stock, preferred stock, or securities
such as warrants or notes that are convertible into, exercisable
or exchangeable for, our capital stock, would have a dilutive
effect on the voting and economic interest of our existing
stockholders.
Further, as a result of the delayed filing of this Annual Report
on
Form 10-K
for the year ended December 31, 2009, we will be ineligible
to register the offer and sale of our securities on
Form S-3
by us or resale by others until one year from the date the last
delinquent filing is made. We may use
Form S-1
to raise capital or complete acquisitions, but doing so could
increase transaction costs and adversely impact our ability to
raise capital or complete acquisitions of other companies in a
timely manner.
We can issue
shares of preferred stock that may adversely affect the rights
of a stockholder of our common stock.
Our certificate of incorporation authorizes us to issue up to
10,000,000 shares of preferred stock with designations,
rights, and preferences determined from
time-to-time
by our board of directors. Accordingly, our board of directors
is empowered, without stockholder
-35-
approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights superior to those of holders
of our common stock. For example, an issuance of shares of
preferred stock could:
|
|
|
adversely affect the voting power of the holders of our common
stock;
|
|
|
make it more difficult for a third party to gain control of us;
|
|
|
discourage bids for our common stock at a premium;
|
|
|
limit or eliminate any payments that the holders of our common
stock could expect to receive upon our liquidation; or
|
|
|
otherwise adversely affect the market price or our common stock.
|
We have in the past, and we may at any time in the future, issue
additional shares of authorized preferred stock.
We expect our
quarterly operating results to fluctuate in future periods,
which may cause our stock price to fluctuate or
decline.
Our quarterly operating results have fluctuated in the past, and
we believe they will continue to do so in the future. Some of
these fluctuations may be more pronounced than they were in the
past as a result of the issuance by us in May 2009 of warrants
to purchase 2,909,244 shares of our common stock. These
warrants are classified as a derivative liability pursuant to
the Derivatives and Hedging Topic of the Accounting Standards
Codification. Accordingly, the fair value of the warrants is
recorded on our consolidated balance sheet as a liability, and
such fair value is adjusted at each financial reporting date
with the adjustment to fair value reflected in our consolidated
statement of operations. The fair value of the warrants is
determined using the Black-Scholes option valuation model.
Fluctuations in the assumptions and factors used in the
Black-Scholes model can result in adjustments to the fair value
of the warrants reflected on our balance sheet and, therefore,
our statement of operations. Due to the classification of such
warrants and other factors, quarterly results of operations are
difficult to forecast, and
period-to-period
comparisons of our operating results may not be predictive of
future performance. In one or more future quarters, our results
of operations may fall below the expectations of securities
analysts and investors. In that event, the market price of our
common stock could decline. In addition, the market price of our
common stock may fluctuate or decline regardless of our
operating performance.
|
|
ITEM 1B.
|
Unresolved
Staff Comments
|
None.
Description of
Property
In May 2008, we entered into a sublease for a facility in
Seattle, Washington totaling approximately 17,000 square
feet. As of December 31, 2009 our operations are
consolidated in the Seattle facility, which includes laboratory
space. We believe that our Seattle facility is in good
condition, adequately maintained and suitable for the conduct of
our business.
|
|
ITEM 3.
|
Legal
Proceedings
|
We are not a party to any material legal proceedings with
respect to us, our subsidiaries, or any of our material
properties.
|
|
ITEM 4.
|
(Removed
and Reserved)
|
-36-
PART II
|
|
ITEM 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information for Common Stock
Our common stock has been quoted on the NASDAQ Global Market
under the symbol ONTY and on the Toronto Stock
Exchange under the symbol ONY since
December 11, 2007. Prior to that time, Biomiras
common shares were quoted on NASDAQ Global Market under the
symbol BIOM and on the Toronto Stock Exchange under
the symbol BRA. On October 14, 2009 we
announced that, the Toronto Stock Exchange had granted our
voluntary application to delist our shares of common stock from
the TSX effective at the close of trading on October 22,
2009.
The following table sets forth for the indicated periods the
high and low sales prices of our common stock as reported by the
NASDAQ Global Market.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
1.89
|
|
|
$
|
0.76
|
|
Second Quarter
|
|
|
4.89
|
|
|
|
1.69
|
|
Third Quarter
|
|
|
7.77
|
|
|
|
2.99
|
|
Fourth Quarter
|
|
|
5.86
|
|
|
|
3.41
|
|
Fiscal year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
4.70
|
|
|
$
|
1.47
|
|
Second Quarter
|
|
|
4.25
|
|
|
|
2.38
|
|
Third Quarter
|
|
|
3.00
|
|
|
|
1.10
|
|
Fourth Quarter
|
|
|
1.21
|
|
|
|
0.62
|
|
Dividends
We have never declared nor paid cash dividends on our common
stock. We currently expect to retain future earnings, if any, to
finance the operation and expansion of our business, and we do
not anticipate paying any cash dividends in the foreseeable
future. Any future determination related to our dividend policy
will be made at the discretion of our Board of Directors.
Stockholders
As of April 22, 2010, there were 25,753,405 shares of
our common stock outstanding held by approximately 706
stockholders of record and 20,100 stockholders in nominee name.
Securities
Authorized for Issuance under Equity Compensation
Plans
For information concerning our equity compensation plans see the
section of this Annual Report on
Form 10-K
captioned Part III
Item 12 Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters.
-37-
Stock Performance
Graph
Notwithstanding
any statement to the contrary in any of our previous or future
filings with the SEC, the following information relating to the
price performance of our common stock shall not be deemed to be
filed with the SEC or to be soliciting
material under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, and it shall not be deemed to be
incorporated by reference into any of our filings under the
Securities Act or the Exchange Act, except to the extent we
specifically incorporate it by reference into such
filing.
The graph below compares the cumulative total stockholder return
of our common stock with that of the NASDAQ Pharmaceutical
Index, NASDAQ Biotechnology Index, RDG MicroCap Biotechnology
Index and a composite S&P/TSX index from December 31,
2003 through December 31, 2009. The comparisons in this
graph below are based on historical data and are not intended to
forecast or be indicative of future performance of our common
stock. The graph assumes that $100 was invested and that all
dividends were reinvested.
COMPARISON OF
5 YEAR CUMULATIVE TOTAL RETURN*
* $100 invested on 12/31/04 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
Unregistered Sale
of Equity Securities
During the three months ended December 31, 2009, we did not
issue or sell any shares of our common stock or other equity
securities pursuant to unregistered transactions in reliance
upon exemption from the registration requirements of the
Securities Act of 1933, as amended.
Issuer Purchases
of Equity Securities
We did not make any purchases of our outstanding common stock
during the three months ended December 31, 2009.
-38-
|
|
ITEM 6.
|
Selected
Financial Data
|
The data set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction
with the consolidated financial statements and notes thereto
included elsewhere in this annual report on
Form 10-K
and also with Managements Discussion and Analysis of
Financial Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2009
|
|
|
2008(1)(6)
|
|
|
2007(2)(3)(6)
|
|
|
2006(4)(5)(6)
|
|
|
2005(6)
|
|
|
|
(Amounts in thousands, except
share and per share data.)
|
|
|
Consolidated Statements
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract research and development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
631
|
|
|
$
|
3,678
|
|
|
$
|
3,171
|
|
Contract manufacturing(3)
|
|
|
|
|
|
|
15,582
|
|
|
|
2,536
|
|
|
|
|
|
|
|
|
|
Licensing revenue from collaborative and license agreements
|
|
|
2,051
|
|
|
|
24,713
|
|
|
|
440
|
|
|
|
98
|
|
|
|
92
|
|
Licensing, royalties and other revenue
|
|
|
27
|
|
|
|
|
|
|
|
103
|
|
|
|
119
|
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,078
|
|
|
|
40,295
|
|
|
|
3,710
|
|
|
|
3,895
|
|
|
|
3,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,081
|
|
|
|
8,783
|
|
|
|
9,584
|
|
|
|
12,200
|
|
|
|
13,567
|
|
Manufacturing(1)(3)
|
|
|
|
|
|
|
13,675
|
|
|
|
2,564
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
6,589
|
|
|
|
10,284
|
|
|
|
12,224
|
|
|
|
7,636
|
|
|
|
4,690
|
|
Marketing and business development
|
|
|
|
|
|
|
|
|
|
|
565
|
|
|
|
587
|
|
|
|
756
|
|
Depreciation
|
|
|
269
|
|
|
|
422
|
|
|
|
246
|
|
|
|
247
|
|
|
|
224
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,920
|
|
|
|
|
|
Investment and other expense (income)
|
|
|
8
|
|
|
|
(298
|
)
|
|
|
371
|
|
|
|
(916
|
)
|
|
|
(656
|
)
|
Interest expense
|
|
|
|
|
|
|
7
|
|
|
|
5
|
|
|
|
10
|
|
|
|
2
|
|
Change in fair value of warrant liability
|
|
|
6,150
|
|
|
|
|
|
|
|
(1,421
|
)
|
|
|
(3,849
|
)
|
|
|
(3,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,097
|
)
|
|
|
(32,873
|
)
|
|
|
(24,138
|
)
|
|
|
(40,835
|
)
|
|
|
(14,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(17,019
|
)
|
|
|
7,422
|
|
|
|
(20,428
|
)
|
|
|
(36,940
|
)
|
|
|
(11,206
|
)
|
Income tax recovery current
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
462
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17,219
|
)
|
|
$
|
7,422
|
|
|
$
|
(20,428
|
)
|
|
$
|
(36,478
|
)
|
|
$
|
(10,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic(2)
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
$
|
(1.05
|
)
|
|
$
|
(2.38
|
)
|
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share diluted(2)
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
$
|
(1.05
|
)
|
|
$
|
(2.38
|
)
|
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding(2)
|
|
|
22,739,138
|
|
|
|
19,490,621
|
|
|
|
19,485,889
|
|
|
|
15,316,697
|
|
|
|
13,109,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding(2)
|
|
|
22,739,138
|
|
|
|
19,570,170
|
|
|
|
19,485,889
|
|
|
|
15,316,697
|
|
|
|
13,109,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short term investments
|
|
$
|
33,218
|
|
|
$
|
19,166
|
|
|
$
|
24,186
|
|
|
$
|
28,395
|
|
|
$
|
18,368
|
|
Total assets
|
|
$
|
38,225
|
|
|
$
|
24,971
|
|
|
$
|
36,218
|
|
|
$
|
33,456
|
|
|
$
|
20,438
|
|
Total long-term liabilities
|
|
$
|
10,732
|
|
|
$
|
578
|
|
|
$
|
12,823
|
|
|
$
|
2,537
|
|
|
$
|
1,507
|
|
Stockholders equity
|
|
$
|
25,418
|
|
|
$
|
20,717
|
|
|
$
|
11,722
|
|
|
$
|
27,227
|
|
|
$
|
16,312
|
|
Common shares outstanding(3)
|
|
|
25,753,405
|
|
|
|
19,492,432
|
|
|
|
19,485,889
|
|
|
|
19,485,889
|
|
|
|
13,136,094
|
|
-39-
|
|
|
(1) |
|
The effect of the asset purchase agreement and 2008 license
agreement with Merck KGaA is reflected for the year ended
December 31, 2008. See Note 12
Collaborative and License Agreements of the audited
financial statements included elsewhere in this Annual Report on
Form 10-K. |
|
(2) |
|
On December 11, 2007, our common stock began trading on the
NASDAQ Global Market under the symbol ONTY and on the Toronto
Stock Exchange under the symbol ONY. On October 14, 2009 we
announced that, the Toronto Stock Exchange had granted our
voluntary application to delist our shares of common stock from
the TSX effective at the close of trading on October 22,
2009. Shareholders of the former Biomira received one share of
our common stock for each six shares of Biomira that they held.
For years presented prior to 2007, the summary consolidated
financial and operating data has been prepared after giving
effect to the 6 for 1 share exchange. |
|
(3) |
|
In August 2007, we signed the amended and restated collaboration
and supply agreements related to Stimuvax with Merck KGaA.
Pursuant to the terms of the collaboration and supply
agreements, from August 2007 to December 2008, with the entry
into the 2008 license agreement, we retained the responsibility
to manufacture Stimuvax and Merck KGaA agreed to purchase
Stimuvax from us. During their term, the collaboration and
supply agreements transformed what were previously
reimbursements of a portion of the Stimuvax manufacturing costs
to a long-term contract manufacturing arrangement. Our financial
reporting during the term of the collaboration and supply
agreements reflects the revenue and associated clinical trial
material costs related to the supply of Stimuvax separately in
the consolidated statements of operations as contract
manufacturing revenue and manufacturing expense, respectively.
Previously, these amounts were reported under contract research
and development revenue and research and development expense,
respectively. |
|
(4) |
|
Effective January 1, 2006, we adopted the fair value
recognition provisions of the Financial Accounting Standards
Board, or FASB, Accounting Standards Codification, or ASC, Topic
718 using the modified prospective transition method, which
requires us to apply the provisions of ASC Topic 718 only to
awards granted, modified, repurchased, or cancelled after the
adoption date. We recognize the value of the portion of the
estimated fair value of the awards that is ultimately expected
to vest as expense over the requisite vesting periods on a
straight-line basis in our consolidated statements of
operations. Prior to January 1, 2006, we accounted for
stock-based employee compensation arrangements in accordance
with Accounting Principles Board Opinion, or APB, 25. Under APB
25, we were required to record as compensation expense the
excess, if any, of the fair market value of the stock on the
date the stock option was granted over the applicable option
exercise price. Prior to 2006, we recorded no compensation
expense under APB 25 as all options granted had exercise prices
equal to the fair market value of the common stock on the date
of grant. |
|
(5) |
|
On October 31, 2006, we announced the acquisition of ProlX
and commencing with our quarter ended December 31, 2006 the
results of ProlX have been included in our consolidated
statements of operations. |
|
(6) |
|
The effects of the correction of the errors reported in
Note 2 Restatement 2008
Change in Accounting Policy Not Previously Reported and Other
Error Corrections of the audited financial statements are
reflected years 2005 through 2008. |
-40-
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The
following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our
consolidated financial statements and related notes included
elsewhere in this report. This discussion contains
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those discussed
below. Factors that could cause or contribute to such
differences include, but are not limited to, those identified
below, and those discussed in the section titled Risk
Factors included elsewhere in this report. All dollar
amounts included in this discussion and analysis of our
financial condition and results of operations represent
U.S. dollars unless otherwise specified. Throughout this
discussion, unless the context specifies or implies otherwise,
the terms Company, Oncothyreon,
Biomira, we, us and
our refer to Oncothyreon Inc., its predecessor,
Biomira Inc., and its subsidiaries.
Overview
We are a clinical-stage biopharmaceutical company focused
primarily on the development of therapeutic products for the
treatment of cancer. Our goal is to develop and commercialize
novel synthetic vaccines and targeted small molecules that have
the potential to improve the lives and outcomes of cancer
patients. Our cancer vaccines are designed to stimulate the
immune system to attack cancer cells, while our small molecule
compounds are designed to inhibit the activity of specific
cancer-related proteins. We are advancing our product candidates
through in-house development efforts and strategic
collaborations.
We believe the quality and breadth of our product candidate
pipeline, strategic collaborations and scientific team will
enable us to become an integrated biopharmaceutical company with
a diversified portfolio of novel, commercialized therapeutics
for major diseases.
Until a recent suspension of clinical trials in March 2010, our
lead product candidate, Stimuvax, was being evaluated in Phase 3
clinical trials for the treatment of non-small cell lung cancer,
or NSCLC, and breast cancer. We have granted an exclusive,
worldwide license to Merck KGaA of Darmstadt, Germany, or Merck
KGaA, for the development, manufacture and commercialization of
Stimuvax. Our pipeline of clinical stage proprietary small
molecule product candidates was acquired by us in October 2006
from ProlX Pharmaceuticals Corporation, or ProlX. We are
currently focusing our internal development efforts on PX-866,
for which we currently plan to initiate one or more Phase 2
trials in 2010, and PX-478, for which we expect to complete a
Phase 1 trial in advanced metastatic cancer in the first half of
2010. As of the date of this report, we have not licensed any
rights to our small molecules to any third party and retain all
development, commercialization and manufacturing rights. We are
also conducting preclinical development of ONT-10, a cancer
vaccine directed against a target similar to Stimuvax, and which
is proprietary to us. In addition to our product candidates, we
have developed novel vaccine technology that we may further
develop ourselves
and/or
license to others.
In May 2001, we entered into a collaborative arrangement with
Merck KGaA to pursue joint global product research, clinical
development and commercialization of two of our product
candidates, Stimuvax and Theratope (the development of which was
discontinued in 2004). The collaboration covered the entire
field of oncology for these two product candidates and was
documented in collaboration and supply agreements, which we
refer to as the 2001 agreements. Pursuant to the 2001
agreements, we licensed to Merck KGaA certain rights related to
the clinical development and commercialization of Stimuvax and
Theratope, agreed to collaborate in substantially all aspects of
the clinical development and commercialization of Stimuvax and
Theratope and agreed to manufacture the clinical and commercial
supply of Stimuvax and Theratope for which Merck KGaA agreed to
reimburse us for our manufacturing costs. In connection with the
execution of the 2001 collaboration and supply agreements, we
received up-front cash payments of $2.8 million and
$4.0 million, respectively. We were also entitled to
receive (1) a $5.0 million payment
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contingent upon enrollment of the first patient in a Phase 3
clinical trial, (2) various additional contingent payments,
up to a maximum of $90.0 million in the aggregate
(excluding payments payable with respect to Theratope, the
development of which was discontinued in 2004), tied to
biologics license application, or BLA, submission for first and
second cancer indications, for regulatory approval for first and
second cancer indications, and for various sales milestones, and
(3) royalties in the low twenties based on net sales
outside of North America.
In January 2006, we and Merck KGaA entered into a binding letter
of intent, pursuant to which the 2001 agreements were amended.
Pursuant to the letter of intent, we granted to Merck KGaA
rights with respect to the clinical development and
commercialization of Stimuvax in the United States and, subject
to certain conditions, the right to act as a secondary
manufacturer of Stimuvax. We continued to be responsible for
manufacturing of the clinical supply of Stimuvax for which Merck
KGaA agreed to pay us our cost of goods. The $5.0 million
contingent payment payable to us under the 2001 agreements was
amended such that we were entitled to receive a
$2.5 million contingent payment upon the execution of
amended and restated collaboration and supply agreements and a
$2.5 million contingent payment upon enrollment of the
first patient in such Phase 3 clinical trial (which was received
in March 2007). We were also entitled to receive
(1) various additional contingent payments tied to the same
events and up to the same maximum amounts as under the 2001
agreements, (2) royalties based on net sales outside of
North America at the same rates as under the 2001 agreements,
and (3) royalties based on net sales inside of North
America ranging from a percentage in the high-twenties to the
mid-twenties, depending on the territory in which the net sales
occur.
In August 2007, we amended and restated our collaboration and
supply agreements with Merck KGaA, which we refer to as the 2007
agreements, which restructured the 2001 agreements and
formalized the terms set forth in the letter of intent. Pursuant
to the 2007 agreements, we granted to Merck KGaA an exclusive
license to develop and commercialize Stimuvax in Canada. As a
result, Merck KGaA obtained an exclusive world-wide license with
respect to the development and commercialization of Stimuvax. We
continued to have responsibility for the development of the
manufacturing process and plans for the
scale-up for
commercial manufacturing. We also continued to be responsible
for manufacture of the clinical and commercial supply of
Stimuvax for which Merck KGaA agreed to pay us our cost of goods
and provisions for certain contingent payments to us related to
manufacturing
scale-up and
process transfer were added.
The entry into the 2007 agreements triggered the
$2.5 million payment to us contemplated by the 2006 letter
of intent, which we received in September 2007. In addition,
under the 2007 agreements, we were entitled to receive
(1) a $5.0 million payment tied to the transfer of
certain assays and methodology related to the manufacture of
Stimuvax, which we received in December 2007, a
$3.0 million payment tied to the transfer of certain
Stimuvax manufacturing technology, which we received in May
2008, and a $2.0 million payment tied to the earlier of
receipt of the first manufacturing run at commercial scale of
Stimuvax and December 31, 2009, which we received in
December 2009, (2) various additional contingent payments
tied to the same events and up to the same maximum amounts as
under the 2001 agreements, (3) royalties based on net sales
outside of North America at the same rates as under the 2001
agreements and (4) royalties based on net sales inside of
North America with percentages in the mid-twenties, depending on
the territory in which the net sales occur. If the manufacturing
process payments due by December 31, 2009 were paid in
full, the royalty rates would be reduced in all territories by
1.25%, relative to the 2001 agreements and the letter of intent.
In December 2008, we entered into a license agreement with Merck
KGaA which replaced the 2007 agreements. Pursuant to the 2008
license agreement, in addition to the rights
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granted pursuant to the 2007 agreements, (1) we licensed to
Merck KGaA the exclusive right to manufacture Stimuvax and the
right to sublicense to other persons all such rights licensed,
(2) we transferred certain manufacturing know-how to Merck
KGaA, (3) we agreed not to develop any product, other than
ONT-10, that is competitive with Stimuvax and (4) we
granted to Merck a right of first negotiation in connection with
any contemplated collaboration or license agreement with respect
to the development or commercialization of ONT-10. Upon the
execution of the 2008 license agreement, all of our future
performance obligations related to the collaboration for the
clinical development and development of the manufacture process
of Stimuvax were removed and our continuing involvement in the
development and manufacturing of Stimuvax ceased. In return for
the license of manufacturing rights and transfer of
manufacturing know-how, we received an up-front cash payment of
approximately $10.5 million. The provisions with respect to
contingent payments under the 2007 agreements remained unchanged
and we may receive cash payments of up to $90 million,
which figure excludes the $2.0 million received in December
2009 and $19.8 million received prior to the execution of
the 2008 license agreement. We are also entitled to receive
royalties based on net sales of Stimuvax ranging from a
percentage in the mid-teens to high single digits, depending on
the territory in which the net sales occur. Royalty rates were
reduced relative to prior agreements by a specified amount which
we believe is consistent with our estimated costs of goods,
manufacturing
scale-up
costs and certain other expenses assumed by Merck KGaA.
In connection with the entry into the 2008 license agreement, we
also entered into an asset purchase agreement, which, together
with the 2008 license agreement we refer to as the 2008
agreements, pursuant to which we sold to Merck KGaA certain
assets related to the manufacture of, and inventory of,
Stimuvax, placebo and raw materials, and Merck KGaA agreed to
assume certain liabilities related to the manufacture of
Stimuvax and our obligations related to the lease of our
Edmonton, Alberta, Canada facility. The plant and equipment in
the Edmonton facility and inventory of raw materials,
work-in-process
and finished goods were sold for a purchase price of
$0.6 million (including the assumption of lease obligation
of $56,000) and $11.2 million, respectively. The purchase
price of the inventory was first offset against advances made in
prior periods resulting in net cash to the company of
$2.0 million. In addition, 43 employees at our former
Edmonton facility were transferred to an affiliate of Merck
KGaA, significantly reducing our operating expenses for the year
ended December 31, 2009 and we expect this will continue to
impact our operating expenses in future periods.
Subsequent to the issuance of our 2008 financial statements, we
determined that we had changed our revenue recognition policy
for up-front license payments and contingent payments received
from license agreements under which a license deliverable
qualifies as a separate unit of accounting from recognition over
the applicable amortization period to recognition upon
commencement of the license term, assuming all other revenue
recognition criteria have been met. When this change occurred,
we failed to provide certain required disclosures and,
accordingly, we have restated our consolidated financial
statements as of and for the year ended December 31, 2008
to reflect the change in accounting policy. The restatement as
it relates to the failure to provide the required disclosures of
the change in accounting policy did not change our consolidated
balance sheet, consolidated statements of operations,
consolidated changes in stockholders equity or
consolidated cash flows as of and for the year ended
December 31, 2008.
In addition to the error described above, we also identified an
error in the period over which up-front cash payments received
in 2001 for Stimuvax were recognized as revenue. In connection
with the failure of Theratope and the return of Theratope rights
and technology to us in June 2004, we failed to reevaluate the
nature of our remaining deliverables under the 2001 Agreements,
which consisted principally of the development
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efforts related to Stimuvax. Such reevaluation by us should have
resulted in the amortization of all remaining deferred revenue
over a period to end in 2018 (the period estimated by us to
represent the estimated useful life of the product and the
estimated period of our ongoing obligations, which corresponded
to the estimated life of the issued patents for Stimuvax). We
also corrected for an error in classification of legal costs
related to patents, which had incorrectly been included as
research and development, net expense. Additionally, we
corrected an error in the classification of long-term deferred
rent from current liabilities to long-term liabilities in 2008.
Finally, we corrected for an error in the disclosure of deferred
tax assets.
For additional information regarding our relationship with Merck
KGaA or our change in accounting policy and other error
corrections, see Note 12 Collaborative
and License Agreements and Note 2
Restatement 2008 Change in Accounting Policy Not
Previously Reported and Other Error Corrections,
respectively, of the audited financial statements included
elsewhere in this Annual Report on
Form 10-K.
We have not developed a therapeutic product to the commercial
stage. As a result, with the exception of the unusual effects of
the transaction with Merck KGaA in December 2008, our revenue
has been limited to date, and we do not expect to recognize any
material revenue for the foreseeable future. In particular, our
ability to generate revenue in future periods will depend
substantially on the progress of ongoing clinical trials for
Stimuvax and our small molecule compounds, our ability to obtain
development and commercialization partners for our small
molecule compounds, Merck KGaAs success in obtaining
regulatory approval for Stimuvax, our success in obtaining
regulatory approval for our small molecule compounds, and Merck
KGaAs and our respective abilities to establish commercial
markets for these drugs.
Any adverse clinical results relating to Stimuvax or any
decision by Merck KGaA to discontinue its efforts to develop and
commercialize the product would have a material and adverse
effect on our future revenues and results of operations and
would be expected to have a material adverse effect on the
trading price of our common stock. Our small molecule compounds
are much earlier in the development stage than Stimuvax, and we
do not expect to realize any revenues associated with the
commercialization of our products candidates for the foreseeable
future.
The continued research and development of our product candidates
will require significant additional expenditures, including
preclinical studies, clinical trials, manufacturing costs and
the expenses of seeking regulatory approval. We rely on third
parties to conduct a portion of our preclinical studies, all of
our clinical trials and all of the manufacturing of cGMP
material. We expect expenditures associated with these
activities to increase in future years as we continue the
development of our small molecule product candidates.
With the exception of the year ended 2008, we have incurred
substantial losses since our inception. As of December 31,
2009, our accumulated deficit totaled $331.6 million. We
incurred a net loss of $17.2 million for 2009 compared to a
net income of $7.4 million for 2008. Our 2008 net
income resulted from the December 2008 transaction with Merck
KGaA when we recognized $13.2 million of deferred revenue,
$11.2 million related to the bulk sale of inventory and
$10.5 million from the sale of Stimuvax manufacturing
rights and know-how. In future periods, we expect to continue to
incur substantial net losses as we expand our research and
development activities with respect to our small molecules
product candidates. To date we have funded our operations
principally through the sale of our equity securities, cash
received through our strategic alliance with Merck KGaA,
government grants, debt financings, and equipment financings. We
completed financings in May 2009, in which we raised
approximately $11.0 million in gross proceeds, and in
August 2009, in which we raised approximately $15.0 million
in gross proceeds, from the sale of our common stock and the
issuance of warrants. Because we have limited revenues and
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substantial research and development and operating expenses, we
expect that we will in the future seek additional working
capital funding from the sale of equity or debt securities or
the licensing of rights to our product candidates.
On December 10, 2007, we became the successor corporation
to Biomira by way of a plan of arrangement effected pursuant to
Canadian law. Pursuant to the plan of arrangement, shareholders
of the former Biomira received one share of our common stock for
each six common shares of Biomira that they held. For years
presented prior to 2007, this Managements Discussion and
Analysis and our audited consolidated financial statements and
related notes for the year ended December 31, 2008 have
been prepared after giving effect to the 6 for 1 reverse share
exchange implemented in connection with the plan of arrangement.
The financial statements and Managements Discussion and
Analysis have been prepared using U.S. dollars as the
reporting currency.
Key Financial
Metrics
Revenue
Historically, our revenue has been derived from our contract
research and development activities, payments under our
collaborative and license agreements, our contract manufacturing
activities and miscellaneous licensing, royalty and other
revenues from ancillary business and operating activities. Our
arrangement with Merck KGaA regarding Stimuvax has contributed
the substantial majority of our revenue.
Contract Research and Development. Revenue
from contract research and development consists of
non-refundable research and development payments received under
the terms of collaborative agreements. For more information on
revenue recognition for contract research and development
revenue, see Critical Accounting Policies and
Significant Judgments and Estimates Revenue
Recognition Contract Research and Development
below.
Contract Manufacturing. Revenue from contract
manufacturing consists of payments received under the terms of
supply agreements for the manufacturing of clinical trial
material. For more information on revenue recognition for
contract manufacturing revenue, see Critical
Accounting Policies and Significant Judgments and
Estimates Revenue Recognition Contract
Manufacturing below.
Licensing Revenue from Collaborative and License
Agreements. Revenue from collaborative and
license agreements consists of (1) up-front cash payments
for initial technology access or licensing fees and
(2) contingent payments triggered by the occurrence of
specified events or other contingencies derived from our
collaborative and license agreements. Royalties from the
commercial sale of products derived from our collaborative and
license agreements are reported as licensing, royalties, and
other revenue. For more information on revenue recognition for
licensing revenue from collaborative and license agreements, see
Critical Accounting Policies and Significant
Judgments and Estimates Revenue
Recognition Licensing Revenue from Collaborative and
License Agreements below.
Licensing, Royalties, and Other
Revenue. Licensing, royalties, and other revenue
consists of revenue from sales of compounds and processes from
patented technologies to third parties and royalties received
pursuant to collaborative agreements and license agreements.
Royalties based on reported sales, if any, of licensed products
are recognized based on the terms of the applicable agreement
when and if reported sales are reliably measurable and
collectibility is reasonably assured. For more information on
revenue recognition for licensing, royalties, and other revenue,
see Critical Accounting Policies and
Significant Judgments and Estimates Revenue
Recognition Licensing, Royalties, and Other
Revenue below.
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Expenses
Research and
Development/Manufacturing. Research and
development/manufacturing expense consists of costs associated
with research activities as well as costs associated with our
product development efforts, conducting preclinical studies, and
clinical trial and manufacturing costs. These expenses include
external research and development expenses incurred pursuant to
agreements with third party manufacturing organizations;
technology access and licensing fees related to the use of
proprietary third party technologies; employee and
consultant-related expenses, including salaries, stock-based
compensation expense, benefits, and related costs; and third
party supplier expenses.
For the periods covered by this report, we have recognized
research and development expenses, including those paid to third
parties, as they have been incurred. We credit funding received
from government research and development grants against research
and development expense. These credits totaled
$0.8 million, $1.3 million and $2.1 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. These grants were Small Business Innovation
Research, or SBIR, grants that we assumed in connection with our
acquisition of ProlX on October 30, 2006.
Our research and development programs are at an early stage and
may not result in any approved products. Product candidates that
appear promising at early stages of development may not reach
the market for a variety of reasons. For example, Merck KGaA
cancelled our collaboration relating to Theratope only after
receiving Phase 3 clinical trial results. We had made
substantial investments over several years in the development of
Theratope and terminated all development activities following
the cancellation of our collaboration. Similarly, any of our
continuing product candidates may be found to be ineffective or
cause harmful side effects during clinical trials, may take
longer to complete clinical trials than we have anticipated, may
fail to receive necessary regulatory approvals, and may prove
impracticable to manufacture in commercial quantities at
reasonable cost and with acceptable quality. As part of our
business strategy, we may enter into collaboration or license
agreements with larger third party pharmaceutical companies to
complete the development and commercialization of our small
molecule or other product candidates, and it is unknown whether
or on what terms we will be able to secure collaboration or
license agreements for any candidate. In addition, it is
difficult to provide the impact of collaboration or license
agreements, if any, on the development of product candidates.
Establishing product development relationships with large
pharmaceutical companies may or may not accelerate the time to
completion or reduce our costs with respect to the development
and commercialization of any product candidate.
As a result of these uncertainties and the other risks inherent
in the drug development process, we cannot determine the
duration and completion costs of current or future clinical
stages of any of our product candidates. Similarly, we cannot
determine when, if, or to what extent we may generate revenue
from the commercialization and sale of any product candidate.
The timeframe for development of any product candidate,
associated development costs, and the probability of regulatory
and commercial success vary widely. As a result, we continually
evaluate our product candidates and make determinations as to
which programs to pursue and how much funding to direct to
specific candidates. These determinations are typically made
based on consideration of numerous factors, including our
evaluation of scientific and clinical trial data and an ongoing
assessment of the product candidates commercial prospects.
We anticipate that we will continue to develop our portfolio of
product candidates, which will increase our research and
development expense in future periods. We do not expect any of
our current candidates to be commercially available before 2012,
if at all.
Prior to August 2007, costs associated with manufacturing
Stimuvax were aggregated with other research and development
expenses and reported as one line item. From August
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2007 to December 2008, when we entered into the 2008 agreements,
we reported costs associated with manufacturing Stimuvax as
manufacturing expense. As a result of the entry into the 2008
agreements with Merck KGaA in December 2008, we will not incur
manufacturing expenses associated with our arrangement with them.
General and Administrative. General and
administrative expense consists principally of salaries,
benefits, stock-based compensation expense, and related costs
for personnel in our executive, finance, accounting, information
technology, and human resource functions. Other general and
administrative expenses include an allocation of our facility
costs and professional fees for legal, consulting, and
accounting services.
Marketing and Business Development. Marketing
and business development expense consists principally of
salaries, benefits, stock-based compensation expense, and
related costs for marketing and business development personnel,
including travel costs, research subscriptions, and other
marketing administrative costs.
Depreciation. Depreciation expense consists of
depreciation of the cost of plant and equipment such as
scientific, office, manufacturing, and computer equipment as
well as depreciation of leasehold improvements.
Investment Income and Other, Net. Investment
income and other net, consists of interest and other income on
our cash and short-term investments and foreign exchange gains
and losses. Our short term investments consist of certificates
of deposits issued by U.S. banks and insured by the Federal
Deposit Insurance Corporation. Historically, our short term
investments and cash balances were denominated in either
U.S. dollars or Canadian dollars, and the relative
weighting between U.S. dollars and Canadian dollars varied
based on market conditions and our operating requirements in the
two countries. However, with the reincorporation to, and
concentration of our operating activities in, the United States,
from October, 2008, our cash balances have been maintained
predominantly in U.S. dollar deposits. We have historically
not engaged in hedging transactions with respect to our
U.S. and Canadian dollars investment assets or cash
balances.
Interest Expense. Interest expense consists of
interest payments under capital lease agreements for computer
equipment.
Change in Fair Value of Warrants. Warrants
issued in connection with our securities offering in May of 2009
are classified as a liability due to their settlement and other
terms and, as such, were recorded at their estimated fair value
on the date of the closing of the transaction. The warrants are
marked to market for each financial reporting period, with
changes in fair value recorded as a gain or loss in our
statement of operations. The fair value of the warrants is
determined using the Black-Scholes option-pricing model, which
requires the use of significant judgment and estimates for the
inputs used in the model. For more information, see
Note 4 Fair Value Measurements and
Note 10 Share Capital of the
audited financial statements included elsewhere in this Annual
Report on
Form 10-K.
Provision for Income Tax. Due to our history
of significant losses, and the limited number of jurisdictions
in which we operate, we do not recognize the benefit of net
operating losses as we have a full valuation allowance since the
realization of these benefits is not reasonably assured. Our
income tax provision relates to alternative minimum tax
liability on the sale of manufacturing rights and know how to
Merck KGaA in December 2008 and the final process transfer
payment received in 2009.
Critical
Accounting Policies and Significant Judgments and
Estimates
We have prepared this managements discussion and analysis
of financial condition and results of operations based on our
audited consolidated financial statements, which have been
included in this report beginning on
page F-1
and which have been prepared in accordance with generally
accepted accounting principles in the United States. These
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accounting principles require us to make significant estimates
and judgments that can affect the reported amounts of assets and
liabilities as of the dates of our consolidated financial
statements as well as the reported amounts of revenue and
expense during the periods presented. We believe that the
estimates and judgments upon which we rely are reasonable based
upon historical experience and information available to us at
the time that we make these estimates and judgments. To the
extent there are material differences between these estimates
and actual results, our consolidated financial statements will
be affected.
The Securities and Exchange Commission considers an accounting
policy to be critical if it is important to a companys
financial condition and results of operations and if it requires
the exercise of significant judgment and the use of estimates on
the part of management in its application. We have discussed the
selection and development of our critical accounting policies
with the audit committee of our board of directors, and our
audit committee has reviewed our related disclosures in this
report. Although we believe that our judgments and estimates are
appropriate, actual results may differ from these estimates.
We believe the following to be our critical accounting policies
because they are important to the portrayal of our financial
condition and results of operations and because they require
critical management judgment and estimates about matters that
are uncertain:
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revenue recognition;
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goodwill impairment;
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stock-based compensation; and
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warrants classified as liabilities.
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Revenue
Recognition
We recognize revenue when there is persuasive evidence that an
arrangement exists, delivery has occurred, the price is fixed
and determinable, and collection is reasonably assured. In
accordance with ASC Topic
605-25, we
evaluate revenue from arrangements with multiple deliverables to
determine whether the deliverables represent one or more units
of accounting. A delivered item is considered a separate unit of
accounting if the following separation criteria are met:
(1) the delivered item has stand-alone value to the
customer; (2) there is objective and reliable evidence of
the fair value of any undelivered items; and (3) if the
arrangement includes a general right of return relative to the
delivered item, the delivery of undelivered items is probable
and substantially in our control. The relevant revenue
recognition accounting policy is then applied to each unit of
accounting.
We have historically generated revenue from the following
activities:
Contract Research and Development. Revenue
from contract research and development consists of
non-refundable research and development payments received under
the terms of collaborative agreements. Payments under these
arrangements compensate us for clinical trial activities
performed with respect to the collaborative development programs
for certain of our product candidates. Revenue is recognized on
a proportionate performance basis as clinical activities are
performed under the terms of collaborative agreements based on
the activities performed to date compared to the total estimated
activities. Pursuant to the 2001 agreements, Merck KGaA
reimbursed us for our manufacturing costs and associated
clinical trial material, which reimbursements were reflected as
contract research and development revenue. In March 2006, we
granted to Merck KGaA, in addition to the rights granted
pursuant to the 2001 agreements, an exclusive license with
respect to the clinical development and commercialization of
Stimuvax in the United States and, subject to certain
conditions, to act as a secondary manufacturer of Stimuvax, as
described in Managements Discussion and Analysis of
Financial Condition and Results of Operation
Overview above, while we continued to be
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responsible for the manufacturing of the clinical and commercial
supply of Stimuvax. This amendment of our arrangement with Merck
KGaA effectively transitioned responsibility for all Stimuvax
clinical development (along with the related costs) to Merck
KGaA. Because of the change in our responsibilities for Stimuvax
clinical trials, beginning in August 2007, we ceased to
recognize, and do not anticipate recognizing in the near-term,
any contract research and development revenue.
Contract Manufacturing. Revenue from contract
manufacturing consists of payments received under the terms of
supply agreements for the manufacturing of clinical trial
material. Such payments compensate us for the cost of
manufacturing clinical trial material and are recognized after
shipment of the clinical trial material and upon the earlier of
the expiration of a specified return period, as returns cannot
be reasonably estimated, and formal acceptance of the clinical
trial material by the customer. Pursuant to the 2006 letter of
intent, we continued to be responsible for the manufacturing of
the clinical and commercial supply of Stimuvax for which Merck
KGaA agreed to pay us our cost of manufacturing (which included
amounts owed to third parties). Merck KGaAs payments to us
for the clinical supply of Stimuvax were reported as contract
manufacturing revenue. Upon entering into the asset purchase
agreement with Merck KGaA in December 2008, we recognized
proceeds from the sale of inventory of raw materials,
work-in-process
and finished goods as contract manufacturing revenue. In
connection with the December 2008 agreements, we granted to
Merck KGaA the exclusive right to manufacture Stimuvax and
transferred our manufacturing know-how and capabilities to Merck
KGaA. As a result, we do not anticipate receiving such contract
manufacturing revenue in the foreseeable future.
Licensing Revenue from Collaborative and License
Agreements. Revenue from collaborative and
license agreements consists of (1) up-front cash payments
for initial technology access or licensing fees and
(2) contingent payments triggered by the occurrence of
specified events or other contingencies derived from our
collaborative and license agreements. Royalties from the
commercial sale of products derived from our collaborative and
license agreements are reported as licensing, royalties, and
other revenue.
If we have continuing obligations under a collaborative
agreement and the deliverables within the collaboration cannot
be separated into their own respective units of accounting, we
utilize a multiple attribution model for revenue recognition as
the revenue related to each deliverable within the arrangement
should be recognized upon the culmination of the separate
earnings processes and in such a manner that the accounting
matches the economic substance of the deliverables included in
the unit of accounting. As such, (1) up-front cash payments
are recorded as deferred revenue and recognized as revenue
ratably over the period of performance under the applicable
agreement and (2) contingent payments are recorded as
deferred revenue when all the criteria for revenue recognition
are met and recognized as revenue ratably over the estimated
period of our ongoing obligations. Royalties based on reported
sales of licensed products, if any, are recognized based on the
terms of the applicable agreement when and if reported sales are
reliably measurable and collectibility is reasonably assured.
With respect to our arrangement with Merck KGaA, we determined
that the estimated useful life of the products and estimated
period of our ongoing obligations corresponded to the estimated
life of the issued patents for such product. Under the 2001
agreements, payments that we received were recorded as deferred
revenue and recognized ratably over the period from the date of
execution of the 2001 agreements to 2011. We chose that
amortization period because, at the time, we believed it
reflected an anticipated period of market
exclusivity based upon our expectation of the life of the
patent protection, after which the market entry of competitive
products would likely occur. Payments received pursuant to the
letter of intent and the 2007 agreements were recorded as
deferred revenue and recognized ratably over the remaining
estimated product life of Stimuvax,
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which was until 2018. Upon entering into the 2008 agreements,
all of our future performance obligations related to our
collaboration with Merck KGaA regarding Stimuvax were removed
and our continuing involvement in the development and
manufacturing of Stimuvax ceased; therefore, we recognized the
balance of all previously recorded deferred revenue relating to
our arrangement with Merck KGaA. Similarly, our receipt of the
final manufacturing process transfer milestone payment in
December 2009 was recognized currently since we had no
continuing obligations pursuant to such arrangement. Any future
contingent payments we receive pursuant to the 2008 license
agreement will be immediately recognized in revenue.
Licensing, Royalties, and Other
Revenue. Licensing, royalties, and other revenue
consists of revenue from sales of compounds and processes from
patented technologies to third parties and royalties received
pursuant to collaborative agreements and license agreements.
Royalties based on reported sales, if any, of licensed products
are recognized based on the terms of the applicable agreement
when and if reported sales are reliably measurable and
collectibility is reasonably assured. As of the date of this
report, we have not received any royalties pursuant to our
arrangement with Merck KGaA.
If we have no continuing obligations under a license agreement,
or a license deliverable qualifies as a separate unit of
accounting included in a collaborative arrangement, license
payments that are allocated to the license deliverable are
recognized as revenue upon commencement of the license term and
contingent payments are recognized as revenue upon the
occurrence of the events or contingencies provided for in such
agreement, assuming collectibility is reasonably assured.
Goodwill
Impairment
Goodwill is carried at cost and is not amortized, but is
reviewed annually for impairment in the fourth quarter, or more
frequently when events or changes in circumstances indicate that
the asset may be impaired. If the carrying value of goodwill
exceeds its fair value, an impairment loss would be recognized.
As of December 31, 2009, we had one reporting unit and
there was a substantial excess of fair value compared to the
carrying value. There were no impairment charges recorded for
any of the periods presented.
Stock-Based
Compensation
We maintain a share option plan under which an aggregate of
1,836,657 shares of common stock underlay outstanding
options as of December 31, 2009 and an aggregate of
738,684 shares of common stock were available for future
issuance. We maintain a restricted share unit plan under which
an aggregate of 186,266 shares of common stock underlay
restricted stock units, or RSUs, as of December 31, 2009
and an aggregate of 260,771 shares of common stock were
available for future issuance. We have generally granted options
to our employees and directors under the share option plan, and
we have granted RSUs to non-employee directors under the
restricted share unit plan. Prior to the April 1, 2008
amendment to our share option plan, we granted options with an
exercise price denominated in Canadian dollars equal to the
closing price of our shares on the Toronto Stock Exchange on the
trading day immediately prior to the date of grant. In cases
where our board of directors approved grants during a closed
trading window under our insider trading policy, however, our
board of directors fixed the exercise price based on the closing
price of our common shares on Toronto Stock Exchange trading on
the first trading day after our trading window opened. On and
after April 1, 2008, we granted options with an exercise
price denominated in U.S. dollars equal to the close price
of our shares on The NASDAQ Global Market on the date of grant.
On and after June 12, 2009 the fair value of the restricted
share units has been determined to be the equivalent of our
common shares closing trading price on the date immediately
prior to the grant as quoted on The NASDAQ Global Market. Prior
to that date, the fair value was computed using the closing
-50-
trading price on the date immediately prior to the grant as
quoted in Canadian dollars on the Toronto Stock Exchange.
We apply the provisions of Financial Accounting Standards Board,
or FASB, Accounting Standards Codification, or ASC, Topic 718,
Share-Based Payments. We use the Black-Scholes option
pricing model for determining the estimated fair value for
stock-based awards, which requires the use of highly subjective
and complex assumptions to determine the fair value of
stock-based awards, including the options expected term
and the price volatility of the underlying stock. We recognize
the value of the portion of the awards that is ultimately
expected to vest as expense over the requisite vesting periods
on a straight-line basis for the entire award in our
consolidated statements of operations. Forfeitures are estimated
at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. The
following table summarizes the weighted average assumptions used
in determining the fair value of stock options granted:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
Risk-free interest rate
|
|
|
2.47
|
%
|
|
|
3.09
|
%
|
Expected life of options in years
|
|
|
6.0
|
|
|
|
6.0
|
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
92.46
|
%
|
|
|
114.19
|
%
|
Weighted average grant-date fair value per share option $CDN
|
|
$
|
|
|
|
$
|
3.84
|
|
Weighted average grant-date fair value per share option $USD
|
|
$
|
3.03
|
|
|
$
|
2.93
|
|
Historically we have based the risk-free interest rate for the
expected term of the option on the yield available on Government
of Canada benchmark bonds with an equivalent expected term.
Subsequent to April 1, 2008, we use the yield at the time
of grant of a U.S. Treasury security. The expected life of
options in years represents the period of time stock-based
awards are expected to be outstanding, giving consideration to
the contractual terms of the awards, vesting schedules and
historical employee behavior. The expected volatility is based
on the historical volatility of our common stock for a period
equal to the stock options expected life.
Warrant
liability
In May 2009, we issued warrants to purchase
2,909,244 shares of our common stock in connection with a
registered direct offering of our common stock and warrants.
These warrants are classified as a liability pursuant to the ASC
Topic 815, Derivatives and Hedging, because of their
settlement terms. Accordingly, the fair value of the warrants is
recorded on our consolidated balance sheet as a liability, and
such fair value is adjusted at each financial reporting period
with the adjustment to fair value reflected in our consolidated
statement of operations. The fair value of the warrants is
determined using the Black-Scholes option pricing model.
Fluctuations in the assumptions and factors used in the
Black-Scholes model can result in adjustments to the fair value
of the warrants reflected on our balance sheet and, therefore,
our statement of operations. If, for example, the market value
of our common stock or its volatility at December 31, 2009
were 10% higher or lower than used in the valuation of such
warrants, our valuation of the warrants would have increased or
decreased by up to $1.3 million or $0.5 million,
respectively, with such difference reflected in our statement of
operations.
-51-
Results of
Operations for the years ended December 31, 2009, 2008 and
2007
The following table sets forth selected consolidated statements
of operations data for each of the periods indicated.
Overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions, except per share
amounts)
|
|
|
Revenue
|
|
$
|
2.1
|
|
|
$
|
40.3
|
|
|
$
|
3.7
|
|
Expenses
|
|
|
(12.9
|
)
|
|
|
(32.9
|
)
|
|
|
(25.6
|
)
|
Change in fair value of warrant liability
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
1.4
|
|
Provision for income tax
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17.2
|
)
|
|
$
|
7.4
|
|
|
$
|
(20.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
$
|
(1.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share diluted
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
$
|
(1.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We incurred a net loss of $17.2 million in 2009 compared to
net income of $7.4 million in 2008. This decline was
primarily driven by the entry into the 2008 agreements with
Merck KGaA which resulted in the recognition of
$13.2 million in deferred revenue under the arrangement
superseded by the 2008 license agreement and $10.5 million
from the license of the manufacturing rights to Stimuvax and
know-how. Pursuant to the 2008 asset purchase agreement, we
recognized $11.4 million in revenue along with the
associated cost of sales of $9.7 million. The
$20 million decrease in expenses from 2008 is related to
the transfer of our Canadian facility to Merck KGaA in December
2008. In 2009, our operating loss reflected an expense related
to the change in fair value of warrants issued in connection
with our May 2009 financing and a provision for income tax of
$0.2 million relating to alternative minimum tax
liabilities arising from our December 2008 transaction with
Merck KGaA and the final process transfer payment received in
2009. Based on our development plans for our small molecule
candidates we will continue to incur operating losses for the
foreseeable future.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Contract research and development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.7
|
|
Contract manufacturing
|
|
|
|
|
|
|
15.6
|
|
|
|
2.5
|
|
Licensing revenues from collaborative agreements
|
|
|
2.1
|
|
|
|
24.7
|
|
|
|
0.4
|
|
Licensing, royalties and other revenue
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.1
|
|
|
$
|
40.3
|
|
|
$
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As we licensed our manufacturing rights and transferred our
manufacturing know-how and capabilities to Merck KGaA in
December 2008, we did not receive any revenues from contract
manufacturing during 2009. License revenue declined by
$22.6 million in 2009 to $2.1 million from
$24.7 million in 2008. The 2008 license revenue primarily
reflects the acceleration of the recognition of
$13.2 million in revenue that had been previously deferred
and $10.5 million from the sale of our manufacturing rights
and know-how to Merck KGaA. License revenue in 2009 included a
$2.0 million contractually obligated payment from Merck
KGaA.
-52-
Of the $13.1 million increase in contract manufacturing
revenue in 2008 compared to 2007, $11.4 million was related
to the bulk sale of our entire raw material, work in process and
finished goods inventory to Merck KGaA in December 2008 and the
remaining $1.7 million was related to increased sales to
Merck KGaA during the rest of 2008 relative to 2007. As a result
of such bulk sale and the related license of our Stimuvax
manufacturing rights to Merck KGaA, we do not expect any
contract manufacturing revenue for the foreseeable future.
The $24.3 million increase in our licensing revenue from
collaborative and license agreements for 2008 relative to 2007
was directly attributable to the previously discussed December
2008 transactions with Merck KGaA and the recognition of
previously deferred revenue related to our arrangement with them.
Research and
Development/Manufacturing Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Research and development
|
|
$
|
6.1
|
|
|
$
|
8.8
|
|
|
$
|
9.6
|
|
Manufacturing
|
|
|
|
|
|
|
13.7
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.1
|
|
|
$
|
22.5
|
|
|
$
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $2.7 million, or 30.7%, decrease in research and
development expenses for 2009 compared to 2008 was due
principally to the transfer of our Edmonton facility to Merck
KGaA in December 2008 which included the transfer of
43 employees resulting in declines in salaries and
compensation related expenses of $3.0 million, facility
overhead costs of $0.9 million, lab supplies and
consumables costs of $0.3 million and consultant
compensation of $0.1 million. These decreases were
partially offset by increases in clinical research and contract
manufacturing of $0.7 million and $0.4 million
respectively, relating to our small molecule candidates PX-478
and PX-866. In addition, grant revenue declined in 2009 by
$0.5 million to $0.8 million from $1.3 million in
2008. As we continue with our clinical research on PX-478 and
PX-866 and rebuild our research and development organization we
expect that our research and development costs will increase in
2010.
Since we licensed our manufacturing rights and transferred our
manufacturing know-how and capabilities to Merck KGaA in
December 2008, we did not incur any costs related to this
activity in 2009.
The $10.3 million, or 84.4%, increase in our combined
research and development/manufacturing expense for 2008 compared
to 2007 primarily relates to the bulk sale of our inventory in
2008 to Merck KGaA resulting in the significant increase in cost
of sales. The $0.8 million decrease in research and
development in 2008 compared to 2007 is attributable primarily
to higher allocation of research and development costs to
product inventory as manufacturing activity increased during
2008.
General and
Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In millions)
|
|
General and administrative
|
|
$
|
6.6
|
|
|
$
|
10.3
|
|
|
$
|
12.2
|
|
The $3.7 million decline in 2009 relative to 2008 was
principally due to the consolidation of our operations in the
United States. This decline is attributable to decreases in
staffing costs of $1.9 million, which included
$0.5 million in severance costs, professional fees of
$1.5 million, and facility and overhead of
$0.3 million. We expect general and administration expenses
to increase during 2010 due to increased legal and consulting
costs related to regulatory compliance.
-53-
The $1.9 million decrease in our general and administrative
expense for 2008 compared to 2007 was primarily attributable to
higher legal, accounting and tax advisory professional fees
incurred in 2007 associated with our reincorporation in United
States.
Marketing and
Business Development.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In millions)
|
|
Marketing and business development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.6
|
|
We eliminated our marketing and business development
organization as we increased our focus on the ongoing
development of our newly acquired portfolio of small molecule
compounds in connection with our acquisition of ProlX in late
2006.
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In millions)
|
|
Depreciation
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
$
|
0.2
|
|
The $0.1 million decrease in our depreciation expense for
2009 compared to 2008 was due to the transfer of our Edmonton
facility to Merck KGaA in December 2008. The $0.2 million
increase in our depreciation expense for 2008 compared to 2007
reflects the increased investment in equipment and leasehold
improvements made in 2007 and 2008.
Investment and
Other (Income) Loss, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In millions)
|
|
Investment and other (income) loss, net
|
|
$
|
|
|
|
$
|
(0.3
|
)
|
|
$
|
0.4
|
|
Our investment and other, net was not material in 2009 as
$0.1 million in investment income was offset by foreign
exchange losses from our receivable of withheld taxes from the
German tax authorities during the year.
Our investment and other loss (income) increased from a loss of
$0.4 million for the year ended December 31, 2007 to
income of $0.3 million for the year ended December 31,
2008. The change was primarily attributable to $0.1 million
gain from the sale of our manufacturing related plant and
equipment to Merck KGaA and the decline in foreign exchange loss
in 2008 of $0.1 million on our Canadian dollar holdings
arising from increases in the value of the U.S. dollar
relative to the Canadian dollar during the year compared to 2007
when we suffered foreign exchange losses of $1.4 million on
U.S. dollar holdings arising from increases in the value of
the Canadian dollar relative to the U.S. dollar in the
previous year. Of the $0.7 million decrease,
$1.5 million was attributable to increased foreign exchange
losses, which was partially offset by a decrease in income from
cash and investments of $0.8 million resulting from lower
invested cash balances in 2008.
Change in Fair
Value of Warrant Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In millions)
|
|
Change in fair value of warrant liability
|
|
$
|
6.2
|
|
|
$
|
|
|
|
$
|
(1.4
|
)
|
The $6.2 million increase in change in fair value of
warrant liability for the year ended 2009, relative to the
comparable prior year period, was attributable to the warrants
issued in connection with the May 2009 financing.
-54-
The exercise price of warrants issued in the January and
December 2006 financing is denominated in U.S. dollars.
Share purchase warrants with an exercise price denominated in a
currency other than our functional currency, which, prior to
January 1, 2008, was the Canadian dollar, are recorded as
liabilities.
We recognized a $1.4 million recovery for 2007 as a result
of a reduction in the fair value of warrant liability. Since we
changed our functional currency to the U.S. dollar from the
Canadian dollar effective January 1, 2008 and as the
outstanding warrants issued in the January and December 2006
financings were denominated in U.S. dollars there is no
further requirement under accounting standards to adjust such
warrants to fair value through earnings at each reporting date.
Income tax
provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In millions)
|
|
Current
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
|
|
The provision for income tax in 2009 relates to alternative
minimum tax incurred in connection with the December 2008
transactions with Merck KGaA and the final process manufacturing
transfer payment received during 2009. While we have incurred
substantial losses in historical periods (except for 2008), no
tax benefit has been recognized as there are no assurances that
we will realize such benefits.
Liquidity and
Capital Resources
Cash, Cash
Equivalents, Short Term Investments and Working
Capital
As of December 31, 2009, our principal sources of liquidity
consisted of cash and cash equivalents of $19.0 million and
short term investments of $14.2 million. Our cash
equivalents are invested in money market funds insured by the
U.S. government and certificates of deposits insured by the
Federal Deposit Insurance Corporation. Our primary source of
cash has historically been proceeds from the issuance of equity
securities, debt and equipment financings, and payments to us
under licensing and collaboration agreements. These proceeds
have been used to fund our losses from operations.
Our cash and cash equivalents were $19.0 million as of
December 31, 2009 compared to $19.2 million as of
December 31, 2008, a decrease of $0.2 million, or
1.0%. The net decrease reflects net cash used in operations of
$9.1 million, net purchases of short term investments of
$14.2 million and purchases of capital assets of
$1.4 million offset by $24.6 million in net cash
received from two financings in 2009.
Our cash and cash equivalents were $19.2 million as of
December 31, 2008 compared to $12.0 million as of
December 31, 2007, an increase of $7.1 million, or
59.3%. The net increase principally reflects net cash used in
operations of $4.9 million offset by redemptions of
short-term investments of $11.1 million.
As of December 31, 2009, our working capital was
$31.5 million compared to $17.8 million as of
December 31, 2008, an increase of $13.7 million, or
77.0%. The increase in working capital was primarily
attributable to a $14.1 million increase in cash and cash
equivalents and short term investments, $1.6 million
decrease in accounts payable and accrued expenses, offset by a
decline in accounts receivable of $1.8 million and a
decline of prepaid expenses of $0.2 million. We believe
that our currently available cash and cash equivalents is
sufficient to finance our operations for at least the next
12 months. Nevertheless, we expect that we will require
additional capital from time to time in the future in order to
continue the development of products in our pipeline and to
expand our product portfolio. We would expect to seek additional
financing from the sale and issuance of equity or debt
securities, and we cannot predict that financing will be
available when and as we need
-55-
financing or that, if available, the financing terms will be
commercially reasonable. If we are unable to raise additional
financing when and if we require, it would have a material
adverse effect on our business and results of operations. To the
extent we issue additional equity securities, our existing
stockholders could experience substantial dilution.
Our certificate of incorporation provides for the mandatory
redemption of shares of our Class UA preferred stock if we
realize net profits in any year. See
Note 10 Share Capital of the
audited financial statements included elsewhere in this Annual
Report on
Form 10-K.
For this purpose, net profits ... means the after tax
profits determined in accordance with generally accepted
accounting principles, where relevant, consistently
applied.
The certificate of incorporation does not specify the
jurisdiction whose generally accepted accounting principles
would apply for the redemption provision. At the time of the
original issuance of the shares, we were a corporation organized
under the federal laws of Canada, and our principal operations
were located in Canada. In addition, the original purchaser and
current holder of the Class UA preferred stock is a
Canadian entity. In connection with our reincorporation in
Delaware, we disclosed that the rights, preferences and
privileges of the shares would remain unchanged except as
required by Delaware law, and the mandatory redemption
provisions were not changed. In addition, the formula for
determining the price at which such shares would be redeemed is
expressed in Canadian dollars. Therefore, if challenged, we
believe that a Delaware court would determine that net
profits be interpreted in accordance with Canadian GAAP.
As a result of the December 2008 Merck KGaA transaction, we
recognized on a one-time basis all deferred revenue relating to
Stimuvax, under both U.S. GAAP and Canadian GAAP. Under
U.S. GAAP this resulted in net income. However, under
Canadian GAAP we were required to recognize an impairment on
intangible assets which resulted in a net loss for 2008 and
therefore did not redeem any shares of Class UA preferred
stock in 2009. If in the future we recognize net income under
Canadian GAAP, or any successor to such principles, or if the
holder of Class UA preferred stock were to challenge, and
prevail in a dispute involving, the interpretation of the
mandatory redemption provision, we may be required to redeem
such shares which would have an adverse effect on our cash
position. The maximum aggregate amount that we would be required
to pay to redeem such shares is CAN $1.25 million.
Cash Flows
from Operating Activities
Cash used in operating activities is primarily driven by our net
income (loss). However, operating cash flows differ from net
income (loss) as a result of non-cash charges or differences in
the timing of cash flows and earnings recognition. Significant
components of cash used in operating activities are as follows:
Changes in accounts payable and accrued liabilities used
$0.9 million in cash in 2009 mainly due to pay downs in
accrued manufacturing and professional fees. Accrued
compensation and related costs used $0.8 million in cash
during the year as we made payments on severance agreements
related to the restructuring in 2008.
Accounts receivable decreased by $1.8 million in 2009
principally on the collection of withheld taxes on the 2008
payment from Merck KGaA for the sale of our manufacturing rights
and know-how.
Cash Flows
from Investing Activities
We had cash outflows of $15.6 million from investing
activities during the year ended December 31, 2009, a
decrease of $27.4 million from the $11.8 million
inflow in the year ended December 31, 2008. This change was
attributable principally to net purchases of
-56-
short term investments of $14.2 million in 2009 compared to
net redemptions in the prior year of $11.9 million and
higher expenditures on capital assets of $0.7 million.
We had cash inflows of $11.8 million from investing
activities during the year ended December 31, 2008, an
increase of $7.6 million from the $4.2 million in cash
inflows from investing activities for the year ended
December 31, 2007. The increase in cash from investing
activities 2008 compared to 2007 was attributable principally to
lower net redemptions of short-term investments required to fund
operations of $6.8 million and proceeds from the sale of
plant and equipment of $0.5 million.
Cash Flows
from Financing Activities
We generated $24.6 million of net cash during the year
ended December 31, 2009 from financings completed in May
and August 2009, each of which involved the issuance of common
stock and warrants.
We used $0.1 million of cash in financing activities during
the year ended December 31, 2008, a decrease of
$0.1 million over the $0.2 million cash used in the
year ended December 31, 2007. The decrease in cash used in
financing activities between fiscal 2007 and fiscal 2008 was
attributable principally to the reduction of cost related to
shares and warrant issuance.
Contractual
Obligations and Contingencies
In our continuing operations, we have entered into long-term
contractual arrangements from time to time for our facilities,
debt financing, the provision of goods and services, and
acquisition of technology access rights, among others. The
following table presents contractual obligations arising from
these arrangements as of December 31, 2009:
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Payments Due by Period
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Less than
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1 3
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4 5
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After 5
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Total
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1 Year
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Years
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Years
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Years
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(In thousands)
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Operating leases premises
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$
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5,055
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$
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436
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$
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1,014
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$
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1,173
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$
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2,432
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In May 2008, we entered into a sublease for an office and
laboratory facility in Seattle, Washington totaling
approximately 17,000 square feet where we have consolidated
our operations. The sublease expires on December 17, 2011.
The sublease provides for a base monthly rent of $33,324
increasing to $36,354. In May 2008 we also entered into a lease
directly with the landlord of such facility which will have a
six year term beginning at the expiration of the sublease. The
lease provides for a base monthly rent of $47,715 increasing to
$52,259 in 2018.
In connection with the acquisition of ProlX, we assumed two loan
agreements under which approximately $199,000 was outstanding at
December 31, 2009. One loan, in the aggregate principal
amount of $99,000, requires repayment only if we commercialize
the product or service developed with the funds provided under
the loan agreement. For purposes of the loan, a product or
service is considered to be commercialized as of the date we
receive FDA approval for the product or service or upon receipt
of consideration for the sale or license of the product or
service. In addition, if we commercialize a product or service
developed with funding under the agreement, we are required to
conduct manufacturing in the Commonwealth of Pennsylvania or pay
a transfer fee equal to three times the amount of the funding. A
second loan, in the aggregate principal amount of $100,000, is
repayable on similar terms as the first loan in the event we
commercialize a product or service developed with funding
received under the second loan. In addition, under the second
loan, if we commercialize a product or service funded under the
second loan, we are obligated to maintain a significant
presence, defined as 80% of our personnel, in the
Commonwealth of Pennsylvania for a period of ten years or to pay
a transfer fee equal to three times the amount of the funding.
Finally, if we become obligated
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to repay the loans as a result of having commercialized a
product or service, the aggregate amount repayable will equal
the original funded amount multiplied by a factor ranging from
one to two, subject to certain conditions. As the timing of any
future payments under these loans cannot be determined with any
certainty, the related repayments have not been reflected in the
above schedule of contractual obligations.
In connection with the acquisition of ProlX, we may become
obligated to issue additional shares of our common stock to the
former stockholders of ProlX upon satisfaction of certain
milestones. We may become obligated to issue shares of our
common stock with a fair market value of $5.0 million
(determined based on a weighted average trading price at the
time of issuance) upon the initiation of the first Phase 3
clinical trial for a ProlX product. We may become obligated to
issue shares of our common stock with a fair market value of
$10.0 million (determined based on a weighted average
trading price at the time of issuance) upon regulatory approval
of a ProlX product in a major market.
Under certain licensing arrangements for technologies
incorporated into our product candidates, we are contractually
committed to payment of ongoing licensing fees and royalties, as
well as contingent payments when certain milestones as defined
in the agreements have been achieved.
Guarantees and
Indemnification
In the ordinary course of our business, we have entered into
agreements with our collaboration partners, vendors, and other
persons and entities that include guarantees or indemnity
provisions. For example, our agreements with Merck KGaA and the
former stockholders of ProlX contain certain tax indemnification
provisions, and we have entered into indemnification agreements
with our officers and directors. Based on information known to
us as of December 31, 2009, we believe that our exposure
related to these guarantees and indemnification obligations is
not material.
Off-Balance Sheet
Arrangements
During the period presented, 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 for
another contractually narrow or limited purpose.
Recent Accounting
Pronouncements
In October 2009, the FASB issued an accounting standards update,
or ASU, entitled, Multiple-Deliverable Revenue Arrangements,
a consensus of the FASB Emerging Issues Task Force. This
standard prescribes the accounting treatment for arrangements
that contain multiple-deliverable elements and enables vendors
to account for products or services (deliverables) separately,
rather than as a combined unit, in certain circumstances. Prior
to this standard, only certain types of evidence were acceptable
for determining the relative selling price of the deliverables
under an arrangement. If that evidence was not available, the
deliverables were treated as a single unit of accounting. This
updated standard expands the nature of evidence which may be
used to determine the relative selling price of separate
deliverables to include estimation. This standard is applicable
to arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. Early adoption
is permitted; however, if the standard is adopted early, and the
period of adoption is not the beginning of a companys
fiscal year, the company will be required to apply the
amendments retrospectively from the beginning of the
companys fiscal year. We have not yet adopted this
standard or determined the impact of this standard on our
results of operations, cash flows and financial position.
In September 2008, the FASB ratified the consensus reached on
EITF Issue
No. 07-5,
Determining Whether an Instrument (or an Embedded Feature) is
Indexed to an Entitys
-58-
Own Stock, codified as
ASC 815-40-15-5.
Topic
815-40-15-5
provides guidance for determining whether an equity-linked
financial instrument (or embedded feature) is indexed to an
entitys own stock and applies to any freestanding
financial instrument or embedded feature that has all the
characteristics of a derivative under ASC Topic
815-10-15-13
through
15-139), for
purposes of determining whether that instrument or embedded
feature qualifies for the scope exception under
ASC 815-10-15-74.
Topic
815-40-15-5
also applies to any freestanding financial instrument that is
potentially settled in an entitys own stock, regardless of
whether the instrument has all the characteristics of a
derivative for purposes of determining whether the instrument is
within the scope of ASC Topic
815-40).
Topic
815-40-15-5
was effective beginning the first quarter of 2009 and was
applied by us in our accounting for the warrants issued in May
and August 2009. See Note 4 Fair Value
Measurements of the audited financial statements included
elsewhere in this Annual Report on
Form 10-K
for more information.
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ITEM 7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
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Foreign Currency
Exchange Risk
As of December 31, 2009 and 2008, approximately $17,644 and
$15,300 respectively, of our cash, cash equivalents, were
denominated in Canadian dollars. As a result, the carrying value
of our cash and cash equivalents may be impacted by exchange
rate fluctuations. At December 31, 2009, a 10%
strengthening of the Canadian dollar against the
U.S. dollar would have no material effect for the year
ended December 31, 2009.
Interest Rate
Sensitivity
We had cash, cash equivalents, and short-term investments
totaling $33.2 million and $19.2 million as of
December 31, 2009 and 2008, respectively. We do not enter
into investments for trading or speculative purposes. We believe
that we do not have any material exposure to changes in the fair
value of these assets as a result of changes in interest rates
due to the short term nature of our cash, cash equivalents, and
short-term investments. Declines in interest rates, however,
would reduce future investment income. A 100 basis point
decline in interest rates, occurring January 1, 2009 and
sustained throughout the period ended December 31, 2009,
would result in a decline in investment income of approximately
$0.2 million for that same period.
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ITEM 8.
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Financial
Statements and Supplementary Data
|
See Financial Statements beginning on
page F-1.
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ITEM 9.
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Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
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None.
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ITEM 9A.
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Controls
and Procedures
|
Evaluation of
Disclosure Controls and Procedures
Under the supervision and with the participation of our
management, including our chief executive officer and principal
financial and accounting officer, we conducted an evaluation of
the effectiveness, as of December 31, 2009, of our
disclosure controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the
Exchange Act. The purpose of this evaluation was to determine
whether as of the evaluation date our disclosure controls and
procedures were effective to provide reasonable assurance that
the information we are required to disclose in our filings with
the Securities and Exchange Commission, or SEC, under the
Exchange Act (i) is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms and (ii) accumulated and communicated to
our management, including our chief
-59-
executive officer and principal financial and accounting
officer, as appropriate to allow timely decisions regarding
required disclosure. Based on that evaluation, management has
concluded that as of December 31, 2009, our disclosure
controls and procedures were not effective at the reasonable
assurance level due to the material weaknesses in our internal
controls described below in Managements Report on Internal
Control over Financial Reporting.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act. We have designed our internal controls to
provide reasonable assurance that our financial statements are
prepared in accordance with generally accepted accounting
principles in the United States, or U.S. GAAP, and include
those policies and procedures that:
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pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and disposition
of our assets;
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provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures are being made only in accordance
with authorization of our management and directors; and
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provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial
statements.
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Our management conducted an evaluation of the effectiveness of
our internal controls based on the criteria set forth in the
Internal Control Integrated Framework
developed by the Committee of Sponsoring Organizations of
the Treadway Commission, or COSO, as of December 31, 2009.
In performing the assessment, our management identified two
deficiencies in our internal controls over financial reporting
that constitute material weaknesses under standards established
by the Public Company Accounting Oversight Board, or PCAOB, as
of December 31, 2009. Specifically, we do not have
adequately designed controls in place to ensure the appropriate
accounting for and disclosure of complex transactions in
accordance with U.S. GAAP, and we do not have an adequately
designed and implemented risk assessment process to identify
complex transactions requiring specialized knowledge in the
application of U.S. GAAP. This lack of adequate controls
and an adequate risk assessment process resulted in our failure
to identify and disclose the change in accounting policy related
to license revenues in December 2008. Due to this error, we
concluded that material weaknesses in internal control over
financial reporting existed as of December 31, 2009 because
there is a reasonable possibility that a material misstatement
related to a future complex transaction may occur again
and/or not
be detected on a timely basis. As a result of these material
weaknesses, management concluded that we did not maintain
effective internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework, issued
by the COSO and consequently we did not maintain effective
internal control over reporting.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis.
On May 5, 2010, management presented a proposed remediation
plan to our audit committee concerning our internal controls
over financial reporting to our board of directors, and the
audit committee adopted managements remediation plan. We
are in the
-60-
process of implementing this plan. Remedying the material
weaknesses described above will require management time and
attention over the coming quarters and will result in additional
incremental expenses, which includes increasing the size of our
finance organization and retaining outside consultants. Any
failure on our part to remedy our identified weaknesses or any
additional errors or delays in our financial reporting would
have a material adverse effect on our business and results of
operations and could have a substantial adverse impact on the
trading price of our common stock.
Subject to oversight by our board of directors, our chief
executive officer will be responsible for implementing
managements internal control remediation plan, adopted by
our audit committee and approved by our board of directors.
The remediation plan consists of the following modifications and
improvements in our internal controls. We intend to retain
outside consultants to assist us (i) to design and
implement an adequate risk assessment process to identify future
complex transactions requiring specialized knowledge to ensure
the appropriate accounting for and disclosure of such
transactions, and (ii) to identify and retain personnel
with the appropriate technical expertise to assist us in
accounting for complex transactions in accordance with
U.S. GAAP.
The effectiveness of our internal control over financial
reporting as of December 31, 2009 has been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report thereto,
appearing in Part II Item 8 in this Annual Report on
Form 10-K.
Inherent
Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over
financial reporting, including ours, is subject to inherent
limitations, including the exercise of judgment in designing,
implementing, operating, and evaluating the controls and
procedures, and the inability to eliminate misconduct
completely. Accordingly, any system of internal control over
financial reporting, including ours, no matter how well designed
and operated, can only provide reasonable, not absolute
assurances. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate. We intend to continue to monitor and upgrade
our internal controls as necessary or appropriate for our
business, but cannot assure you that such improvements will be
sufficient to provide us with effective internal control over
financial reporting.
Changes in
Internal Control over Financial Reporting
Except as described in Managements Report on Internal
Control over Financial Reporting there have been no significant
changes in our internal control over financial reporting during
the year ended December 31, 2009 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
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ITEM 9B.
|
Other
Information
|
None.
-61-
PART III
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ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
Executive
Officers and Key Employees
The names, ages as of April 22, 2010 and positions of each
of our executive officers and key employees in 2009 are set
forth below.
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Name
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Age
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Office
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|
Executive Officers
|
|
|
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|
ROBERT KIRKMAN, M.D.
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|
61
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President, Chief Executive Officer and Director
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SHASHI KARAN
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56
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Principal Financial Officer, Principal Accounting Officer and
Corporate Secretary
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GARY CHRISTIANSON
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55
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Chief Operating Officer
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Key Employees
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DIANA HAUSMAN, M.D.
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47
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Vice President, Clinical Development
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SCOTT PETERSON, Ph.D.
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48
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Vice President, Research and Development
|
Robert Kirkman, M.D. See Directors, Executive
Officers and Corporate Governance Our
Directors included elsewhere in this Annual Report on
Form 10-K
for Dr. Kirkmans biographical information.
Shashi Karan has been serving as our principal financial
officer and principal accounting officer, since January 1,
2009. Mr. Karan has served as our controller since
April 1, 2008. Prior to joining us, from 2006 to 2007,
Mr. Karan acted as a consultant, providing financial and
accounting advice to various clients, with a focus on
publicly-traded companies. From 2001 to 2005, Mr. Karan was
vice president of finance of MusicNet Inc., a private online
media company. From 1992 to 2000, Mr. Karan was senior
director and corporate controller of Pathogenesis Corporation, a
publicly-traded biotechnology company. Mr. Karan has been
certified as a CPA in the State of Washington and received a
B.A. (with honors) in economics from Leeds University, United
Kingdom, and an M.S. in accounting from Long Island University
and an M.S. in tax from Golden Gate University.
Gary Christianson was appointed as our chief operating
officer in July 2007. From 2005 to 2007, Mr. Christianson
was site director for the Biologics Unit of GlaxoSmithKline plc,
a global healthcare company. From 1999 to 2003,
Mr. Christianson was vice president, technical operations
at Corixa Corp., a biopharmaceutical and biotechnology company,
and from 2003 to 2005, he was promoted to general manager of the
Hamilton, Montana site in addition to his duties as vice
president. From 1987 to 1999, Mr. Christianson held various
positions at RIBI ImmunoChem Research, Inc., a
biopharmaceuticals company. Mr. Christianson received a
B.S. in mechanical engineering technology from Montana State
University and is a licensed and board certified professional
engineer.
Diana Hausman, M.D. was appointed Vice President,
Clinical Development in August 2009. From 2005 to 2009,
Dr. Hausman served in a variety of positions at
Zymogenetics, Inc., a biopharmaceutical company, most recently
as Senior Director, Clinical Research. From 2002 until 2009,
Dr. Hausman served as Senior Associated Medical Director at
Berlex Inc., a biopharmaceutical company. Dr. Hausman
received her A.B. in Biology from Princeton University, and her
M.D. from the University of Pennsylvania School of Medicine. She
was trained in internal medicine and hematology/oncology at the
University of Washington and is board certified in medical
oncology.
Scott Peterson, Ph.D. was appointed Vice President,
Research and Development in June 2009. From 2007 until 2009
Dr. Peterson served as Director and Department Head,
Oncology Research at Zymogenetics, Inc., a biopharmaceutical
company. From 1999 to 2007, Dr. Peterson held a variety of
positions at ICOS Corporation, a biopharmaceutical
-62-
company. Dr. Peterson received his Ph.D. in chemistry
(biochemistry) from the University of Colorado, Boulder and
holds a B.S. in biology from Washington State University.
Our
Directors
The name, age, position(s), term, board committee membership and
biographical information for each member of our Board of
Directors is set forth below as of April 22, 2010:
Directors
Continuing in Office Until the 2010 Annual Meeting of
Stockholders
Richard Jackson, Ph.D., age 70, has been a
member of our board of directors since May 2003.
Dr. Jackson is the chairman of our compensation committee
and a member of our corporate governance and nominating
committee. Dr. Jackson is president of Jackson Associates,
LLC, a biotechnology and pharmaceutical consulting company.
Since September 2006, Dr. Jackson has also been president
and chief executive officer of Ausio Pharmaceuticals, LLC, a
drug development company. From May 2002 to May 2003,
Dr. Jackson was president, chief executive officer and
chairman of the board of directors of EmerGen, Inc., a
biotechnology company. From November 1998 to January 2002,
Dr. Jackson served as senior vice president, research and
development for Atrix Laboratories, Inc., a biotechnology
company. From January 1993 to July 1998, Dr. Jackson served
as senior vice president, discovery research, at Wyeth Ayerst
Laboratories, the pharmaceuticals division of American Home
Products Corporation. Our corporate governance and nominating
committee believes that Dr. Jacksons qualifications
for membership on the board of directors include over
20 years of experience in academic medicine and over
25 years of experience at several pharmaceutical and
biotechnology companies, with positions in both research and
development and senior management. This experience allows
Dr. Jackson to provide our board of directors with
significant insights into the clinical development of our
product candidates. Dr. Jackson served as a director of
Inflazyme Pharmaceuticals Ltd. until 2007. Dr. Jackson
received his Ph.D. in microbiology and his B.S. in chemistry
from the University of Illinois.
Robert Kirkman, M.D., age 61, has served as a
member of our board of directors and as our president and chief
executive officer since September 2006. From 2005 to 2006,
Dr. Kirkman was acting president and chief executive
officer of Xcyte Therapies, Inc., which concluded a merger with
Cyclacel Pharmaceuticals, Inc., both development stage
biopharmaceuticals companies, in March of 2006. From 2004 to
2005, Dr. Kirkman was chief business officer and vice
president of Xcyte. From 1998 to 2003, Dr. Kirkman was vice
president, business development and corporate communications of
Protein Design Labs, Inc., a biopharmaceuticals company. Our
corporate governance and nominating committee believes that
Dr. Kirkmans qualifications to for membership on the
board of directors include his previous experience at
development stage biotechnology companies and his position as
our president and chief executive officer.
Dr. Kirkmans scientific understanding along with his
corporate vision and operational knowledge provide strategic
guidance to our management team and our board of directors.
Dr. Kirkman holds an M.D. degree from Harvard Medical
School and a B.A. in economics from Yale University.
Directors
Continuing in Office Until the 2011 Annual Meeting of
Stockholders
Daniel Spiegelman, M.B.A., age 51, has been a member
of our board of directors since June 2008. Mr. Spiegelman
is the chairman of our audit committee and a member of our
corporate governance and nominating committee. From 1998 to
2009, Mr. Spiegelman was employed at CV Therapeutics, Inc.,
a biopharmaceutical company acquired in 2009 by Gilead, most
recently as senior vice president and chief financial officer.
From 1992 to 1998, Mr. Spiegelman was an employee at
Genentech, Inc., a biotechnology company, and most recently as
treasurer. Mr. Spiegelman also serves as a member of the
board of directors of Affymax, Inc., a biopharmaceuticals
company, Cyclacel Pharmaceuticals, Inc., a
-63-
development-stage biopharmaceuticals company and Omeros
Corporation, a clinical-stage biopharmaceutical company. Our
corporate governance and nominating committee believes that
Mr. Spiegelmans qualifications for membership on the
board of directors include his extensive background in the
financial and commercial issues facing growing biotechnology
companies. Additionally, as chief financial officer of CV
Therapeutics prior to its sale to Gilead Sciences,
Mr. Spiegelman was involved in transitioning the company
from a research and development focus to a commercial entity
with two approved products. This experience allows
Mr. Spiegelman to provide our board of directors with
significant insights into financial strategy and organizational
development. Mr. Spiegelman received his B.A. and M.B.A.
from Stanford University.
Douglas Williams, Ph.D., age 52, has been a
member of our board of directors since October 2009.
Dr. Williams serves as a member of our audit committee.
Dr. Williams joined ZymoGenetics in 2004 and has served as
a director and chief executive officer since January 2009. He
has held senior level positions at a number of prominent
biotechnology companies, including Seattle Genetics, Inc.,
Immunex Corporation, and Amgen, Inc. As executive vice president
and chief technology officer at Immunex, Dr. Williams
played a significant role in the discovery and early development
of Enbrel, the first biologic approved for the treatment of
rheumatoid arthritis. Our corporate governance and nominating
committee believes that Dr. Williams qualifications
for membership on the board of directors include over
20 years of experience in the biotechnology industry.
During his career, Dr. Williams has been involved in the
approval of three new protein therapeutics and in several label
expansions. Further, as chief executive officer of ZymoGenetics,
Dr. Williams provides our board of directors with
significant insights into the strategic and operational issues
facing our company. Dr. Williams currently serves as a
director of Array BioPharma Inc., a biopharmaceutical company,
and Aerovance, Inc., a privately-held biopharmaceutical company,
and was a director of Anadys Pharmaceuticals, Inc., a
biopharmaceutical company, and Seattle Genetics, a clinical
stage biotechnology company, until 2009 and 2005, respectively.
Dr. Williams received a B.S. (magna cum laude) in
Biological Sciences from the University of Massachusetts, Lowell
and a Ph.D. in Physiology from the State University of New York
at Buffalo, Roswell Park Cancer Institute Division.
Directors
Continuing in Office Until the 2012 Annual Meeting of
Stockholders
Christopher Henney, Ph.D., age 69, has served
as the chairman of our board of directors since September 2006
and as a member of our board of directors since March 2005.
Dr. Henney is a member of our compensation and corporate
governance and nominating committees. From 1995 to 2003,
Dr. Henney was chairman and chief executive officer of
Dendreon Corporation, a publicly-traded biotechnology company
that he co-founded. Dr. Henney was also a co-founder of
Immunex Corporation and ICOS Corporation, both
publicly-traded biotechnology companies. Our corporate
governance and nominating committee believes that
Dr. Henneys qualifications for membership on the
board of directors include his roles as co-founder of Dendreon,
Immunex and ICOS, as well as his membership on the boards of
directors of several development-stage biotechnology companies.
Through his experience in working with biotechnology companies
from founding until commercialization of their product
candidates, Dr. Henney provides our board of directors with
significant insights into the strategic, operational and
clinical development aspects of the company. Dr. Henney
currently serves as vice-chairman of the board of directors of
Cyclacel Pharmaceuticals, Inc., a development-stage
biopharmaceuticals company, a member of the board of directors
of AVI BioPharma, Inc., a biopharmaceuticals company, and
chairman of the board of directors of Anthera Pharmaceuticals,
Inc., a biopharmaceutical company. Dr. Henney was the
chairman of SGX Pharmaceuticals, Inc., a biotechnology company
acquired by Eli Lilley in 2008. Dr. Henney received a Ph.D.
in experimental pathology from the University of Birmingham,
England,
-64-
where he also obtained his D.Sc. for contributions in the field
of immunology. Dr. Henney is a former professor of
immunology and microbiology and has held faculty positions at
Johns Hopkins University, the University of Washington and the
Fred Hutchinson Cancer Research Center.
W. Vickery Stoughton, age 64, has been a member
of our board of directors since June 1997. Mr. Stoughton is
a member of our audit and compensation committees. From August
2006 until September 2007, Mr. Stoughton served as
president and chief executive officer of MagneVu Corporation, a
medical devices company, which filed for bankruptcy in September
2007. From 1996 to 2002, Mr. Stoughton was chairman and
chief executive officer of Careside Inc., a research and
development medical devices company, which filed for bankruptcy
in October 2002. From October 1995 to July 1996,
Mr. Stoughton was president of SmithKline Beecham
Diagnostics Systems Co., a diagnostic services and product
company, and prior to October 1995 he served as president of
SmithKline Beecham Clinical Laboratories, Inc., a clinical
laboratory company. From 1988 until May 2008, Mr. Stoughton
was a member of the board of directors of Sun Life Financial
Inc., a financial services company. Our corporate governance and
nominating committee believes that Mr. Stoughtons
qualifications for membership on the board of directors include
his involvement in several medical device companies, his role as
president of SmithKline Beecham Clinical Laboratories, and his
broader business background. Through this experience,
Mr. Stoughton provides our board of directors with
significant insights into the operational aspects of the
company. Mr. Stoughton received his B.S. in chemistry from
St. Louis University and his M.B.A. from the University of
Chicago.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors
and executive officers, and persons who own more than ten
percent of a registered class of our equity securities, to file
reports of ownership of, and transactions in, our securities
with the Securities and Exchange Commission and NASDAQ. Such
directors, executive officers, and ten percent stockholders are
also required to furnish us with copies of all
Section 16(a) forms that they file.
Based solely on a review of the copies of such forms received by
us, or written representations from certain reporting persons,
we believe that during 2009, our directors, executive officers,
and ten percent stockholders complied with all
Section 16(a) filing requirements applicable to them.
Code of
Conduct
Our board of directors adopted a Code of Business Conduct and
Ethics (the Code of Conduct) for all our officers,
directors, and employees in December 2003, which was last
amended on March 13, 2008, and a Code of Ethics for the
President and Chief Executive Officer, the Chief Financial
Officer and Corporate Controller on March 25, 2003, which
was subsequently amended on March 13, 2008, (the Code
of Ethics). The Code of Conduct details the
responsibilities of all our officers, directors, and employees
to conduct our affairs in an honest and ethical manner and to
comply with all applicable laws, rules, and regulations. The
Code of Conduct addresses issues such as general standards of
conduct, avoiding conflicts of interest, communications,
financial reporting, safeguarding our assets, responsibilities
to our customers, suppliers, and competitors, and dealing with
governments. The Code of Ethics imposes additional requirements
on our senior executive, financial and accounting officers with
respect to conflicts of interest, accuracy of accounting records
and periodic reports and compliance with laws. Each of the Code
of Conduct and Code of Ethics is available on our website at
www.oncothyreon.com.
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Stockholder
Nominations and Recommendations for Director
Candidates
We have not made any material changes to the procedures by which
our stockholders may recommend nominees to our board of
directors since we last disclosed the procedures by which
stockholders may nominate director candidates under the caption
Corporate Governance and Board Matters
Committees of the Board of Directors Nominating and
Governance Committee in our proxy statement for the 2009
annual meeting of Oncothyreon stockholders filed with the SEC on
April 30, 2009.
Audit
Committee
We have a standing audit committee, which reviews with our
independent registered public accounting firm the scope,
results, and costs of the annual audit and our accounting
policies and financial reporting. Our audit committee has
(i) direct responsibility for the appointment,
compensation, retention, and oversight of our independent
registered public accounting firm, (ii) establishes
procedures for handling complaints regarding our accounting
practices, (iii) authority to engage any independent
advisors it deems necessary to carry out its duties, and
(iv) appropriate funding to engage any necessary outside
advisors. The current members of the audit committee are Daniel
Spiegelman (Chairman), W. Vickery Stoughton and Douglas
Williams. Christopher Henney was a member of the audit committee
until December 2009, when he stepped down from the audit
committee in connection with Dr. Williams
appointment. The board of directors has determined that
Mr. Spiegelman, the chairman of the audit committee, is an
audit committee financial expert as that term is
defined in Item 407(d)(5) of Regulation S K
promulgated by the SEC. The audit committee reviews and
reassesses the adequacy of its charter on an annual basis.
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ITEM 11.
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Executive
Compensation
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Compensation
Discussion and Analysis
Compensation
Philosophy and Objectives
Historically, the principal objectives of the compensation
policies and programs of Oncothyreon and its predecessor
corporation, Biomira Inc. (which we will refer to throughout
this discussion as us, our, and
we) have been to attract and retain senior executive
management, to motivate their performance toward clearly defined
corporate goals, and to align their long term interests with
those of our stockholders. In addition, our compensation
committee believes that maintaining and improving the quality
and skills of our management and appropriately incentivizing
their performance are critical factors affecting our
stockholders realization of long-term value.
Our compensation programs have reflected, and for the
foreseeable future should continue to reflect, the fact that we
are a biopharmaceutical company whose principal compounds are
still in early stage clinical trials and subject to regulatory
approval. As a result, our revenues have been and will continue
to be limited, and we expect to continue to incur net losses for
at least the next several years. In an effort to preserve cash
resources, our historical compensation programs have focused
heavily on long-term equity incentives relative to cash
compensation. With a relatively larger equity weighting, this
approach seeks to place a substantial portion of executive
compensation at risk by rewarding our executive officers, in a
manner comparable to our stockholders, for achieving our
business and financial objectives.
In addition to long-term equity incentives, we have also
implemented a performance-based cash bonus program for our
executive officers and employees. Payments under this
performance-based cash bonus program have been based on
achievement of pre-established corporate and individual
performance goals, with the relative weighting among goals
individualized to reflect each persons unique
contributions. With respect to our
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executive officers, 100% of their goals are tied to corporate
objectives to reflect the fact that our executive officers make
key strategic decisions influencing our company as a whole and
thus, it is more appropriate to reward performance against
corporate objectives.
We design and implement compensation programs that combine both
long term equity elements and cash incentive elements based on
annual performance objectives. Our compensation committee has
not, however, adopted any formal or informal policies or
guidelines for allocating compensation between cash and equity
compensation or among different forms of non-cash compensation.
The compensation committees philosophy is that a
substantial portion of an executive officers compensation
should be performance-based, whether in the form of equity or
cash compensation. In that regard, we expect to continue to use
options or other equity incentives as a significant component of
compensation because we believe that they align individual
compensation with the creation of stockholder value, and we
expect any payments under cash incentive plans to be tied to
annual performance targets.
Role of Our
Compensation Committee
Our compensation committee is comprised of three non-employee
members of our board of directors, Dr. Henney,
Dr. Jackson and Mr. Stoughton, each of whom is an
independent director under the rules of The NASDAQ Global
Market, an outside director for purposes of
Section 162(m) of the United States Internal Revenue Code
of 1986, as amended, which we call Section 162(m), and a
non-employee director for purposes of
Rule 16b-3
under the Exchange Act.
Our compensation committee approves, administers, and interprets
our executive compensation and benefit policies. Our
compensation committee acts exclusively as the administrator of
our equity incentive plans and approves all grants to employees,
including our executive officers. Our compensation committee
operates pursuant to a written charter under which our board of
directors has delegated specific authority with respect to
compensation determinations. Among the responsibilities of our
compensation committee are the following:
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evaluating our compensation practices and assisting in
developing and implementing our executive compensation program
and philosophy;
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establishing a practice, in accordance with the rules of The
NASDAQ Global Market, of determining the compensation earned,
paid, or awarded to our chief executive officer independent of
input from him; and
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establishing a policy, in accordance with the rules of The
NASDAQ Global Market, of reviewing on an annual basis the
performance of our other executive officers with assistance from
our chief executive officer and determining what we believe to
be appropriate compensation levels for such officers.
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The compensation committees charter allows the committee
to form subcommittees for any purpose that the committee deems
appropriate and may delegate to such subcommittees such power
and authority as the committee deems appropriate. For example,
the compensation committee has delegated certain powers and
authority to the new employee option committee as set forth in
Share Option Plan included elsewhere in this
Annual Report on
Form 10-K.
Our chief executive officer actively supports the compensation
committees work by providing information relating to our
financial plans, performance assessments of our executive
officers, and other personnel related data. In particular, our
chief executive officer, as the person to whom our other
executive officers report, is responsible for evaluating
individual officers contributions to corporate objectives
as well as their performance relative to divisional and
individual objectives. Our chief executive officer, on an annual
basis at or shortly after the end of each year, makes
recommendations to the
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compensation committee with respect to merit salary increases,
cash bonuses, and stock option grants or other equity incentives
for our other executive officers. Our compensation committee
meets to evaluate, discuss, modify or approve these
recommendations. Without the participation of the chief
executive officer, the compensation committee as part of the
annual review process conducts a similar evaluation of the chief
executive officers contribution and performance and makes
determinations, at or shortly after the end of each year, with
respect to merit salary increases, bonus payments, stock option
grants, or other forms of compensation for our chief executive
officer.
Our compensation committee has the authority under its charter
to engage the services of outside advisors, experts, and others
for assistance. The compensation committee did not rely on any
outside advisors for purposes of structuring our 2009
compensation plan but did rely on the survey data described
below.
Competitive
Market Review for 2009
The market for experienced management is highly competitive in
the life sciences and biopharmaceutical industries. We seek to
attract and retain the most highly qualified executives to
manage each of our business functions, and we face substantial
competition in recruiting and retaining management from
companies ranging from large and established pharmaceutical
companies to entrepreneurial early stage companies. We expect
competition for appropriate technical, commercial, and
management skills to remain strong for the foreseeable future.
In making our executive compensation determinations for 2009, we
benchmarked our compensation levels using U.S. professional
salary surveys. These include:
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Radford Global Life Sciences Salary Survey 2009; and
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WorldatWork Salary Survey 2009.
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In evaluating the survey data, our compensation committee
compared our compensation practices and levels for each
compensation component including base salary, annual
performance-based bonuses, and equity compensation with the
salary survey data. This information was used to determine
appropriate levels of compensation based on market benchmarks
for various functional titles. Based on this data, our
compensation committee believes that our levels of total
compensation for our executive officers generally fell at about
the 50th percentile.
Peer Group
Companies for 2009
In analyzing our executive compensation program for 2009, the
compensation committee compared certain aspects of compensation,
including base salary and equity incentives, to those provided
by our peer group. This peer group included small biotechnology
companies with which we compete for executive talent. For 2009,
our peer group consisted of:
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Cell Therapeutics, Inc.;
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Omeros Corporation;
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Seattle Genetics, Inc.;
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Trubion Pharmaceuticals Inc.; and
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ZymoGenetics Inc.
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Principal
Elements of Executive Compensation
Our executive compensation program consists of five components:
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base salary;
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annual performance-based cash bonuses;
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equity-based incentives;
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benefits; and
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severance/termination protection.
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We believe that each of these components, combining both short
and long-term incentives, offers a useful element in achieving
our compensation objectives and that collectively these
components have been effective in achieving our corporate goals.
Annual Review
Process
Our compensation committee reviews data and makes executive
compensation decisions on an annual basis, typically during the
last quarter of the year or the first quarter of the new year.
In connection with that process, executive officers are
responsible for establishing and submitting for review to our
chief executive officer (and in the case of our chief executive
officer, directly to the compensation committee) their
departmental goals and financial objectives. Our chief executive
officer then compiles the information submitted and provides it,
along with information relating to his own personal goals and
objectives, to our compensation committee for review. Our
compensation committee, including our chief executive officer
with respect to all officers other than himself and excluding
our chief executive officer with respect to discussions of his
own compensation, reviews, considers, and may amend the terms
and conditions proposed by management.
As part of the annual review process, our compensation committee
makes its determinations of changes in annual base compensation
for executive officers based on numerous factors, including
performance over the prior year, both individually and relative
to corporate or divisional objectives, established corporate and
divisional objectives for the next year, our operating budgets,
and a review of survey data relating to base compensation for
the position at companies we have identified within our peer
group. During the annual review process, our compensation
committee also considered each executives equity incentive
position, including the extent to which he or she was vested or
unvested in his or her equity awards and the executives
aggregate equity incentive position.
From time to time, our compensation committee may make off-cycle
adjustments in executive compensation as it determines
appropriate. For example, in March 2009, our compensation
committee considered and approved a special cash bonus for each
of our chief executive officer and chief operating officer in
connection with the successful completion of the 2008
transaction with Merck KGaA.
Weighting of
Compensation Elements
Our compensation committees determination of the
appropriate use and weight of each element of executive
compensation is subjective, based on its view of the relative
importance of each element in meeting our overall objectives and
factors relevant to the individual executive. Like many
biopharmaceutical companies with clinical-stage products, we
seek to place a significant amount of each executives
total potential compensation at risk based on
performance.
Base
Salary
Base salary for our chief executive officer and other officers
reflects the scope of their respective responsibilities, their
relative seniority and experience, and competitive market
factors. Salary adjustments are typically based on competitive
conditions, individual performance, changes in job duties, and
our budget requirements.
In our offer letter with Dr. Kirkman, we agreed to pay him
an initial base salary at $320,000. Our compensation committee
set Dr. Kirkmans base salary based on his experience
and our compensation committees view of market
compensation for chief
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executive officers of public, early stage biopharmaceutical
companies. For 2007, Dr. Kirkmans base salary
remained at $320,000. On January 14, 2008,
Dr. Kirkmans base salary was increased to $375,000
for 2008. Dr. Kirkmans base salary remained at
$375,000 for 2009, but on December 3, 2009, the
compensation committee increased Dr. Kirkmans salary
to $386,250 for 2010.
For a discussion of the base salaries of our other executive
officers, see Employment Agreements and Offer
Letters included elsewhere in this Annual Report on
Form 10-K.
Variable Cash
Compensation Incentive Bonuses
We pay performance-based bonuses to our executive officers and
other employees pursuant to our performance review policy, which
we believe enhances each individual employees incentive to
contribute to corporate objectives and aligns their interests
with our stockholders.
Under the performance review policy, our executive officers and
employees are eligible to receive bonuses based on achievement
of pre-established corporate and individual performance goals,
but the weighting among the goals is individualized to each
person to reflect his or her unique contributions to the
company. Each goal is assigned a percentage for each person
based on the importance to us that the goal be achieved with
respect to that person. Generally, achievement of a particular
goal will result in the payment of the expected level of
incentive compensation associated with such goal. Partial
achievement can result in the payment of less or no incentive
compensation and likewise, superior achievement of any
performance goal may result in the payment in excess of the
target level of incentive compensation; however, there is not a
fixed formula for determining the amount of incentive
compensation for partial or above target achievement. Rather, in
all cases, the compensation committee, with respect to executive
officers, and our chief executive officer, with respect to other
employees, retains discretion to increase or decrease variable
cash incentive compensation as it or he determines appropriate,
based on actual achievement against the goals, whether
performance is at, above or below the target for the goal.
Typically, the maximum incentive compensation to which an
executive officer or employee is entitled is based on a
percentage of such individuals base salary. For example,
if (i) an executives base salary is $100,000,
(ii) he is eligible to receive a bonus up to 50% of his
base salary, or $50,000, (iii) the compensation committee
has established four performance goals, each weighted at 25% and
(iv) the compensation committee determines that the
executive has achieved two of the four performance goals, then,
the executive would be eligible to receive, subject to the
discretion of the compensation committee, a bonus of $25,000.
Performance goals may be both qualitative and quantitative and
are designed to be specific, measurable, relevant to our
company, completed within a fixed period of time and defined by
significant achievements that go beyond an individuals job
responsibilities. Although performance goals are intended to be
achievable with significant effort, we do not expect that every
goal will be actually attained in any given year.
Performance goals are generally split between corporate and
personalized individual performance objectives. With respect to
our executive officers, 100% of their goals are tied to
corporate objectives to reflect the fact that our executive
officers make key strategic decisions influencing the company as
a whole and thus, it is more appropriate to reward performance
against corporate objectives. Reflective of the decreasing level
of influence within our company as a whole, with respect to our
director-level and senior director-level employees, at least 60%
of the performance objectives must be linked to corporate
objectives and with respect to non-executive management and
senior nonexecutive management employees, at least 40% of the
performance objectives must be linked to
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corporate objectives. In each case the remaining performance
objectives will be linked to personalized individual performance
goals based on the nature of the individuals role within
our company. We designed the performance review policy in this
manner based on our belief that more senior personnel are in a
greater position to influence the achievement of corporate
objectives, and therefore, a greater number of their performance
goals should be tied to corporate rather than personalized
individual objectives.
Our compensation committee is responsible for setting
performance goals, assessing whether such goals have been
achieved and determining the amount of bonuses (if any) to be
paid with respect to our executive officers, while the chief
executive officer bears such responsibility for other employees.
Performance goals for the upcoming year are typically
established at or shortly after the end of the prior year.
Assuming that a determination is made that a bonus has been
earned, we will typically pay bonuses to employees shortly after
the end of each year and to executive officers shortly after the
first scheduled meeting of the compensation committee each year.
An individual must remain actively employed by the company
through the actual date of payment to receive a bonus.
The weighting of bonuses between the performance goals varies
from executive officer to executive officer based on an analysis
of each executive officers role and position within the
company. For example, because Mr. Karan holds a key
leadership position as our corporate controller, we felt it
appropriate to more heavily weight his bonus on achievement with
respect to a cash position target. As both Dr. Hausman and
Dr. Peterson were new employees hired in 2009 and not
involved in the goal setting for 2009, neither is reflected in
the table below. The allocation between the corporate
performance goals for each executive officer for 2009 is set
forth in the following table:
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Transfer of
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Corporate
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Activities to
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Cash
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Market
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Phase 2
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Pre-Clinical
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Strategic
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Seattle
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Position
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Capitalization
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Progression
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Assessment
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Planning
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Headquarters
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Named Executive
Officer
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(1)
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(2)
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(3)
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(4)
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(5)
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(6)
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Robert Kirkman
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35
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%
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10
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%
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30
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%
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15
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%
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5
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%
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5
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%
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Gary Christianson
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20
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5
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20
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15
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20
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20
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Shashi Karan
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70
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10
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20
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(1) |
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As of December 31, 2009, we had sufficient cash and short
term investments to fund our operations at least through
December 31, 2010, as determined in the discretion of our
board of directors. |
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Attain a market capitalization of at least $38 million as
of December 31, 2009. |
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Continued progress through a Phase 2 trial of a product
candidate or the license or acquisition of a product candidate
in or beyond Phase 2. |
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Timely completion of outside assessments of the preclinical
package for PX-478 and PX-866. |
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Timely establish and implement to the extent possible in 2009
strategic planning with respect to PX-478 and PX-866. |
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Completion of the transfer of all corporate activities to the
Seattle headquarters by December 31, 2009 within budget. |
In addition to the corporate performance goals set forth above,
Mr. Karan was given an additional set of individual
performance goals. The 2009 individual performance goals for
Mr. Karan related to the establishment of an internal
management reporting system (25%), improvements in internal
controls (25%), the liquidation of certain company subsidiaries
(20%), support of financing activities (20%) and the
establishment of an internal system to value goodwill and test
for impairment (10%).
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The target and actual bonus amounts for 2009 for our named
executive officers were as follows, based on achievement against
the corporate performance goals (as discussed above):
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2009 Incentive
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Base
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Annual Target as
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Target
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Target
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Bonus Actually
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Salary
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Percentage of Base
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Bonus
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Goals
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Paid
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Named Executive
Officer
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($)
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Salary
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($)
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Achieved
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($)
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Robert Kirkman
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$
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375,000
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50
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%
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$
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187,500
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70
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%(1)
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$
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131,250
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Gary Christianson
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250,000
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35
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87,500
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80
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(2)
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70,000
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Diana Hausman
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290,000
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30
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87,000
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100
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(3)
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29,000
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(3)
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Scott Peterson
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175,000
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25
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43,750
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100
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(3)
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18,229
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(3)
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Shashi Karan
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165,000
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20
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33,000
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90
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(4)
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29,700
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(1) |
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Dr. Kirkman earned 70% of his performance goals based on
our achievement against all of the corporate performance goals
(as discussed above) except for the achievement of the
Phase 2 Progression goal, which was not met. |
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(2) |
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Mr. Christianson earned 80% of his performance goals based
on our achievement against all of the corporate performance
goals (as discussed above) except for the achievement of the
Phase 2 Progression goal, which was not met. |
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(3) |
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As both Dr. Hausman and Dr. Peterson were new
employees hired in 2009 and not involved in the goal setting for
2009, the compensation committee approved that their bonuses be
paid at target for their high level of performance during 2009,
pro-rated for their length of service during 2009. Specifically,
when deciding to pay their bonuses at target, the compensation
committee took note of the substantial contributions by
Drs. Hausman and Peterson to the development of PX-866. |
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(4) |
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Mr. Karan earned 90% of his performance goals based on our
achievement of the corporate performance goals (as discussed
above) and 90% achievement of his individual performance goals
(as discussed above). |
In December 2009, the compensation committee approved target
percentages for 2010, which percentages remain unchanged from
2009. Dr. Kirkman, Mr. Christianson, Dr. Hausman,
Dr. Peterson and Mr. Karan are eligible to receive in
2010 incentive bonuses under our performance review policy of up
to 50%, 35%, 30%, 25% and 20%, respectively, of their base
salary. The 2010 performance goals for our executive officers
are expected to be related to various corporate objectives,
including objectives related to our financial condition,
development of our product candidates and certain business
development activities (although the weighting for such
performance goals will differ between such executive officers).
Equity-based
Incentives
We grant equity-based incentives to employees, including our
executive officers, in order to create a corporate culture that
aligns employee interests with stockholder interests. We have
not adopted any specific stock ownership guidelines, and our
equity incentive plans have provided the principal method for
our executive officers to acquire an equity position in our
company.
Historically, we have granted options to our executive officers
under our share option plan. Our share option plan permits the
grant of stock options for shares of common stock. All equity
incentive programs are administered by our compensation
committee (other than grants of restricted share units to
non-employee directors, which are overseen by the corporate
governance and nominating committee and grants of stock options
to certain new employees by the new employee option committee).
To date, our equity incentive grants have consisted of options
under the share option plan.
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The size and terms of any initial option grants to new
employees, including executive officers, at the time they join
us is based largely on competitive conditions applicable to the
specific position. For non-executive officer grants, our
compensation committee has pre-approved a matrix showing
appropriate levels of option grants for use in making offers to
new employees.
In making its determination of the size of initial option grants
for our current executive officers, our board of directors
relied in part on survey data and peer group comparisons. On
May 3, 2007, Dr. Kirkman, our chief executive officer,
received an option to purchase 137,537 shares of our common
stock at an exercise price per share of Cdn.$8.04, in connection
with the terms of his offer letter, under which he was eligible
to receive an additional option award to purchase a number of
shares equal to 3% of any shares issued during his first year of
employment with us. Such grant has vested or will vest, in four
equal annual installments of 34,384 shares on May 3,
2008, 2009, 2010, and 2011. Consistent with the provisions of
our share option plan as in effect at the time of grant, the
option was priced at the closing price of our shares of common
stock on the Toronto Stock Exchange on the day immediately prior
to the date of board approval. The exercise prices of all
outstanding options granted to Dr. Kirkman prior to April
2008 were based on the Toronto Stock Exchange trading price and
were priced in Canadian dollars. Beginning in April 2008, the
exercise price of option grants were based on The NASDAQ Global
Market trading price and were priced in U.S. dollars. On
June 4, 2008, Dr. Kirkman received an additional
option to purchase 45,000 shares of our common stock at an
exercise price per share of $3.43. This grant has vested or will
vest, in four equal annual installments of 11,250 shares on
June 4, 2009, 2010, 2011 and 2012. On March 11, 2009,
Dr. Kirkman also received an additional option to purchase
100,000 shares of our common stock at an exercise price per
share of $1.10. This grant has vested or will vest, in four
equal annual installments of 25,000 shares on
March 11, 2010, 2011, 2012 and 2013. Also, on
December 3, 2009, Dr. Kirkman received an additional
option to purchase 200,000 shares of our common stock at an
exercise price per share of $4.71. This grant will vest in four
equal annual installments of 50,000 shares on
December 3, 2010, 2011, 2012 and 2013. Our compensation
committee believes that the size and terms of
Dr. Kirkmans stock option grants were reasonable
given our early stage of product development and skill
requirements for senior management, Dr. Kirkmans
industry experience and background, and equity compensation
arrangements for experienced chief executive officers at
comparably situated companies.
In addition, our practice has been to grant refresher options to
employees, including executive officers, when our board of
directors or compensation committee believes additional unvested
equity incentives are appropriate as a retention incentive. For
example, in March 2009 and again in December 2009, we granted
refresher options to some of our employees (including our
executive officers) pursuant to the standard vesting and other
terms of our share option plan. We expect to continue this
practice in the future in connection with the compensation
committees annual performance review, generally conducted
at the beginning of each year. In making its determination
concerning additional option grants, our compensation committee
will also consider, among other factors, prior individual
performance in his or her role as an executive officer, or
employee, of our company, and the size of the individuals
equity grants in the then-current competitive environment. Where
our compensation committee has approved option grants for
executive officers or other employees during a regular quarterly
closed trading window under our insider trading policy, we have
priced the options based on the closing sales price of our
common stock on the first trading day after the window opened.
To date, our equity incentives have been granted with time-based
vesting. Most option grants approved by the compensation
committee vest and become exercisable in four equal annual
installments beginning on the first anniversary of the grant
date. We expect
-73-
that additional option grants to continuing employees will
typically vest over the same schedule. Although our practice in
recent years has been to provide equity incentives principally
in the form of stock option grants that vest over time, our
compensation committee may consider alternative forms of equity
in the future, such as performance shares, restricted share
units or restricted stock awards with alternative vesting
strategies based on the achievement of performance milestones or
financial metrics.
As noted above, consistent with the terms of the share option
plan and subject to the policy against pricing options during
regularly scheduled closed quarterly trading windows, we have
historically priced option grants based on the closing sales
price of our shares of common stock trading on the Toronto Stock
Exchange. On April 3, 2008 our board of directors amended
our share option plan to provide that each option granted
pursuant to the plan be priced at the closing price of our
shares of common stock on The NASDAQ Global Market on the day of
the option grant.
During 2009, we granted, in the aggregate, the following options
to our executive officers as follows:
|
|
|
|
|
Named Executive
Officer
|
|
Options (#)
|
|
Robert Kirkman
|
|
|
300,000
|
|
Gary Christianson
|
|
|
130,000
|
|
Diana Hausman
|
|
|
80,000
|
|
Scott Peterson
|
|
|
75,000
|
|
Shashi Karan
|
|
|
57,500
|
|
Benefits
We provide the following benefits to our named executive
officers, generally on the same basis provided to all of our
employees:
|
|
|
health, dental insurance and vision (for the employee and
eligible dependents);
|
|
|
flexible spending accounts for medical and dependent care;
|
|
|
life insurance;
|
|
|
employee assistance plan (for the employee and eligible
dependents);
|
|
|
short-and long-term disability, accidental death and
dismemberment; and
|
|
|
a 401(k) plan with an employer match into the plan.
|
Severance/Termination
Protection
We entered into offer letters with our named executive officers
when each was recruited for his or her current position. These
offer letters provide for general employment terms and, in some
cases, benefits payable in connection with the termination of
employment or a change in control. The compensation committee
considers such benefits in order to be competitive in the hiring
and retention of employees, including executive officers.
In addition, these benefits are intended to incentivize and
retain our officers during the pendency of a proposed change in
control transaction and align the interests of our officers with
our stockholders in the event of a change in control. The
compensation committee believes that proposed or actual change
in control transactions can adversely impact the morale of
officers and create uncertainty regarding their continued
employment. Without these benefits, officers may be tempted to
leave the company prior to the closing of the change in control,
especially if they do not wish to remain with the entity after
the transaction closes. Such departures could jeopardize the
consummation of the transaction or our interests if the
transaction does not close and we remain independent.
-74-
All arrangements with the named executive officers and the
potential payments that each of the named executive officers
would have received if a change in control or termination of
employment would have occurred on December 31, 2009, are
described in Employment Agreements and Offer
Letters and Potential Payments on
Termination or Change in Control included elsewhere in
this Annual Report on
Form 10-K.
Accounting and
Tax Considerations
Section 162(m) limits the amount that we may deduct for
compensation paid to our chief executive officer and to each of
our four most highly compensated officers to $1,000,000 per
person, unless certain exemption requirements are met.
Exemptions to this deductibility limit may be made for various
forms of performance-based compensation. In addition
to salary and bonus compensation, upon the exercise of stock
options that are not treated as incentive stock options, the
excess of the current market price over the option price, or
option spread, is treated as compensation and accordingly, in
any year, such exercise may cause an officers total
compensation to exceed $1,000,000. Under certain regulations,
option spread compensation from options that meet certain
requirements will not be subject to the $1,000,000 cap on
deductibility. While the compensation committee cannot determine
with certainty how the deductibility limit may impact our
compensation program in future years, the compensation committee
intends to maintain an approach to executive compensation that
strongly links pay to performance. While the compensation
committee has not adopted a formal policy regarding tax
deductibility of compensation paid to our chief executive
officer and our four most highly compensated officers, the
compensation committee intends to consider tax deductibility
under Section 162(m) as a factor in compensation decisions.
Compensation
Committee Interlocks and Insider Participation
During 2009, Richard Jackson, Christopher Henney and W. Vickery
Stoughton served on our compensation committee. During 2009, no
member of our compensation committee was an officer or employee
or formerly an officer of our company, and no member had any
relationship that would require disclosure under Item 404
of
Regulation S-K
of the Securities Exchange Act of 1934. None of our executive
officers has served on the board of directors or the
compensation committee (or other board committee performing
equivalent functions) of any other entity, one of whose
executive officers served on our board of directors or on our
compensation committee.
Compensation
Committee Report
The information contained in this report will not be deemed
to be soliciting material or to be filed
with the SEC, nor will such information be incorporated by
reference into any future filing under the Securities Act or the
Exchange Act, except to the extent that we specifically
incorporate it by reference in such filing.
In reliance on the reviews and discussions referred to above and
the review and discussion of the section captioned
Compensation Discussion and Analysis with our
management, the compensation committee has recommended to the
board of directors and the board of directors has approved, that
the section captioned Compensation Discussion and
Analysis be included in this Annual Report on
Form 10-K
and the proxy statement for our annual meeting of stockholders.
COMPENSATION COMMITTEE
Richard Jackson, Chairman
Christopher Henney
W. Vickery Stoughton
-75-
Summary
Compensation Table 2009, 2008 and 2007
The following table sets forth the compensation earned by or
awarded to, as applicable, our principal executive officer,
principal financial officer and other executive officers during
each of 2007, 2008 and 2009. We refer to these officers in this
Annual Report on
Form 10-K
as the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Option Awards
|
|
Compensation
|
|
Compensation
|
|
Total
|
Name and Principal
Position
|
|
Year
|
|
($)
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
($)
|
|
Robert Kirkman(4)
|
|
|
2009
|
|
|
$
|
375,000
|
|
|
$
|
796,412
|
|
|
$
|
131,250
|
|
|
$
|
11,586
|
|
|
$
|
1,314
|
,248
|
|
President, Chief Executive
|
|
|
2008
|
|
|
|
375,000
|
|
|
|
131,737
|
|
|
|
176,250
|
|
|
|
15,066
|
|
|
|
698
|
,053
|
|
Officer and Director
|
|
|
2007
|
|
|
|
320,000
|
|
|
|
812,100
|
|
|
|
116,000
|
|
|
|
10,272
|
|
|
|
1,258
|
,372
|
|
Shashi Karan(5)
|
|
|
2009
|
|
|
|
165,000
|
|
|
|
183,932
|
|
|
|
29,700
|
|
|
|
5,961
|
|
|
|
384
|
,593
|
|
Corporate Controller and
|
|
|
2008
|
|
|
|
112,500
|
|
|
|
29,275
|
|
|
|
22,500
|
|
|
|
3,575
|
|
|
|
167
|
,850
|
|
Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary Christianson(6)
|
|
|
2009
|
|
|
|
250,000
|
|
|
|
380,868
|
|
|
|
70,000
|
|
|
|
7,836
|
|
|
|
708
|
,704
|
|
Chief Operating Officer
|
|
|
2008
|
|
|
|
247,200
|
|
|
|
43,912
|
|
|
|
93,500
|
|
|
|
31,198
|
|
|
|
415
|
,810
|
|
|
|
|
2007
|
|
|
|
92,769
|
|
|
|
85,831
|
|
|
|
40,000
|
|
|
|
2,923
|
|
|
|
221
|
,523
|
|
Diana Hausman(7)
|
|
|
2009
|
|
|
|
96,667
|
|
|
|
289,222
|
|
|
|
29,000
|
|
|
|
3,012
|
|
|
|
417
|
,501
|
|
Vice President, Clinical Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Peterson(8)
|
|
|
2009
|
|
|
|
72,917
|
|
|
|
287,250
|
|
|
|
18,229
|
|
|
|
2,109
|
|
|
|
380
|
,505
|
|
Vice President, Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts represent the aggregate grant date fair value of
option awards for fiscal years 2007, 2008 and 2009. These
amounts do not represent the actual amounts paid to or realized
by the named executive officer for these awards during fiscal
years 2007, 2008 or 2009. The value as of the grant date for
stock options is recognized over the number of days of service
required for the grant to become vested. For a more detailed
description of the assumptions used for purposes of determining
grant date fair value, see Part II
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Critical Accounting Policies and
Significant Judgments and Estimates Stock-Based
Compensation and Note 11 Stock-Based
Compensation of the audited financial statements included
elsewhere in this Annual Report on
Form 10-K. |
|
(2) |
|
The amounts in this column represent total performance-based
bonuses earned for services rendered during the year under our
performance review policy, for 2007, 2008 and 2009, for
executive officers, in which all employees were eligible to
participate. Under the applicable bonus plan for each year, each
executive was eligible to receive a cash bonus based on
achievement of a combination of corporate or divisional
objectives. Please see Compensation Discussion and
Analysis Variable Cash Compensation
Incentive Bonuses included elsewhere in this Annual Report
on
Form 10-K
for additional information regarding our variable cash
compensation policies for executive officers. |
|
(3) |
|
Except as disclosed in the other footnotes, the amounts in this
column consist of contributions made by us pursuant to our
401(k) plan. |
|
(4) |
|
Amounts listed in All Other Compensation include
life insurance premiums of $336 for each of 2007, 2008 and 2009. |
|
(5) |
|
Mr. Karans employment with the Company began on
April 1, 2008 and he was appointed principal financial
officer and principal accounting officer effective
January 1, 2009. Amounts listed in All Other
Compensation include life insurance premiums of $252 and
$336 for 2008 and 2009, respectively. |
|
(6) |
|
Mr. Christiansons employment with the Company began
on August 1, 2007. Amounts listed in All Other
Compensation include life insurance premiums of $140, $336
and $336 for 2007, 2008 and 2009, respectively, and $22,246 for
relocation costs in 2008. |
-76-
|
|
|
(7) |
|
Dr. Hausmans employment with the Company began on
September 1, 2009. Amounts listed in All Other
Compensation include life insurance premiums of $112. |
|
(8) |
|
Dr. Petersons employment with the Company began on
August 1, 2009. Amounts listed in All Other
Compensation include life insurance premiums of $140. |
Grants of
Plan-Based Awards
The following table sets forth each grant of an award made to a
named executive officer during 2009 under any of our incentive
plans or equity plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payouts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Non-Equity
|
|
|
All Other Option
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Awards: Number of
|
|
|
Exercise or Base
|
|
|
Grant Date Fair
|
|
|
|
|
|
Plan Awards
|
|
|
Securities Underlying
|
|
|
Price of Option
|
|
|
Value of Stock and
|
|
|
|
Grant Date
|
|
Target
|
|
|
Options
|
|
|
Awards
|
|
|
Option Awards
|
|
Name
|
|
(1)
|
|
($)(2)(3)
|
|
|
(#)
|
|
|
($/Sh)(1)
|
|
|
($)(4)
|
|
|
Robert L. Kirkman(5)
|
|
March 11, 2009
|
|
$
|
187,500
|
|
|
|
100,000
|
|
|
$
|
1
|
.10
|
|
|
$
|
86,689
|
|
|
|
December 3, 2009
|
|
|
|
|
|
|
200,000
|
|
|
|
4
|
.71
|
|
|
|
709,723
|
|
Shashi Karan(6)
|
|
March 11, 2009
|
|
|
33,000
|
|
|
|
7,500
|
|
|
|
1
|
.10
|
|
|
|
6,502
|
|
|
|
December 3, 2009
|
|
|
|
|
|
|
50,000
|
|
|
|
4
|
.71
|
|
|
|
177,431
|
|
Gary Christianson(7)
|
|
March 11, 2009
|
|
|
87,500
|
|
|
|
30,000
|
|
|
|
1
|
.10
|
|
|
|
26,007
|
|
|
|
December 3, 2009
|
|
|
|
|
|
|
100,000
|
|
|
|
4
|
.71
|
|
|
|
354,862
|
|
Diana Hausman(8)
|
|
October 1, 2009
|
|
|
87,000
|
|
|
|
30,000
|
|
|
|
4
|
.96
|
|
|
|
111,791
|
|
|
|
December 3, 2009
|
|
|
|
|
|
|
50,000
|
|
|
|
4
|
.71
|
|
|
|
177,431
|
|
Scott Peterson(9)
|
|
August 3, 2009
|
|
|
43,750
|
|
|
|
25,000
|
|
|
|
6
|
.56
|
|
|
|
109,819
|
|
|
|
December 3, 2009
|
|
|
|
|
|
|
50,000
|
|
|
|
4
|
.71
|
|
|
|
177,431
|
|
|
|
|
(1) |
|
Consistent with the provisions of our share option plan in
effect at the date of grant, options were priced at the closing
sales price of our shares of common stock in trading on The
NASDAQ Global Market on the grant date. |
|
(2) |
|
Performance bonuses were earned in 2009. The actual amounts paid
to each of the named executive officers for 2009 are set forth
in the individual footnotes below. |
|
(3) |
|
There was no set Threshold or Maximum
performance bonus amounts established with respect to our 2009
non-equity incentive plan awards, pursuant to the description
set forth under the heading Compensation
Discussion and Analysis Variable Cash
Compensation Incentive Bonuses included
elsewhere in this Annual Report on
Form 10-K. |
|
(4) |
|
These amounts represent the grant date fair value of option
awards granted in 2009. These amounts do not represent the
actual amounts paid to or realized by the named executive
officer for these awards during fiscal year 2009. The value as
of the grant date for stock options is recognized over the
number of days of service required for the grant to become
vested. For a more detailed description of the assumptions used
for purposes of determining grant date fair value, see
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Critical Accounting
Policies and Significant Judgments and Estimates
Stock-Based Compensation and
Note 11 Stock-Based Compensation of
the audited financial statements included elsewhere in this
Annual Report on
Form 10-K. |
|
(5) |
|
On December 3, 2009, the compensation committee approved a
performance bonus of $131,250 under the performance review
policy. |
|
(6) |
|
On December 3, 2009, the compensation committee approved a
performance bonus of $29,700 under the performance review policy. |
|
(7) |
|
On December 3, 2009, the compensation committee approved a
performance bonus of $70,000 under the performance review policy. |
|
(8) |
|
On December 3, 2009, the compensation committee approved a
performance bonus of $29,000 under the performance review
policy, which represents a bonus paid at target and pro-rated
for her length of service during 2009. |
-77-
|
|
|
(9) |
|
On December 3, 2009, the compensation committee approved a
performance bonus of $18,229 under the performance review
policy, which represents a bonus paid at target and pro-rated
for his length of service during 2009. |
Outstanding
Equity Awards at 2009 Fiscal Year-End
The following table sets forth the equity awards outstanding at
December 31, 2009 for each of the named executive officers.
Except as set forth in the footnotes to the following table,
each stock option is fully vested.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option Exercise
|
|
|
|
|
|
|
Unexercised Options
|
|
|
Unexercised Options
|
|
|
Price ($Cdn. or
|
|
|
Option Expiration
|
|
Name
|
|
(#) Exercisable
|
|
|
(#) Unexercisable
|
|
|
$U.S.)(1)
|
|
|
Date
|
|
|
Robert L. Kirkman
|
|
|
450,000
|
|
|
|
|
(2)
|
|
Cdn.$
|
7.38
|
|
|
|
August 29, 2014
|
|
|
|
|
68,769
|
|
|
|
68,768
|
(3)
|
|
Cdn.$
|
8.04
|
|
|
|
May 3, 2015
|
|
|
|
|
11,250
|
|
|
|
33,750
|
(4)
|
|
$
|
3.43
|
|
|
|
June 4, 2016
|
|
|
|
|
|
|
|
|
100,000
|
(5)
|
|
$
|
1.10
|
|
|
|
March 11, 2017
|
|
|
|
|
|
|
|
|
200,000
|
(6)
|
|
$
|
4.71
|
|
|
|
December 3, 2017
|
|
Shashi K. Karan
|
|
|
2,500
|
|
|
|
7,500
|
(4)
|
|
$
|
3.43
|
|
|
|
June 4, 2016
|
|
|
|
|
|
|
|
|
7,500
|
(5)
|
|
$
|
1.10
|
|
|
|
March 11, 2017
|
|
|
|
|
|
|
|
|
50,000
|
(6)
|
|
$
|
4.71
|
|
|
|
December 3, 2017
|
|
Gary Christianson
|
|
|
8,333
|
|
|
|
8,333
|
(7)
|
|
Cdn.$
|
6.72
|
|
|
|
June 29, 2015
|
|
|
|
|
3,750
|
|
|
|
11,250
|
(4)
|
|
$
|
3.43
|
|
|
|
June 4, 2016
|
|
|
|
|
|
|
|
|
30,000
|
(5)
|
|
$
|
1.10
|
|
|
|
March 11, 2017
|
|
|
|
|
|
|
|
|
100,000
|
(6)
|
|
$
|
4.71
|
|
|
|
December 3, 2017
|
|
Diana Hausman
|
|
|
|
|
|
|
30,000
|
(8)
|
|
$
|
4.96
|
|
|
|
September 1, 2017
|
|
|
|
|
|
|
|
|
50,000
|
(6)
|
|
$
|
4.71
|
|
|
|
December 3, 2017
|
|
Scott Peterson
|
|
|
|
|
|
|
25,000
|
(9)
|
|
$
|
6.56
|
|
|
|
August 1, 2017
|
|
|
|
|
|
|
|
|
50,000
|
(6)
|
|
$
|
4.71
|
|
|
|
December 3, 2017
|
|
|
|
|
(1) |
|
In April 2008, the board of directors approved an amendment to
the Companys amended and restated share option plan, which
provided that the exercise price of any future grants would
equal the closing price of the Companys common stock
traded on The NASDAQ Global Market on the date of grant. Unless
otherwise indicated, all exercise prices are denominated in U.S.
dollars. |
|
(2) |
|
This stock option fully vests on August 29, 2009, and vests
at a rate of 1/3 annually on the anniversary of grant. |
|
(3) |
|
This stock option fully vests on May 3, 2011, and vests at
a rate of 1/4 annually on the anniversary of grant. |
|
(4) |
|
This stock option fully vests on June 4, 2012, and vests at
a rate of 1/4 annually on the anniversary of grant. |
|
(5) |
|
This stock option fully vests on March 11, 2013, and vests
at a rate of 1/4 annually on the anniversary of grant. |
|
(6) |
|
This stock option fully vests on December 3, 2013, and
vests at a rate of 1/4 annually on the anniversary of grant. |
|
(7) |
|
This stock option fully vests on June 29, 2011, and vests
at a rate of 1/4 annually on the anniversary of grant. |
|
(8) |
|
This stock option fully vests on September 1, 2013, and
vests at a rate of 1/4 annually on the anniversary of grant. |
|
(9) |
|
This stock option fully vests on August 1, 2013, and vests
at a rate of 1/4 annually on the anniversary of grant. |
Option Exercises
and Stock Vested
None of our named executive officers exercised stock options
during 2009. We have not granted any stock awards to date.
-78-
Employment
Agreements and Offer Letters
Unless stated otherwise, all compensation data in the section
below is expressed in U.S. dollars.
Employee
Benefit Plans
Our share option plan, in which our employees and officers
participate, provides for the acceleration of vesting of awards
in connection with or following a change in control of the
company. A change in control shall be deemed to have
occurred if (i) our board of directors passes a resolution
to the effect that, for purposes of the share option plan, a
change in control has occurred or (ii) any person or any
group of two or more persons acting jointly or in concert
becomes the beneficial owner, directly or indirectly, or
acquires the right to control or direct, twenty-five (25)% per
cent or more of our outstanding voting securities or any
successor entity in any manner, including without limitation as
a result of a takeover bid or an amalgamation with any other
corporation or any other business combination or reorganization.
See Share Option Plan included elsewhere in
this Annual Report on
Form 10-K.
Robert
Kirkman
On August 29, 2006, we entered into an offer letter with
Robert Kirkman, M.D., our president and chief executive
officer. In consideration for his services, Dr. Kirkman was
initially entitled to receive a base salary of $320,000 per
year, subject to increases as may be approved by the
compensation committee. In January 2008, Dr. Kirkmans
base salary was increased to $375,000 for 2008.
Dr. Kirkmans base salary remained at $375,000 for
2009, but in December 2009, the compensation committee increased
Dr. Kirkmans salary to $386,250 for 2010.
Dr. Kirkman is also entitled to receive a performance bonus
of up to 50% of his base salary based on his achievement of
predetermined objectives and on December 3, 2009,
Dr. Kirkman received a performance bonus of $131,250. In
addition, the compensation committee may award, in its sole
discretion, Dr. Kirkman additional performance bonuses in
recognition of his performance and on March 6, 2009,
Dr. Kirkman received a special bonus of $120,000 for the
successful completion of our December 2008 transaction with
Merck KGaA.
In accordance with the offer letter of August 29, 2006,
Dr. Kirkman was granted an option to purchase
450,000 shares of our common stock at a price of Cdn.$7.38
per share. As a result of the ProlX acquisition, which we
completed in October 2006, and the financing we completed in
December 2006, on May 3, 2007, Dr. Kirkman was granted
an additional option to purchase 137,537 shares of our
common stock on May 3, 2007 at an exercise price of
Cdn.$8.04, in connection with the terms of his offer letter,
under which he was eligible to receive an additional option
award to purchase a number of shares equal to 3% of any shares
issued during his first year of employment with us and 100% of
these shares will vest if there is a change of control
transaction.
In December 2009, we entered into an amendment to
Dr. Kirkmans offer letter. Pursuant to the terms of
the amendment, Dr. Kirkman will receive the following
benefits if we undergo a change of control transaction (as
defined in the share option plan), in addition to the stock
option vesting acceleration described above:
|
|
|
lump sum payment of two years base salary, less required
withholding; and
|
|
|
lump sum payment of two years equivalent of performance
review bonus at target, less required withholding.
|
Additionally, if Dr. Kirkman is terminated without cause
(as defined in the December 2009 amendment), he will receive the
following benefits:
|
|
|
lump sum payment of one years base salary, less required
withholding; and
|
-79-
|
|
|
lump sum payment of one years equivalent of performance
review bonus at target, less required withholding.
|
Shashi
Karan
We are parties to an offer letter dated March 24, 2008 with
Shashi Karan, our corporate controller and corporate secretary.
In consideration for his services, Mr. Karan was initially
entitled to receive a base salary of $150,000 per year, subject
to increases as may be approved by the compensation committee.
In March 2009 and December 2009, Mr. Karans base
salary was increased to $165,000 for 2009 and $175,000 for 2010,
respectively. Mr. Karan is also entitled to receive a
performance bonus of up to 20% of his base salary based on his
achievement of predetermined objectives and on December 3,
2009, Mr. Karan received a performance bonus of $29,700.
In accordance with the offer letter of March 24, 2008,
Mr. Karan was granted an option to purchase
10,000 shares of our common stock at a price of $3.43 per
share and 100% of these shares will vest if there is a change of
control transaction.
In December 2009, we entered into an amendment to
Mr. Karans offer letter. Pursuant to the terms of the
amendment, Mr. Karan will receive the following benefits if
we undergo a change of control transaction (as defined in the
share option plan), in addition to the stock option vesting
acceleration described above:
|
|
|
lump sum payment of one years base salary, less required
withholding; and
|
|
|
lump sum payment of one years equivalent of performance
review bonus at target, less required withholding.
|
Gary
Christianson
We are parties to an offer letter dated June 29, 2007 with
Gary Christianson, our chief operating officer. In consideration
for his services, Mr. Christianson was initially entitled
to receive a base salary of $240,000 per year, subject to
increases as may be approved by the compensation committee. In
January 2008 and March 2009, Mr. Christiansons base
salary was increased to $247,200 for 2008 and $250,000 for 2009,
respectively. In December 2009, Mr. Christiansons
base salary was increased to $275,000 for 2010.
Mr. Christianson is also entitled to receive a performance
bonus of up to 35% of his base salary based on his achievement
of predetermined objectives and on December 3, 2009,
Mr. Christianson received a performance bonus of $70,000.
In addition, the compensation committee may award, in its sole
discretion, Mr. Christianson additional performance bonuses
in recognition of his performance and on March 6, 2009,
Mr. Christianson received a special bonus of $20,000 for
the successful completion of our December 2008 transaction with
Merck KGaA.
In accordance with the offer letter of June 29, 2007,
Mr. Christianson was granted an option to purchase
16,666 shares of our common stock at a price of Cdn.$6.72
per share and 100% of these shares will vest if there is a
change of control transaction.
In December 2009, we entered into an amendment to
Mr. Christiansons offer letter. Pursuant to the terms
of the amendment, Mr. Christianson will receive the
following benefits if we undergo a change of control transaction
(as defined in the share option plan), in addition to the stock
option vesting acceleration described above:
|
|
|
lump sum payment of one years base salary, less required
withholding; and
|
|
|
lump sum payment of one years equivalent of performance
review bonus at target, less required withholding.
|
Additionally, if Mr. Christianson is terminated without
cause (as defined in the June 2007 offer letter), he will
receive the following benefits:
|
|
|
lump sum payment of nine months base salary, less required
withholding;
|
-80-
|
|
|
lump sum payment of nine months equivalent of performance
review bonus at target, less required withholding; and
|
|
|
health insurance coverage for a period of nine months.
|
Diana
Hausman
We are parties to an offer letter dated July 6, 2009 with
Diana Hausman, M.D., our vice president of clinical
development. In consideration for her services, Dr. Hausman
was initially entitled to receive a base salary of $290,000 per
year, subject to increases as may be approved by the
compensation committee. In December 2009,
Dr. Hausmans base salary was increased to $298,700
for 2010. Dr. Hausman is also entitled to receive a
performance bonus of up to 30% of her base salary based on her
achievement of predetermined objectives and on December 3,
2009, Dr. Hausman received a performance bonus of $29,000.
In accordance with the offer letter of July 6, 2009,
Dr. Hausman was granted an option to purchase
30,000 shares of our common stock at a price of $4.96 per
share and 100% of these shares will vest if there is a change of
control transaction.
In December 2009, we entered into an amendment to
Dr. Hausmans offer letter. Pursuant to the terms of
the amendment, Dr. Hausman will receive the following
benefits if we undergo a change of control transaction (as
defined in the share option plan), in addition to the stock
option vesting acceleration described above:
|
|
|
lump sum payment of one years base salary, less required
withholding; and
|
|
|
lump sum payment of one years equivalent of performance
review bonus at target, less required withholding.
|
Additionally, if Dr. Hausman is terminated without cause
(as defined in the July 2009 offer letter), she will receive the
following benefits:
|
|
|
lump sum payment of six months base salary, less required
withholding; and
|
|
|
lump sum payment of six months equivalent of performance
review bonus at target, less required withholding.
|
Scott
Peterson
We are parties to an offer letter dated June 4, 2009 with
Scott Peterson, Ph.D., our vice president of research and
development. In consideration for his services,
Dr. Peterson was initially entitled to receive a base
salary of $175,000 per year, subject to increases as may be
approved by the compensation committee. In December 2009,
Dr. Petersons base salary was increased to $180,250
for 2010. Dr. Peterson is also entitled to receive a
performance bonus of up to 25% of his base salary based on his
achievement of predetermined objectives and on December 3,
2009, Dr. Peterson received a performance bonus of $18,229.
In accordance with the offer letter of June 4, 2009,
Dr. Peterson was granted an option to purchase
25,000 shares of our common stock at a price of $6.56 per
share and 100% of these shares will vest if there is a change of
control transaction.
In December 2009, we entered into an amendment to
Dr. Petersons offer letter. Pursuant to the terms of
the amendment, Dr. Peterson will receive the following
benefits if we undergo a change of control transaction (as
defined in the share option plan), in addition to the stock
option vesting acceleration described above:
|
|
|
lump sum payment of one years base salary, less required
withholding; and
|
|
|
lump sum payment of one years equivalent of performance
review bonus at target, less required withholding.
|
-81-
Potential
Payments Upon Termination or Change in Control
The tables below describe the payments and benefits our named
executive officers would be entitled to receive assuming the
occurrence on December 31, 2009 of either a change of
control transaction or termination of their employment without
cause (as defined below). For additional details
regarding the payments and benefits our named executive officers
are entitled to, please see Employment Agreements
and Offer Letters included elsewhere in this Annual Report
on
Form 10-K.
Robert L.
Kirkman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of Control
|
|
Termination Other Than for
Cause(3)
|
|
|
Equity
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
Name
|
|
(1)
|
|
(2)
|
|
Benefits
|
|
(4)
|
|
(5)
|
|
Benefits
|
|
Robert L. Kirkman
|
|
$
|
631,150
|
|
|
$
|
1,125,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
562,500
|
|
|
$
|
|
|
|
|
|
(1) |
|
The amount shown in this column is calculated as the spread
value of all unvested stock options held by Dr. Kirkman on
December 31, 2009, assuming a stock price of $5.39 per
share, the last reported sale price of our common stock on The
NASDAQ Global Market on December 31, 2009. |
|
(2) |
|
The amount shown in this column is a lump sum payment equal to
two times Dr. Kirkmans base salary for 2009 plus two
years equivalent of his performance review bonus at
target. Such payments will be made within 60 days following
a change of control, provided that, within 45 days of a
change of control, Dr. Kirkman signs a separation agreement
in a form reasonably satisfactory to us, which shall include a
general release of all claims against us. |
|
(3) |
|
For purposes of Dr. Kirkmans offer letter,
cause includes, among other things (i) willful
engaging in illegal conduct or gross misconduct which is
injurious to us, (ii) being convicted of, or entering a
plea of nolo contendere or guilty to, a felony or a crime
of moral turpitude, (iii) engaging in fraud,
misappropriation, embezzlement or any other act or acts of
dishonesty resulting or intended to result directly or
indirectly in a gain or personal enrichment of him at our
expense, (iv) material breach of any of our written
policies, or (v) willful and continual failure
substantially to perform his duties, which failure has continued
for a period of at least 30 days after written notice by us. |
|
(4) |
|
Pursuant to the terms of our share option plan, there is no
acceleration of vesting if Dr. Kirkman is terminated
without cause. |
|
(5) |
|
The amount shown in this column is a lump sum payment equal to
Dr. Kirkmans base salary for 2009 plus one
years equivalent of his performance review bonus at
target. Such payments will be made within 60 days following
termination other than for cause, subject to any payment delay
in order to comply with Section 409A of the Internal
Revenue Code. |
Shashi
Karan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of Control
|
Name
|
|
Equity Acceleration(1)
|
|
Salary(2)
|
|
Insurance Benefits
|
|
Shashi Karan
|
|
$
|
80,875
|
|
|
$
|
198,000
|
|
|
$
|
|
|
|
|
|
(1) |
|
The amount shown in this column is calculated as the spread
value of all unvested stock options held by Mr. Karan on
December 31, 2009, assuming a stock price of $5.39 per
share, the last reported sale price of our common stock on The
NASDAQ Global Market on December 31, 2009. |
|
(2) |
|
The amount shown in this column is a lump sum payment equal to
Mr. Karans base salary for 2009 plus one years
equivalent of his performance review bonus at target. |
-82-
|
|
|
|
|
Such payments will be made within 60 days following a
change of control, provided that, within 45 days of a
change of control, Mr. Karan signs a separation agreement
in a form reasonably satisfactory to us, which shall include a
general release of all claims against us. |
Gary
Christianson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of Control
|
|
Termination Other Than for
Cause(3)
|
|
|
Equity
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
Name
|
|
(1)
|
|
(2)
|
|
Benefits
|
|
(4)
|
|
(5)
|
|
Benefits
|
|
Gary Christianson
|
|
$
|
218,750
|
|
|
$
|
337,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
253,125
|
|
|
|
8,085
|
|
|
|
|
(1) |
|
The amount shown in this column is calculated as the spread
value of all unvested stock options held by
Mr. Christianson on December 31, 2009, assuming a
stock price of $5.39 per share, the last reported sale price of
our common stock on The NASDAQ Global Market on
December 31, 2009. |
|
(2) |
|
The amount shown in this column is a lump sum payment equal to
Mr. Christiansons base salary for 2009 plus one
years equivalent of his performance review bonus at
target. Such payments will be made within 60 days following
a change of control, provided that, within 45 days of a
change of control, Mr. Christianson signs a separation
agreement in a form reasonably satisfactory to us, which shall
include a general release of all claims against us. |
|
(3) |
|
For purposes of Mr. Christiansons offer letter,
cause includes, among other things (i) willful
engaging in illegal conduct or gross misconduct which is
injurious to us, (ii) being convicted of, or entering a
plea of nolo contendere or guilty to, a felony or a crime
of moral turpitude, (iii) engaging in fraud,
misappropriation, embezzlement or any other act or acts of
dishonesty resulting or intended to result directly or
indirectly in a gain or personal enrichment of him at our
expense, (iv) material breach of any of our written
policies, or (v) willful and continual failure
substantially to perform his duties, which failure has continued
for a period of at least 30 days after written notice by us. |
|
(4) |
|
Pursuant to the terms of our share option plan, there is no
acceleration of vesting if Mr. Christianson is terminated
without cause. |
|
(5) |
|
The amount shown in this column is a lump sum payment equal to
nine months of Mr. Christiansons base salary for 2009
plus nine months equivalent of his performance review
bonus at target. If Mr. Christianson is a specified
employee within the meaning of Section 409A of the
Internal Revenue Code and any final regulations and official
guidance promulgated thereunder, at the time of his separation
from service, then, if required, the amounts shown in this
column, which are otherwise due on or within the six-month
period following the separation from service will accrue, to the
extent required, during such six-month period and will become
payable in a lump sum payment six months and one day following
the date of separation from service. |
Diana
Hausman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of Control
|
|
Termination Other Than for
Cause(3)
|
|
|
Equity
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
|
Acceleration
|
|
Salary
|
|
Insurance
|
Name
|
|
(1)
|
|
(2)
|
|
Benefits
|
|
(4)
|
|
(5)
|
|
Benefits
|
|
Diana Hausman
|
|
$
|
46,900
|
|
|
$
|
377,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
188,500
|
|
|
$
|
|
|
|
|
|
(1) |
|
The amount shown in this column is calculated as the spread
value of all unvested stock options held by Dr. Hausman on
December 31, 2009, assuming a stock price of $5.39 per
share, the last reported sale price of our common stock on The
NASDAQ Global Market on December 31, 2009. |
-83-
|
|
|
(2) |
|
The amount shown in this column is a lump sum payment equal to
Dr. Hausmans base salary for 2009 plus one
years equivalent of her performance review bonus at
target. Such payments will be made within 60 days following
a change of control, provided that, within 45 days of a
change of control, Dr. Hausman signs a separation agreement
in a form reasonably satisfactory to us, which shall include a
general release of all claims against us. |
|
(3) |
|
For purposes of Dr. Hausmans offer letter,
cause includes, among other things (i) willful
engaging in illegal conduct or gross misconduct which is
injurious to us, (ii) being convicted of, or entering a
plea of nolo contendere or guilty to, a felony or a crime
of moral turpitude, (iii) engaging in fraud,
misappropriation, embezzlement or any other act or acts of
dishonesty resulting or intended to result directly or
indirectly in a gain or personal enrichment of him at our
expense, (iv) material breach of any of our written
policies, or (v) willful and continual failure
substantially to perform his duties, which failure has continued
for a period of at least 30 days after written notice by us. |
|
(4) |
|
Pursuant to the terms of our share option plan, there is no
acceleration of vesting if Dr. Hausman is terminated
without cause. |
|
(5) |
|
The amount shown in this column is a lump sum payment equal to
six months of Dr. Hausmans base salary for 2009 plus
six months equivalent of her performance review bonus at
target. |
Scott
Peterson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of Control
|
Name
|
|
Equity Acceleration(1)
|
|
Salary(2)
|
|
Insurance Benefits
|
|
Scott Peterson
|
|
$
|
34,000
|
|
|
$
|
218,750
|
|
|
$
|
|
|
|
|
|
(1) |
|
The amount shown in this column is calculated as the spread
value of all unvested stock options held by Dr. Peterson on
December 31, 2009, assuming a stock price of $5.39 per
share, the last reported sale price of our common stock on The
NASDAQ Global Market on December 31, 2009. |
|
(2) |
|
The amount shown in this column is a lump sum payment equal to
Dr. Petersons base salary for 2009 plus one
years equivalent of his performance review bonus at
target. Such payments will be made within 60 days following
a change of control, provided that, within 45 days of a
change of control, Dr. Peterson signs a separation
agreement in a form reasonably satisfactory to us, which shall
include a general release of all claims against us. |
Share Option
Plan
Our board of directors adopted our share option plan on
December 9, 1992 and our stockholders approved it on
May 26, 1993. Our share option plan was amended and
restated as of May 3, 2007, April 3, 2008 and
October 22, 2009. Unless further amended by our
stockholders, our share option plan will terminate on
May 3, 2017. Our share option plan provides for the grant
of nonstatutory stock options to selected employees, directors
and persons or companies engaged to provide ongoing management
or consulting services for us, or any entity controlled by us.
The employees, directors and consultants who have been selected
to participate in our share option plan are referred to below as
participants.
Share
Reserve
The total number of shares of common stock issuable pursuant to
options granted under our share option plan shall, at any time,
be 10% of our issued and outstanding shares of common stock. We
had reserved a total of 2,575,341 shares of our common
stock for issuance pursuant to our share option plan as of
December 31, 2009. As of December 31,
-84-
2009, options to purchase 1,836,657 shares of our common
stock were outstanding and 738,684 shares of our common
stock were available for future grant under our share option
plan.
Administration
The compensation committee of our board of directors administers
our share option plan. Under our share option plan, the plan
administrator has the power, subject to certain enumerated
restrictions in our share option plan, to determine the terms of
the awards, including the employees, directors and consultants
who will receive awards, the exercise price of the award, the
number of shares subject to each award, the vesting schedule and
exercisability of each award and the form of consideration
payable upon exercise.
In addition, the compensation committee has delegated to the new
employee option committee the authority to approve grants of
stock options to newly hired employees who are not our chief
executive officer, president, chief financial officer (or
principal financial officer, if no person holds the office of
chief financial officer), vice president or a Section 16
officer (as determined pursuant to the rules promulgated under
the Securities Exchange Act of 1934). The new employee option
committee is composed of our chief executive officer, our
principal financial officer and our head of human resources. The
new employee option committee meets during the last full week of
each month and may only grant stock option awards. The stock
options granted by the new employee option committee must have
an exercise price equal to the closing sales price of our common
stock as reported by The NASDAQ Global Market on the last
trading day of the month in which such grants were approved.
These grants must fall within a predetermined range approved by
the compensation committee and may not deviate from the standard
vesting terms (i.e., awards vest over a four year period, with
25% of the shares subject to an award vesting on the first
anniversary of the optionees commencement of employment
and the balance vesting in equal monthly increments for
36 months following the first anniversary of the
commencement of employment).
Share
Options
The exercise price of the shares subject to options granted
under our share option plan shall be determined by our
compensation committee or board of directors, but shall not be
less than the fair market value of the shares. Generally, the
exercise price will be the closing price of our common stock on
the day of the option grant. Until April 3, 2008, for
purposes of our share option plan, the fair market value meant
the closing price of our common stock as reported by the Toronto
Stock Exchange on the day preceding the day on which the option
is granted. If no trade of shares of our common stock was
reported on the Toronto Stock Exchange that day, then the fair
market value was not less than the mean of the bid and ask
quotations for our common stock on the Toronto Stock Exchange at
the close of business on such preceding day. On April 3,
2008, our board of directors amended our option plan to provide
that options granted pursuant to the plan be priced at the
closing price of our shares of common stock on The NASDAQ Global
Market on the day of the option grant. If the grant date would
otherwise occur during a closed quarterly trading window under
our insider trading policy, the compensation committee or board
of directors will identify a future date as the grant date
(which typically will be the first day the trading window opens
after a closed quarterly trading window). Effective
October 22, 2009, in connection with our voluntary
delisting from the Toronto Stock Exchange, the share option plan
was amended and restated to remove references to the Toronto
Stock Exchange and to make certain other housekeeping changes
necessitated by the voluntary delisting.
-85-
Termination of
Service Provider Relationship
Upon the termination without cause of a participants
employment or service with us (or any of our subsidiaries),
other than a termination due to death or retirement (as such
terms are defined in our share option plan), the
participants option will continue to vest and may be
exercised at any time up to and including, but not after, the
date which is 180 days after the date of the termination or
the date prior to the close of the business on the expiry date
of the option, whichever is the earlier. If termination is for
cause, the option will immediately terminate in its entirety. An
option may never be exercised after the expiration of its term.
For our president or any of our vice presidents, in the event of
a termination of the participants service or employment
with us (or any of our subsidiaries) without cause, any option
granted to the participant will continue to vest and may be
exercised at any time up to and including, but not after, the
date which is the second anniversary of the date of his or her
termination or the date before the close of business on the
expiry date of his or her option, whichever is the earlier.
In the event of the retirement, as such term is defined in our
share option plan, of the participant while in the employment of
us (or any of our subsidiaries), any option granted to the
participant will continue to vest and may be exercised by the
participant in accordance with the terms of the option at any
time up to and including, but not after, the expiry date of the
option.
In the event of the death of the participant while in the
employment or service of us (or any of our subsidiaries), the
option will continue to vest and may be exercised by a legal
representative of the participant at any time up to and
including, but not after, the date which is 180 days after
the date of the death of the optionee or before the close of
business on the expiry date of the option, whichever is earlier.
Effect of a
Change in Control
Our share option plan provides that, if a change in control
occurs, as such term is defined in our share option plan,
including our merger with or into another corporation or the
sale of all or substantially all of our assets, or if there is
an offer to purchase, a solicitation of an offer to sell, or an
acceptance of an offer to sell our shares of common stock made
to all or substantially all of the holders of shares of common
stock, a participant, who at the time of the change of control
is an employee, director or service provider, shall have the
right to immediately exercise his or her option as to all shares
of common stock subject to such option, including as to those
shares of common stock with respect to which such option cannot
be exercised immediately prior to the occurrence of the change
of control, and the participant shall have 90 days from the
date of the change of control to exercise his or her option
(unless the option expires prior to such date).
Transferability
Unless otherwise determined by the plan administrator, our share
option plan generally does not allow for the sale or transfer of
awards under our share option plan other than by will or the
laws of descent and distribution, and may be exercised only
during the lifetime of the participant and only by that
participant.
Additional
Provisions
Our board of directors has the authority to amend (subject to
stockholder approval in some circumstances) or discontinue our
share option plan, so long as that action does not materially
and adversely affect any option rights granted to a participant
without the written consent of that participant.
-86-
During the period January 1 to December 31, 2009, options
to purchase 783,000 shares of common stock were granted
under our share option plan at a weighted average exercise price
of $3.97 per share.
Restricted Share
Unit Plan
Our board of directors adopted our restricted share unit plan on
May 18, 2005 and our stockholders approved it on
May 18, 2005. Our restricted share unit plan was amended
and restated as of June 12, 2009 to add additional shares
to the plan and again as of October 22, 2009 to remove
references to the Toronto Stock Exchange and make certain other
housekeeping changes necessitated by our voluntary delisting
from the TSX. Our restricted share unit plan provides for the
grant of restricted share units to non-employee members of our
board of directors. The directors who receive restricted share
units under our restricted share unit plan are referred to below
as participants.
Share
Reserve
We have reserved a total of 466,666 of our shares of common
stock for issuance pursuant to our restricted share unit plan.
As of December 31, 2009, grants covering
186,266 shares of our common stock were outstanding,
260,771 shares of our common stock were available for
future grant under our restricted share unit plan and
19,629 shares had been issued upon conversion of RSUs.
Administration
The corporate governance and nominating committee of our board
of directors administers our restricted share unit plan. Under
our restricted share unit plan, the plan administrator has the
power, subject to certain enumerated restrictions in our
restricted share unit plan, to determine the terms of the
grants, including the directors who will receive grants, the
grant period (as such term is defined in our restricted share
unit plan) of any awards, and any applicable vesting terms in
order for the restricted share units to be issued, and such
other terms and conditions as the board of directors deems
appropriate.
Each grant of restricted share units will be evidenced by a
written notice, which we call the notice of grant, with such
notice, in connection with our restricted share unit plan,
governing the terms and conditions of the grant. Each notice of
grant will state the number of restricted share units granted to
the participant and state that each restricted share unit,
subject to and in accordance with the terms of our restricted
share unit plan, will entitle the participant to receive one
share of our common stock in settlement of a restricted share
unit granted pursuant to our restricted share unit plan.
Right to
Restricted Share Units in the event of Death, Retirement, or
Resignation
In the event of the death of a participant while a director of
us, and with respect to each grant of restricted share units for
which the grant period has not ended and for which the
restricted share units have not been otherwise issued prior to
the date of death, all unvested restricted share units will
immediately vest and the shares of our common stock subject to
such restricted share units will be issued by the later of the
end of the calendar year of the date of death, or by the
15th day of the third calendar month following the
participants date of death.
In the event the participants service as a director
terminates for any reason other than death, and provided such
participant is not a specified employee (as such term is defined
in our restricted share unit plan) on the date of his or
termination, with respect to the restricted share units as to
which the release date (as such term is defined in our
restricted share unit plan) has not occurred, and for which
shares of our common stock have not been issued, the participant
will receive such shares as if the grant period had ended and
-87-
such shares will be issued by the later of the end of the
calendar year of the date of termination or by the 15th day
of the third calendar month following the date of the
termination. If the participant is a specified employee on the
date of his or her termination, and if such termination is for
any reason other than death, with respect to the restricted
share units as to which the release date has not occurred, and
for which shares of our common stock have not been issued, the
participant will receive such shares as if the grant period had
ended and such shares will be delivered by the 30th day of
the date following the date which is six months following the
participants date of termination.
Effect of a
Change in Control
In the event of a change in control (as such term is defined in
our restricted share unit plan), with respect to all grants of
restricted share units that are outstanding as of the date of
such change in control, all unvested restricted share units will
immediately vest and each participant who has received any such
grants will be entitled to receive, on the date that is ten
business days following the change in control date, an amount in
full settlement of each restricted share unit covered by the
grant. Such amount will be either one share of our common stock
for each restricted share unit, or if so specified in a written
election by the participant, a cash payment equal to the special
value (as such term is defined in our restricted share unit
plan) for each covered restricted share unit.
Transferability
The rights or interests of a participant under our restricted
share unit plan will not be assignable or transferable, other
than by will or the laws governing the devolution of property in
the event of death and such rights or interests will not be
encumbered.
Additional
Provisions
Our board of directors has the authority to amend (subject to
stockholder approval in some circumstances), suspend or
terminate our restricted share unit plan in whole or in part
from time to time.
Risk Analysis of
Compensation Plans
The mix and design of the elements of executive compensation do
not encourage management to assume excessive risks. Any risks
arising from our compensation policies and practices for our
employees are not reasonably likely to have a material adverse
effect on the company.
The compensation committee extensively reviewed the elements of
executive compensation to determine whether any portion of
executive compensation encouraged excessive risk taking and
concluded:
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significant weighting towards long-term incentive compensation
discourages short-term risk taking; and
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goals are appropriately set to avoid targets that, if not
achieved, result in a large percentage loss of compensation.
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Compensation of
Directors
We pay our non-employee directors an annual cash fee of $50,000
for their service on our board of directors and its committees.
We also pay the chairman of our board an additional annual fee
of $50,000, the Chairman of our audit committee an additional
annual fee of $25,000, and the Chairmen of our other standing
committees of the board of directors an additional annual fee of
$5,000 each. In addition, each non-employee member of our board
is entitled to an annual restricted share unit grant equal to
$30,000 divided by the closing price of our common stock on the
NASDAQ Global Market on the date of grant. On March 11,
2009 and June 12, 2009, each board member (excluding
Dr. Williams
-88-
who did not join the board of directors until October
2009) received 19,352 RSUs and 2,076 RSUs, respectively,
for fiscal year 2008. On December 4, 2009 each board member
was awarded 6,185 RSUs for fiscal year 2009. Board members
receive cash compensation in U.S. dollars. We also
reimburse our directors for travel and other necessary business
expenses incurred in the performance of their services for us.
Fiscal Year
2009 Director Compensation
The following table sets forth compensation information for our
non-employee directors for the year ended December 31,
2009. The table excludes Dr. Kirkman who did not receive
any compensation from us in his role as director in the year
ended December 31, 2009. All compensation numbers are
expressed in U.S. dollars.
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Fees Earned
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Stock
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or Paid in
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Awards ($)
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Name
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Cash ($)
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(1)(2)(3)
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Total ($)
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Christopher Henney
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$
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105,000
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$
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56,513
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$
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161,513
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Richard Jackson
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55,000
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56,513
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111,513
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Daniel Spiegelman
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75,000
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56,513
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131,513
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W. Vickery Stoughton
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50,000
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56,513
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106,513
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Douglas Williams
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12,500
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30,000
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42,500
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(1) |
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These amounts represent the aggregate grant date fair value of
RSUs granted in 2009. |
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(2) |
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As of December 31, 2009, our non-employee directors held
RSUs and outstanding options to purchase the number of shares of
common stock as follows: Dr. Henney (53,602 options, 84,156
RSUs); Dr. Jackson (9,362 options, 34,156 RSUs);
Mr. Stoughton (13,594 options, 34,156 RSUs);
Mr. Spiegelman (zero options, 27,613 RSUs);
Dr. Williams (zero options, 6,185 RSUs). |
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(3) |
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Each RSU may be converted into one share of our common stock at
the end of the grant period, which is five years for each of the
RSUs granted prior to June 12, 2009 and two years for each
of the RSUs granted on or after June 12, 2009. |
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ITEM 12.
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Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
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Equity
Compensation Plan Information as of December 31,
2009
The following table sets forth the securities authorized for
issuance under Oncothyreons equity compensation plans.
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(C)
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Number of
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Securities
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Remaining
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(A)
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Available for
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Number of
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(B)
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Future Issuance
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Securities to be
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Weighted
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Under Equity
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Issued Upon
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Average
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Compensation
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Exercise of
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Exercise Price
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Plans
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Outstanding
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of Outstanding
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(Excluding
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Options,
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Options,
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Securities
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Warrants and
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Warrants and
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Reflected in
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Plan Category
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Rights
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Rights
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Column (A))(1)
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Equity compensation plans approved by security holders:
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Share option plan ($Cdn.)(2)
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947,032
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$
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8.59
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Share option plan ($U.S.)(2)
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889,625
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$
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3.92
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738,684
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RSU plan
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186,266
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N.A.
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260,771
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Equity compensation plans not approved by security holders
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N.A.
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Total
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2,022,923
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N.A.
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999,455
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(1) |
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All of these are available for grants of restricted stock,
restricted share units and other full-value awards, as well as
for grants of stock options and stock appreciation rights. |
-89-
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(2) |
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Under the terms of the Amended and Restated Share Option Plan,
the total number of shares issuable pursuant to options under
the plan is 10% of the issued and outstanding shares. Shares
issued upon the exercise of options do not reduce the percentage
of shares which may be issuable pursuant to options under the
Plan. |
Security
Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding
beneficial ownership of our capital stock as of March 31,
2010 by (i) each person known by us to be the beneficial
owner of more than 5% of any class of our voting securities,
(ii) each of our directors, (iii) each of our
named executive officers and (iv) our directors
and executive officers as a group, including shares they had the
right to acquire within 60 days after March 31, 2010.
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Common Stock Beneficially
Owned
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Name of Beneficial
Owner(1)
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Number of Shares(2)
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Percent of Class(3)
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Directors and Executive Officers:
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Christopher Henney(4)
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78,602
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*
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Richard Jackson(5)
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14,362
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*
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W. Vickery Stoughton(6)
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17,760
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*
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Daniel Spiegelman
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*
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Douglas Williams
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*
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Robert Kirkman(7)
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597,736
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2.27
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%
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Gary Christianson(8)
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19,583
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*
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Shashi Karan(9)
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9,375
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*
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Diana Hausman
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*
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Scott Peterson
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166
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*
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All directors and executive officers as a group
(10 persons)(10)
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737,584
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2.79
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%
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* |
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Represents less than 1% of class or combined classes. |
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(1) |
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Except as otherwise indicated, the address of each stockholder
identified is
c/o Oncothyreon
Inc., 2601 Fourth Avenue, Suite 500, Seattle, Washington
98121. Except as indicated in the other footnotes to this table,
each person named in this table has sole voting and investment
power with respect to all shares of stock beneficially owned by
that person. |
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(2) |
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Options and warrants exercisable within 60 days after
March 31, 2010 are deemed outstanding for the purposes of
computing the percentage of shares owned by that person, but are
not deemed outstanding for purposes of computing the percentage
of shares owned by any other person. |
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(3) |
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Based on 25,753,405 shares of common stock issued and
outstanding as of March 31, 2010. |
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(4) |
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Includes 53,602 shares of common stock that Dr. Henney
has the right to acquire under outstanding options exercisable
within 60 days after March 31, 2010. |
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(5) |
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Includes 9,362 shares of common stock that Dr. Jackson
has the right to acquire under outstanding options exercisable
within 60 days after March 31, 2010. |
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(6) |
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Includes 13,594 shares of common stock that
Mr. Stoughton has the right to acquire under outstanding
options exercisable within 60 days after March 31,
2010. |
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(7) |
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Includes 589,403 shares of common stock that
Dr. Kirkman has the right to acquire under outstanding
options exercisable within 60 days after March 31,
2010. |
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(8) |
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Includes 19,583 shares of common stock that
Mr. Christianson has the right to acquire under outstanding
options exercisable within 60 days after March 31,
2010. |
-90-
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(9) |
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Includes 4,375 shares of common stock that Mr. Karan
has the right to acquire under outstanding options exercisable
within 60 days after March 31, 2010. |
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(10) |
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Includes 689,916 shares of common stock that can be
acquired under outstanding options exercisable within
60 days after March 31, 2010. |
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ITEM 13.
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Certain
Relationships and Related Transactions and Director
Independence
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Certain
Relationships and Related Transactions
In addition to the arrangements described below, we have also
entered into the arrangements which are described where required
under the heading titled Part III
Item 11 Executive Compensation
Employment Agreements and Offer Letters and
Part III Item 11
Executive Compensation Potential Payments Upon
Termination or Change in Control included elsewhere in
this Annual Report on
Form 10-K.
Approval of
Related Party Transactions
We have adopted a formal, written policy that our executive
officers, directors (including director nominees), holders of
more than 5% of any class of our voting securities, or any
member of the immediate family of or any entities affiliated
with any of the foregoing persons, are not permitted to enter
into a related party transaction with us without the prior
approval or, in the case of pending or ongoing related party
transactions, ratification of our audit committee. For purposes
of our policy, a related party transaction is a transaction,
arrangement or relationship where the company was, is or will be
involved and in which a related party had, has or will have a
direct or indirect material interest. Certain transactions with
related parties, however, are excluded from the definition of a
related party transaction including, but not limited to
(i) transactions involving the purchase or sale of products
or services in the ordinary course of business, not exceeding
$20,000, (ii) transactions where a related partys
interest derives solely from his or her service as a director of
another entity that is a party to the transaction,
(iii) transactions where a related partys interest
derives solely from his or her ownership of less than 10% of the
equity interest in another entity that is a party to the
transaction, and (iv) transactions where a related
partys interest derives solely from his or her ownership
of a class of our equity securities and all holders of that
class received the same benefit on a pro rata basis. No member
of the audit committee may participate in any review,
consideration or approval of any related party transaction where
such member or any of his or her immediate family members is the
related party. In approving or rejecting the proposed agreement,
our audit committee shall consider the relevant facts and
circumstances available and deemed relevant to the audit
committee, including, but not limited to (i) the benefits
and perceived benefits to the company, (ii) the materiality
and character of the related partys direct and indirect
interest, (iii) the availability of other sources for
comparable products or services, (iv) the terms of the
transaction, and (v) the terms available to unrelated third
parties under the same or similar circumstances. In reviewing
proposed related party transactions, the audit committee will
only approve or ratify related party transactions that are in,
or not inconsistent with, the best interests of the company and
our stockholders. We have determined that there were no new
related party transactions to disclose in 2009.
Indebtedness
of Directors and Officers
None of our or any of our subsidiaries current or former
directors or executive officers is indebted to us or any our
subsidiaries, nor are any of these individuals indebted to
another entity which indebtedness is the subject of a guarantee,
support agreement, letter of credit or other similar arrangement
or understanding provided by us, or any of our subsidiaries. One
non executive employee is indebted to us for approximately
$127,000 (excluding accrued and unpaid interest).
-91-
None of our directors, executive officers, or associates of any
of them, is, or, at any time since the beginning of the most
recently completed financial year has been, indebted to us or
any of our subsidiaries, to another entity which indebtedness is
the subject of a guarantee, support agreement, letter of credit
or other similar arrangement or understanding provided by us or
any of our subsidiaries, or pursuant to any stock purchase
program or any other program.
Determinations
Regarding Director Independence
The board of directors has determined that each of our current
directors, except Dr. Kirkman, is an independent
director as that term is defined in NASDAQ Marketplace
Rule 5605(a)(2). The independent directors generally meet
in executive session at each quarterly board of directors
meeting.
The board of directors has also determined that each member of
the audit committee, the compensation committee, and the
corporate governance and nominating committee meets the
independence standards applicable to those committees prescribed
by the NASDAQ, the SEC, and the Internal Revenue Service.
Finally, the board of directors has determined that
Mr. Spiegelman, the chairman of the audit committee, is an
audit committee financial expert as that term is
defined in Item 407(d)(5) of Regulation S K
promulgated by the SEC.
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ITEM 14.
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Principal
Accountant Fees and Services
|
Fees Billed to Us
by Deloitte & Touche LLP during Fiscal 2009
Audit
Fees
Fees and related expenses for the 2009 and 2008 audits by
Deloitte & Touche LLP of our annual financial
statements, its review of the financial statements included in
our quarterly reports and other services that are provided in
connection with statutory and regulatory filings totaled
$412,407 and $422,601, respectively.
Audit-Related
Fees
For the years 2009 and 2008, Deloitte & Touche LLP
billed us $66,272 and $95,786, respectively, for its services
related to financings, acquisitions, consultations on accounting
issues, and other audit-related matters.
Tax
Fees
For the years 2009 and 2008, Deloitte & Touche LLP
billed us $230,381 and $255,868, respectively, for professional
services related to preparation of our tax returns and tax
consulting.
All Other
Fees
For the years 2009 and 2008, Deloitte & Touche LLP
billed us $126,572 and $0, respectively, for other services.
Fees incurred for other services related primarily to our
efforts to monetize the tax losses in our Canadian subsidiary,
Oncothyreon Canada Inc.
Policy on Audit
Committee Pre Approval of Fees
In its pre-approval policy, the audit committee has authorized
our chief executive officer or our chief financial officer to
engage the services of Deloitte & Touche LLP with
respect to the following services:
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audit related services that are outside the scope of our annual
audit and generally are (i) required on a project,
recurring, or on a one-time basis, (ii) requested by one of
our business partners (e.g., a review or audit of royalty
payments), or (iii) needed by us to assess the impact of a
proposed accounting standard;
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-92-
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audits of the annual statutory financial statements required by
the
non-U.S. governmental
agencies for our overseas subsidiaries;
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accounting services related to potential or actual acquisitions
or investment transactions that if consummated would be
reflected in our financial results or tax returns (this does not
include any due diligence engagements, which must be
pre-approved by the audit committee separately); and
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other accounting and tax services, such as routine consultations
on accounting
and/or tax
treatments for contemplated transactions.
|
Notwithstanding this delegation of pre-approval authority, the
audit committee is informed of all audit and non-related
services performed by Deloitte & Touche LLP. On an
annual basis prior to the completion of the audit, the audit
committee will review a listing prepared by management of all
proposed non-audit services to be performed by the external
auditor for the upcoming fiscal year, such listing to include
scope of activity and estimated budget amount. On an annual
basis, prior to completion of the external audit, the audit
committee will review a listing prepared by the external
auditors of all non-audit services performed during the
immediately preceding fiscal year. The audit committee, if
satisfied with the appropriateness of the services, will provide
ratification to all services prior to completion of the audit.
If non-audit services are required subsequent to the annual
pre-approval of services, management will seek approval of such
services at the next regularly scheduled audit committee
meeting. If such services are required prior to the next audit
committee meeting, management will confer with the audit
committee chairman regarding either conditional approval subject
to full audit committee ratification or the necessity to
reconvene a meeting. The audit committee has considered the
non-audit services provided to us by Deloitte & Touche
LLP and has determined that the provision of such services is
compatible with Deloitte & Touche LLPs
independence.
All audit-related, tax and other fees were approved by the audit
committee.
PART IV
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ITEM 15.
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Exhibits
and Financial Statement Schedules
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(a) The following documents are filed as part of this
Annual Report on
Form 10-K:
1. Financial Statements:
The consolidated financial statements of the Company are
contained in Item 8 of this annual report on
Form 10-K.
2. Financial Statement Schedules:
All financial statement schedules have been omitted because the
required information is either included in the financial
statements or notes thereto, or is not applicable.
3. Exhibits:
The exhibits required by Item 601 of
Regulation S-K
are listed in paragraph (b) below.
-93-
(b) Exhibits:
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the SEC:
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Exhibit
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Number
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Description
|
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2
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.1(a)
|
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Agreement and Plan of Reorganization among ProlX Pharmaceuticals
Corporation, D. Lynn Kirkpatrick, Garth Powis and Biomira Inc.,
dated October 30, 2006 (incorporated by reference from
Exhibit 2.1 to Registration Statement on
Form S-4/A
filed on October 29, 2007).
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2
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.1(b)
|
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Amendment No. 1 to Agreement and Plan of Reorganization
dated November 7, 2007.
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3
|
.1
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Amended and Restated Certificate of Incorporation of Oncothyreon
Inc. (incorporated by reference from Exhibit 3.1 to
Registration Statement on
Form S-4/A
filed on September 27, 2007).
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3
|
.2
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Bylaws of Oncothyreon Inc. (incorporated by reference from
Exhibit 3.1 to Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2009 filed on
August 14, 2009).
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4
|
.1
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Form of registrants common stock certificate.
(incorporated by reference from Exhibit 4.1 to Registration
Statement on
Form S-4/A
filed on September 27, 2007)
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10
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.1*
|
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Form of Indemnification Agreement (incorporated by reference
from Exhibit 10.1 to Registration Statement on
Form S-4/A
filed on September 27, 2007).
|
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10
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.2
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License Agreement between Biomira Inc. and the Dana-Farber
Cancer Institute, Inc., dated November 22, 1996
(incorporated by reference from Exhibit 10.6 to
Registration Statement on
Form S-4
filed on September 12, 2007).
|
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10
|
.3*
|
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Severance Agreement between Biomira Inc. and Edward Taylor,
dated July 6, 1998 (incorporated by reference from
Exhibit 10.7 to Registration Statement on
Form S-4
filed on September 12, 2007).
|
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10
|
.4
|
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Exclusive License Agreement between the University of Arizona
and ProlX Pharmaceuticals, Inc., dated June 3, 1999
(incorporated by reference from Exhibit 10.9 to
Registration Statement on
Form S-4/A
filed on September 27, 2007).
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10
|
.5
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Amended and Restated License Agreement between Imperial Cancer
Research Technology Limited and Biomira Inc., dated
November 14, 2000 (incorporated by reference from
Exhibit 10.11 to Registration Statement on
Form S-4/A
filed on September 27, 2007).
|
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10
|
.6
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Exclusive License Agreement among Georgetown University, the
University of Arizona and ProlX Pharmaceuticals Corporation,
dated July 5, 2001 (incorporated by reference from
Exhibit 10.12 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
|
.7
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Consent and Acknowledgement among Biomira Inc., Biomira
International Inc., Biomira Europe B.V., Imperial Cancer
Research Technology Limited and Merck KGaA, dated
February 5, 2002 (incorporated by reference from
Exhibit 10.13 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.8
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License Agreement between the Governors of the University of
Alberta and Biomira Inc., dated December 1, 2001
(incorporated by reference from Exhibit 10.14 to
Registration Statement on
Form S-4/A
filed on September 27, 2007).
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10
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.9
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Letter Agreement between Biomira Inc. and Cancer Research
Technology Limited (formerly Imperial Cancer Research Technology
Limited), dated March 9, 2004 (incorporated by reference
from Exhibit 10.16 to Registration Statement on
Form S-4/A
filed on September 27, 2007).
|
-94-
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|
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|
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Exhibit
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Number
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Description
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10
|
.10
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Exclusive License Agreement between the University of Arizona
and ProlX Pharmaceuticals Corporation, dated July 29, 2004
(incorporated by reference from Exhibit 10.18 to
Registration Statement on
Form S-4
filed on September 12, 2007).
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10
|
.11
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Adjuvant License Agreement between Biomira International Inc.
and Corixa Corporation, dated October 20, 2004
(incorporated by reference from Exhibit 10.19 to
Registration Statement on
Form S-4/A
filed on September 27, 2007).
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10
|
.12
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Adjuvant Supply Agreement between Biomira International Inc. and
Corixa Corporation, dated October 20, 2004 (incorporated by
reference from Exhibit 10.20 to Registration Statement on
Form S-4/A
filed on September 27, 2007).
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10
|
.13
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Exclusive Patent License Agreement between the University of
Arizona and ProlX Pharmaceuticals Corporation, dated
September 15, 2005 (incorporated by reference from
Exhibit 10.21 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
|
.14*
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Severance Agreement between Biomira Inc. and Rao Koganty, dated
March 21, 2006 (incorporated by reference from
Exhibit 10.25 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.15*
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Offer letter with Robert Kirkman, dated August 29, 2006
(incorporated by reference from Exhibit 10.27 to
Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.15(a)*
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Amendment to Robert Kirkman Offer Letter dated December 31,
2008 (incorporated by reference from Exhibit 10.18(a) to
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed on
March 30, 2009).
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10
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.15(b)*
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Amendment to Robert Kirkman Offer Letter dated December 3,
2009 (incorporated by reference from Exhibit 10.1 to
Current Report on
Form 8-K
filed on December 7, 2009).
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10
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.16
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Letter Agreement between the University of Arizona and Biomira
Inc., dated October 6, 2006 (incorporated by reference from
Exhibit 10.28 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.17*
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2006 Variable Pay Plan (incorporated by reference from
Exhibit 10.36 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.18
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Form of Purchase Warrant issued by Biomira Inc. to each of the
individuals and entities listed on Schedule 1 to this
Exhibit 10.18, dated December 18, 2006 (incorporated
by reference from Exhibit 10.41 to Registration Statement
on
Form S-4
filed on September 12, 2007).
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10
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.19
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Purchase Warrant issued by Biomira Inc. to Rodman &
Renshaw, LLC, dated December 18, 2006 (incorporated by
reference from Exhibit 10.42 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.20
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Security Agreement between Jeffrey Millard and Biomira Inc.,
dated November 8, 2006 (incorporated by reference from
Exhibit 10.43 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.21
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General Security Agreement between Jeffrey Millard and Biomira
Inc., dated November 8, 2006 (incorporated by reference
from Exhibit 10.44 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.22
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Security Agreement between Linda Pestano and Biomira Inc., dated
November 8, 2006 (incorporated by reference from
Exhibit 10.45 to Registration Statement on
Form S-4
filed on September 12, 2007).
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-95-
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|
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Exhibit
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Number
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Description
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10
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.23
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General Security Agreement between Linda Pestano and Biomira
Inc., dated November 8, 2006 (incorporated by reference
from Exhibit 10.46 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.24
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Promissory Note between Jeffrey Millard and Biomira Inc., dated
November 8, 2006 (incorporated by reference from
Exhibit 10.49 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.24(a)
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Note Amendment Agreement by and between Oncothyreon Inc. and
Jeffrey Millard, dated April 20, 2008 (incorporated by
reference from Exhibit 10.36(a) to Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed on
March 30, 2009).
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10
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.25
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Promissory Note between Linda Pestano and Biomira Inc., dated
November 8, 2006 (incorporated by reference from
Exhibit 10.50 to Registration Statement on
Form S-4
filed on September 12, 2007).
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10
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.25(a)
|
|
Note Amendment Agreement by and between Oncothyreon Inc. and
Linda Pestano, dated April 20, 2008 (incorporated by
reference from Exhibit 10.37(a) to Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed on
March 30, 2009).
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10
|
.25(b)
|
|
Note Amendment Agreement by and between Oncothyreon Inc. and
Linda Pestano, dated November 30, 2009.
|
|
10
|
.26*
|
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Offer Letter with Gary Christianson, dated June 29, 2007
(incorporated by reference from Exhibit 10.1 to Quarterly
Report on
Form 10-Q
for the quarterly period ended September 30, 2008 filed on
November 10, 2008).
|
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10
|
.26(a)*
|
|
Amendment to Gary Christianson Offer Letter dated
December 31, 2008 (incorporated by reference from
Exhibit 10.40(a) to Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed on
March 30, 2009).
|
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10
|
.26(b)*
|
|
Amendment to Gary Christianson Offer Letter dated
December 3, 2009 (incorporated by reference from
Exhibit 10.2 to Current Report on
Form 8-K
filed on December 7, 2009).
|
|
10
|
.27
|
|
Sublease Agreement between Muze Inc. and Oncothyreon Inc., dated
May 9, 2008 (incorporated by reference from
Exhibit 10.2 to Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2008 filed on
November 10, 2008).
|
|
10
|
.28
|
|
Lease Agreement between Selig Holdings Company and Oncothyreon
Inc., dated May 9, 2008 (incorporated by reference from
Exhibit 10.3 to Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2008 filed on
November 10, 2008).
|
|
10
|
.29
|
|
Amendment Number 1 to Adjuvant License Agreement and Adjuvant
Supply Agreement between Corixa Corporation, d/b/a
GlaxoSmithKline Biologicals N.A. and Biomira Management Inc.,
dated August 8, 2008 (incorporated by reference from
Exhibit 10.4 to Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2008 filed on
November 10, 2008).
|
|
10
|
.30
|
|
Amended and Restated License Agreement between Biomira
Management, Inc. and Merck KGaA, dated December 18, 2008
(incorporated by reference from Exhibit 10.1 to Quarterly
Report on
Form 10-Q
for the quarterly period ended March 31, 2009 filed on
May 15, 2009).
|
|
10
|
.31
|
|
Asset Purchase Agreement by and among Oncothyreon Canada Inc.,
Biomira Management, Inc., Oncothyreon Inc., Merck KGaA and EMD
Serono Canada Inc., dated December 18, 2008 (incorporated
by reference from Exhibit 10.45 to Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed on
March 30, 2009).
|
-96-
|
|
|
|
|
Exhibit
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Number
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|
Description
|
|
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10
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.32*
|
|
Offer Letter dated March 24, 2008 between Oncothyreon Inc.
and Shashi Karan (incorporated by reference from
Exhibit 99.1 to Current Report on
Form 8-K
filed on March 11, 2009).
|
|
10
|
.32(a)*
|
|
Amendment to Shashi Karan Offer Letter dated December 3,
2009 (incorporated by reference from Exhibit 10.5 to
Current Report on
Form 8-K
filed on December 7, 2009).
|
|
10
|
.33
|
|
Form of Warrant (incorporated by reference from Annex A to
the Companys free writing prospectus, dated as of
May 19, 2009, and filed on May 20, 2009).
|
|
10
|
.34*
|
|
Offer Letter dated June 9, 2009 between Oncothyreon Inc.
and Scott Peterson, Ph.D. (incorporated by reference from
Exhibit 10.2 to Current Report on
Form 8-K
filed on June 15, 2009).
|
|
10
|
.34(a)*
|
|
Amendment to Scott Peterson Offer Letter dated December 3,
2009 (incorporated by reference from Exhibit 10.4 to
Current Report on
Form 8-K
filed on December 7, 2009).
|
|
10
|
.35*
|
|
Offer Letter dated July 6, 2009 between Oncothyreon Inc.
and Diana Hausman, M.D. (incorporated by reference from
Exhibit 10.1 to Current Report on
Form 8-K
filed on August 4, 2009).
|
|
10
|
.35(a)*
|
|
Amendment to Diana Hausman Offer Letter dated December 3,
2009 (incorporated by reference from Exhibit 10.3 to
Current Report on
Form 8-K
filed on December 7, 2009).
|
|
10
|
.36
|
|
Form of Warrant (incorporated by reference from Annex A to
the Companys free writing prospectus, dated as of
August 4, 2009, and filed on August 5, 2009).
|
|
10
|
.37*
|
|
Amended and Restated Share Option Plan (incorporated by
reference from Exhibit 10.2 to Current Report on
Form 8-K
filed on October 14, 2009).
|
|
10
|
.38*
|
|
Form of Stock Option Agreement under the Amended and Restated
Share Option Plan (incorporated by reference from
Exhibit 10.3 to Current Report on
Form 8-K
filed on October 14, 2009).
|
|
10
|
.39*
|
|
Amended and Restated Restricted Share Unit Plan (incorporated by
reference from Exhibit 10.1 to Current Report on
Form 8-K
filed on October 14, 2009).
|
|
10
|
.40*
|
|
Form of Restricted Share Unit Agreement under the Amended and
Restated Restricted Share Unit Plan (incorporated by reference
from Exhibit 10. to Current Report on
Form 8-K
filed on June 15, 2009).
|
|
10
|
.41
|
|
Common Stock Purchase Agreement by and among Biomira Inc.,
Biomira International Inc. and Merck KGaA dated May 2, 2001.
|
|
10
|
.42
|
|
Tax Indemnity Agreement by and between Biomira International
Inc. and Merck KGaA dated May 3, 2001.
|
|
18
|
.1
|
|
Letter Regarding the Preferability of Change in Accounting
Principle.
|
|
21
|
.1
|
|
Subsidiaries of Oncothyreon Inc.
|
|
23
|
.1
|
|
Consent of Deloitte & Touche LLP, independent
registered chartered accountants.
|
|
23
|
.2
|
|
Consent of Deloitte & Touche LLP, independent
registered public accounting firm.
|
|
24
|
.1
|
|
Power of Attorney (included on signature page).
|
|
31
|
.1
|
|
Certification of Robert L. Kirkman, M.D., President and
Chief Executive Officer, pursuant to Exchange Act
Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Shashi K. Karan, Corporate Controller, pursuant
to Exchange Act
Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
-97-
|
|
|
|
|
Exhibit
|
|
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Number
|
|
Description
|
|
|
32
|
.1
|
|
Certification of Robert L. Kirkman, M.D., President and
Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Shashi K. Karan, Corporate Controller, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Executive Compensation Plan or Agreement. |
|
|
|
Confidential treatment has been granted for portions of this
exhibit. |
-98-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Seattle, County of
King, State of Washington on
May 6th,
2010.
ONCOTHYREON INC
|
|
|
|
By:
|
/s/ Robert
L. Kirkman
|
Robert L. Kirkman
President, CEO and Director
POWER OF
ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Robert L. Kirkman and Shashi K. Karan, and each of them
severally, his true and lawful attorneys-in-fact and agents,
with full power to act without the other and with full power of
substitution and resubstitution, to execute in his name and on
his behalf, individually and in each capacity stated below, any
and all amendments and supplements to this Report, and any and
all other instruments necessary or incidental in connection
herewith, and to file the same with the Commission.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
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|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Robert
L. Kirkman
Robert
L. Kirkman
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
May 6, 2010
|
|
|
|
|
|
/s/ Shashi
K. Karan
Shashi
K. Karan
|
|
Principal Financial and Accounting Officer and Corporate
Controller
|
|
May 6, 2010
|
|
|
|
|
|
/s/ Christopher
S. Henney
Christopher
S. Henney
|
|
Chairman and Director
|
|
May 6, 2010
|
|
|
|
|
|
/s/ Richard
L. Jackson
Richard
L. Jackson
|
|
Director
|
|
May 6, 2010
|
|
|
|
|
|
/s/ Daniel
K. Spiegelman
Daniel
K. Spiegelman
|
|
Director
|
|
May 6, 2010
|
|
|
|
|
|
/s/ W.
Vickery Stoughton
W.
Vickery Stoughton
|
|
Director
|
|
May 6, 2010
|
|
|
|
|
|
/s/ Douglas
Williams
Douglas
Williams
|
|
Director
|
|
May 6, 2010
|
-99-
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Annual Financial Statements of Oncothyreon Inc.
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
|
|
|
F-10
|
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Oncothyreon Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of
Oncothyreon Inc. and subsidiaries (the Company) as
of December 31, 2009 and 2008, and the related consolidated
statements of operations and comprehensive income (loss),
stockholders equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Oncothyreon Inc. and subsidiaries as of December 31, 2009
and 2008, and the results of their operations and their cash
flows for each of the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated May 5, 2010 expressed an
adverse opinion on the Companys internal control over
financial reporting because of material weaknesses.
As discussed in Note 2 to the consolidated financial
statements, the accompanying 2008 consolidated financial
statements have been restated.
As discussed in Note 2 to the consolidated financial
statements, the Company changed its method of accounting for
licensing revenue in 2008.
/s/ Deloitte & Touche LLP
Seattle, Washington
May 5, 2010
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Oncothyreon Inc.
Seattle, Washington
We have audited the internal control over financial reporting of
Oncothyreon Inc. and subsidiaries (the Company) as
of December 31, 2009 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis.
The following material weaknesses have been identified and
included in managements assessment: the Company does not
have adequately designed controls in place to ensure the
appropriate accounting for and disclosure of complex
transactions in accordance with generally accepted accounting
F-3
principles, and it does not have in place an adequately designed
and implemented risk assessment process to identify complex
transactions requiring specialized knowledge in accordance with
generally accepted accounting principles. These material
weaknesses were considered in determining the nature, timing,
and extent of audit tests applied in our audit of the
consolidated financial statements as of and for the year ended
December 31, 2009, of the Company and this report does not
affect our report on such financial statements.
In our opinion, because of the effect of the material weaknesses
identified above on the achievement of the objectives of the
control criteria, the Company has not maintained effective
internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
December 31, 2009, of the Company and our report dated
May 5, 2010 expressed an unqualified opinion on those
financial statements.
/s/ Deloitte & Touche LLP
Seattle, Washington
May 5, 2010
F-4
REPORT OF
INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Board of Directors and Stockholders of Oncothyreon Inc.
We have audited the consolidated balance sheet of Oncothyreon
Inc. and subsidiaries (the Company) as of
December 31, 2007 (not included herein) and the
accompanying consolidated statements of operations and
comprehensive loss, stockholders equity, and cash flows
for the year then ended. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Oncothyreon Inc. and subsidiaries as of December 31, 2007
and the results of their operations and their cash flows for the
year then ended, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, the
accompanying 2007 financial statements have been restated to
correct a misstatement.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
Edmonton, Alberta, Canada
March 13, 2008 (May 5, 2010 as to the effects of the
restatement discussed in Note 2)
F-5
ONCOTHYREON
INC.
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share
amounts)
|
|
|
ASSETS
|
Current
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,974
|
|
|
$
|
19,166
|
|
Short-term investments
|
|
|
14,244
|
|
|
|
|
|
Accounts receivable
|
|
|
41
|
|
|
|
1,828
|
|
Government grant receivable
|
|
|
|
|
|
|
40
|
|
Notes receivable from employees
|
|
|
36
|
|
|
|
|
|
Prepaid expenses
|
|
|
233
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,528
|
|
|
|
21,418
|
|
Plant and equipment, net
|
|
|
2,076
|
|
|
|
867
|
|
Lease deposits
|
|
|
354
|
|
|
|
354
|
|
Notes receivable from employees
|
|
|
150
|
|
|
|
215
|
|
Goodwill
|
|
|
2,117
|
|
|
|
2,117
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
38,225
|
|
|
$
|
24,971
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
600
|
|
|
$
|
401
|
|
Accrued liabilities
|
|
|
653
|
|
|
|
1,650
|
|
Accrued compensation and related liabilities
|
|
|
804
|
|
|
|
1,607
|
|
Current portion of deferred revenue
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,075
|
|
|
|
3,676
|
|
Notes payable
|
|
|
199
|
|
|
|
199
|
|
Deferred revenue
|
|
|
149
|
|
|
|
164
|
|
Deferred rent
|
|
|
295
|
|
|
|
185
|
|
Warrant liability
|
|
|
10,059
|
|
|
|
|
|
Class UA preferred stock, 12,500 shares authorized,
12,500 shares issued and outstanding in 2009 and 2008
|
|
|
30
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,807
|
|
|
|
4,254
|
|
|
|
|
|
|
|
|
|
|
Contingencies, commitments, and guarantees (See Note 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 10,000,000 shares
authorized, no shares issued and outstanding in 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 25,753,405 and 19,492,432 shares issued and
outstanding
|
|
|
345,836
|
|
|
|
325,043
|
|
Warrants
|
|
|
|
|
|
|
64
|
|
Additional paid-in capital
|
|
|
16,285
|
|
|
|
15,094
|
|
Accumulated deficit
|
|
|
(331,637
|
)
|
|
|
(314,418
|
)
|
Accumulated other comprehensive loss
|
|
|
(5,066
|
)
|
|
|
(5,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
25,418
|
|
|
|
20,717
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
38,225
|
|
|
$
|
24,971
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
F-6
ONCOTHYREON
INC.
Years ended
December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share
amounts)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract research and development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
631
|
|
Contract manufacturing
|
|
|
|
|
|
|
15,582
|
|
|
|
2,536
|
|
Licensing revenue from collaborative and license agreements
|
|
|
2,051
|
|
|
|
24,713
|
|
|
|
440
|
|
Licensing, royalties, and other revenue
|
|
|
27
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,078
|
|
|
|
40,295
|
|
|
|
3,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net
|
|
|
6,081
|
|
|
|
8,783
|
|
|
|
9,584
|
|
Manufacturing
|
|
|
|
|
|
|
13,675
|
|
|
|
2,564
|
|
General and administrative
|
|
|
6,589
|
|
|
|
10,284
|
|
|
|
12,224
|
|
Marketing and business development
|
|
|
|
|
|
|
|
|
|
|
565
|
|
Depreciation
|
|
|
269
|
|
|
|
422
|
|
|
|
246
|
|
Investment and other (income) loss, net
|
|
|
8
|
|
|
|
(298
|
)
|
|
|
371
|
|
Interest expense
|
|
|
|
|
|
|
7
|
|
|
|
5
|
|
Change in fair value of warrant liability
|
|
|
6,150
|
|
|
|
|
|
|
|
(1,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,097
|
)
|
|
|
(32,873
|
)
|
|
|
(24,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income taxes
|
|
|
(17,019
|
)
|
|
|
7,422
|
|
|
|
(20,428
|
)
|
Income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
|
(17,219
|
)
|
|
|
7,422
|
|
|
|
(20,428
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
3,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income (loss)
|
|
$
|
(17,219
|
)
|
|
$
|
7,422
|
|
|
$
|
(17,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
$
|
(1.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share diluted
|
|
$
|
(0.76
|
)
|
|
$
|
0.38
|
|
|
$
|
(1.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic earnings (loss) per share
|
|
|
22,739,138
|
|
|
|
19,490,621
|
|
|
|
19,485,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted earnings (loss) per share
|
|
|
22,739,138
|
|
|
|
19,570,170
|
|
|
|
19,485,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
F-7
ONCOTHYREON
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
Number
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
|
(In thousands, except share
amounts)
|
|
|
Balance at January 1, 2007
|
|
|
19,485,889
|
|
|
$
|
324,992
|
|
|
$
|
11,955
|
|
|
$
|
(301,412
|
)
|
|
$
|
(8,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,681
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,428
|
)
|
|
|
|
|
Unrealized holding gains on
available-for-sale
securities, net of tax of ($0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
Foreign currency translation adjustments, net of tax of ($0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
19,485,889
|
|
|
$
|
324,992
|
|
|
$
|
13,636
|
|
|
$
|
(321,840
|
)
|
|
$
|
(5,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,509
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,422
|
|
|
|
|
|
Conversion of restricted share units
|
|
|
6,543
|
|
|
|
51
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
19,492,432
|
|
|
$
|
325,043
|
|
|
$
|
15,094
|
|
|
$
|
(314,418
|
)
|
|
$
|
(5,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,266
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
6,159,553
|
|
|
|
20,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant exercises
|
|
|
91,500
|
|
|
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,219
|
)
|
|
|
|
|
Conversion of restricted share units
|
|
|
9,920
|
|
|
|
75
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
25,753,405
|
|
|
$
|
345,836
|
|
|
$
|
16,285
|
|
|
$
|
(331,637
|
)
|
|
$
|
(5,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
F-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Operating
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17,219
|
)
|
|
$
|
7,422
|
|
|
$
|
(20,428
|
)
|
Adjustment to reconcile net income (loss) used in operating
|
|
|
|
|
|
|
|
|
|
|
|
|
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
269
|
|
|
|
422
|
|
|
|
246
|
|
Stock-based compensation expense
|
|
|
1,266
|
|
|
|
1,509
|
|
|
|
1,681
|
|
Change in fair value of warrant liability
|
|
|
6,150
|
|
|
|
|
|
|
|
(1,421
|
)
|
Gain on disposal of short term investments
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
(Gain) loss on disposal of plant and equipment
|
|
|
7
|
|
|
|
(48
|
)
|
|
|
7
|
|
Proceeds from collaborative agreements
|
|
|
|
|
|
|
3,000
|
|
|
|
10,000
|
|
Proceeds from contract manufacturing
|
|
|
|
|
|
|
4,060
|
|
|
|
5,798
|
|
Deferred revenue
|
|
|
(15
|
)
|
|
|
(25,143
|
)
|
|
|
(946
|
)
|
Deferred rent
|
|
|
110
|
|
|
|
185
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,782
|
|
|
|
194
|
|
|
|
10
|
|
Government grants receivable
|
|
|
40
|
|
|
|
512
|
|
|
|
|
|
Prepaid expenses
|
|
|
151
|
|
|
|
144
|
|
|
|
(171
|
)
|
Inventory
|
|
|
|
|
|
|
5,069
|
|
|
|
(3,466
|
)
|
Long term deposits
|
|
|
|
|
|
|
(354
|
)
|
|
|
|
|
Accounts payable
|
|
|
147
|
|
|
|
166
|
|
|
|
(181
|
)
|
Accrued liabilities
|
|
|
(997
|
)
|
|
|
(1,808
|
)
|
|
|
1,205
|
|
Accrued compensation and related liabilities
|
|
|
(803
|
)
|
|
|
(216
|
)
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(9,112
|
)
|
|
|
(4,886
|
)
|
|
|
(7,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of short-term investments
|
|
|
(16,127
|
)
|
|
|
(22,376
|
)
|
|
|
(37,574
|
)
|
Redemption of short-term investments
|
|
|
1,883
|
|
|
|
34,246
|
|
|
|
42,655
|
|
Purchase of plant and equipment
|
|
|
(1,433
|
)
|
|
|
(744
|
)
|
|
|
(684
|
)
|
Proceeds from sale of plant and equipment
|
|
|
|
|
|
|
548
|
|
|
|
|
|
Business acquisition
|
|
|
|
|
|
|
|
|
|
|
(238
|
)
|
Payments received on notes receivable from employees
|
|
|
34
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(15,643
|
)
|
|
|
11,825
|
|
|
|
4,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants, net of
issue costs
|
|
|
24,563
|
|
|
|
|
|
|
|
(165
|
)
|
Repayment of capital lease obligations
|
|
|
|
|
|
|
(93
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
24,563
|
|
|
|
(93
|
)
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(192
|
)
|
|
|
6,846
|
|
|
|
(3,108
|
)
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
|
|
|
|
285
|
|
|
|
1,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(192
|
)
|
|
|
7,131
|
|
|
|
(1,374
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
19,166
|
|
|
|
12,035
|
|
|
|
13,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
18,974
|
|
|
$
|
19,166
|
|
|
$
|
12,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of interest paid in the year
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
5
|
|
Amount of income taxes paid in the year
|
|
$
|
200
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
F-9
ONCOTHYREON
INC.
Year ended
December 31, 2009, 2008 and 2007
|
|
1.
|
DESCRIPTION OF
BUSINESS
|
Oncothyreon Inc. (the Company or
Oncothyreon) is a clinical-stage biopharmaceutical
company incorporated in the State of Delaware on
September 7, 2007. Oncothyreon is focused primarily on the
development of therapeutic products for the treatment of cancer.
Oncothyreons goal is to develop and commercialize novel
synthetic vaccines and targeted small molecules that have the
potential to improve the lives and outcomes of cancer patients.
Oncothyreons operations are not subject to any seasonality
or cyclicality factors.
Change in
reporting entity
On December 10, 2007, Oncothyreon became the successor
corporation to Biomira Inc. (the Company or
Biomira) by way of a plan of arrangement approved at
special meeting of the stockholders of Biomira and the Alberta
Court of Queens Bench under Canadian law in December 2007.
Biomira was incorporated under the Canada Business Corporations
Act in 1985.
On December 11, 2007, Oncothyreons common stock began
trading on The NASDAQ Global Market under the symbol
ONTY and on the Toronto Stock Exchange under the
symbol ONY. On October 22, 2009, at the
Companys voluntary request, its shares ceased trading on
the Toronto Stock Exchange. Holders of common shares of the
former Biomira received one-sixth of a share of common stock of
Oncothyreon in exchange for each common share of Biomira, which
had the effect of a 6 for 1 reverse stock split of the
outstanding common shares. The holder of the 12,500 outstanding
Biomira Class A preference shares received one share of
Class UA Preferred Stock of Oncothyreon for each Biomira
Class A preference share. The consolidated financial
statements have been prepared giving effect to the 6 for
1 share exchange and basic and diluted loss per share for
all periods presented.
All Biomira common stock options, restricted share units and
warrants that were in existence prior to the plan of arrangement
were exchanged for stock options, restricted share units and
warrants in Oncothyreon on a 6 for 1 basis with no change in any
of the terms and conditions.
Oncothyreons Board of Directors and management immediately
following the plan of arrangement were the same as
Biomiras immediately before the plan of arrangement became
effective.
In accordance with Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(ASC) Topic 805, Business Combinations, the
plan of arrangement was a transaction among entities under
common control. Assets and liabilities transferred between
entities under common control are accounted for at historical
cost. Accordingly, the assets and liabilities of the predecessor
Biomira have been reflected at their historical cost in the
accounts of Oncothyreon. In addition, these financial statements
reflect the historical accounts of Biomira up to
December 10, 2007 with the exception of basic and diluted
loss per share amounts, descriptions and amounts of all common
stock, stock options, restricted share units and warrants and
their corresponding exercise prices where applicable; which have
been recast to reflect the 6 for 1 common share exchange
effected by the plan of arrangement.
In these financial statements, the reference to
Company means Biomira for periods prior to
December 10, 2007 and Oncothyreon for periods thereafter.
F-10
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
|
|
2.
|
RESTATEMENT
2008 CHANGE IN ACCOUNTING POLICY NOT PREVIOUSLY REPORTED AND
OTHER ERROR CORRECTIONS
|
2008 change in
accounting policy not previously reported
Subsequent to the issuance of the Companys 2008
consolidated financial statements, Company management determined
that it had changed its revenue recognition policy for up-front
license payments and contingent payments received from license
agreements under which a license deliverable qualifies as a
separate unit of accounting from recognition over the applicable
amortization period (the Proportional Performance
Model) to recognition upon commencement of the license
term (the Specific Performance Model), assuming all
other revenue recognition criteria have been met. The Company
failed to provide the required disclosures under Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 250, Accounting
Changes and Error Corrections, with respect to such change.
Accordingly, the consolidated financial statements as of and for
the year ended December 31, 2008 have been restated to
reflect the change in accounting policy. The restatement as it
relates to the failure to provide the required disclosures of
the change in accounting policy did not change the
Companys consolidated balance sheet, consolidated
statements of operations, consolidated changes in
stockholders equity or consolidated cash flows as of and
for the year ended December 31, 2008.
As described in Note 12, on December 18, 2008, the
Company and Merck KGaA entered into a license agreement and
asset purchase agreement (the 2008 Agreements) which
replaced the 2007 Agreements (as defined in Note 12).
Pursuant to the 2008 license agreement, the Company licensed to
Merck KGaA all rights related to the development,
commercialization and manufacture of Stimuvax. The only
deliverable under the 2008 license agreement was the license.
Pursuant to the asset purchase agreement, the Company sold to
Merck KGaA certain assets related to the manufacture of, and
inventory of, Stimuvax, placebo and raw materials, and Merck
KGaA agreed to assume certain liabilities related to the
manufacturing of Stimuvax and the Companys obligations
related to the lease of the Companys Edmonton, Alberta,
Canada facility. The license to Merck KGaA was effective upon
the execution of the 2008 Agreements and all future Company
performance obligations related to the collaboration for the
development of Stimuvax were removed and continuing involvement
by the Company in the manufacturing of Stimuvax ceased.
Upon entering into the 2008 Agreements, the Company changed its
revenue recognition policy for upfront cash payments and
contingent payments related to license deliverables that qualify
as a separate unit of accounting under
ASC 605-25,
Multiple Element Arrangements, such as those under the
2008 license agreement with Merck KGaA, from the Proportional
Performance Model to the Specific Performance Model. The Company
concluded that the Specific Performance Model is the preferable
method for recognizing such revenue as this model more closely
reflects the culmination of the earnings process when the
Company has no ongoing deliverables and all other revenue
recognition criteria have been met. The Company also believes
this more accurately reflects the economic substance of the
transaction, as there is no remaining economic obligation
associated with such revenue. Additionally, the Company believes
that for arrangements that provide an exclusive license with a
duration that approximates the useful life of the intellectual
property, the transaction is similar to an outright product sale
and therefore a Specific Performance Model (or upfront revenue
recognition) is preferable. In the absence of this change in its
revenue recognition policy, the Company would have continued to
amortize license payments over the estimated product life of
Stimuvax, which is the period through 2018.
F-11
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Under ASC 250, a change in accounting policy requires
retrospective application of the new accounting policy to all
prior periods, unless it is impractical to do so. As the
deliverables for which the Company received up-front cash
payments and contingent payments prior to the 2008 Agreements
did not qualify as separate units of accounting, none of the
periods prior to the 2008 Agreements presented in the
Companys consolidated financial statements were affected
by the change in accounting policy and there was not a
cumulative effect on retained earnings as of January 1,
2006.
The following tables set forth the impact on the Companys
consolidated financial statements as a result of changing its
accounting policy as described above and after the restatement
of the other error corrections described below the following
tables (in thousands, except share and per share data):
Statement of
Operations and Comprehensive Income and Loss Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2008
|
|
|
As Computed
|
|
As Reported
|
|
|
|
|
Under
|
|
Under
|
|
|
|
|
Proportional
|
|
Specific
|
|
|
|
|
Performance
|
|
Performance
|
|
Effect of
|
|
|
Model
|
|
Model
|
|
Change
|
|
Licensing revenue from collaborative and license agreements
|
|
$
|
11,757
|
|
|
$
|
24,713
|
|
|
$
|
12,956
|
|
Income (loss) before income taxes
|
|
$
|
(5,534
|
)
|
|
$
|
7,422
|
|
|
$
|
12,956
|
|
Net income (loss)
|
|
$
|
(5,534
|
)
|
|
$
|
7,422
|
|
|
$
|
12,956
|
|
Earnings (loss) per share basic
|
|
$
|
(0.28
|
)
|
|
$
|
0.38
|
|
|
$
|
0.66
|
|
Earnings (loss) per share diluted
|
|
$
|
(0.28
|
)
|
|
$
|
0.38
|
|
|
$
|
0.66
|
|
Shares used to compute diluted earnings (loss) per share
|
|
|
19,490,621
|
|
|
|
19,570,170
|
|
|
|
79,549
|
|
Balance Sheet
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2008
|
|
|
As Computed
|
|
As Reported
|
|
|
|
|
Under
|
|
Under
|
|
|
|
|
Proportional
|
|
Specific
|
|
|
|
|
Performance
|
|
Performance
|
|
Effect of
|
|
|
Model
|
|
Model
|
|
Change
|
|
Current portion of deferred revenue
|
|
$
|
1,412
|
|
|
$
|
18
|
|
|
$
|
(1,394
|
)
|
Deferred revenue
|
|
$
|
11,726
|
|
|
$
|
164
|
|
|
$
|
(11,562
|
)
|
Accumulated deficit
|
|
$
|
(327,374
|
)
|
|
$
|
(314,418
|
)
|
|
$
|
12,956
|
|
Statement of Cash
Flows Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2008
|
|
|
As Computed
|
|
As Reported
|
|
|
|
|
Under
|
|
Under
|
|
|
|
|
Proportional
|
|
Specific
|
|
|
|
|
Performance
|
|
Performance
|
|
Effect of
|
|
|
Model
|
|
Model
|
|
Change
|
|
Operating:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,534
|
)
|
|
$
|
7,422
|
|
|
$
|
12,956
|
|
Adjustment to reconcile net income (loss) used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
(12,187
|
)
|
|
$
|
(25,143
|
)
|
|
$
|
(12,956
|
)
|
F-12
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Other error
corrections
In addition to the error described above, the Company also
identified an error in the period over which up-front cash
payments received in 2001 for Stimuvax were recognized as
revenue. In connection with the failure of Theratope and the
return of Theratope rights and technology to the Company in June
2004 (See Note 12 Collaborative and
License Agreements), the Company failed to reevaluate the
nature of its remaining deliverables under the 2001 Agreements,
which consisted principally of the development efforts related
to Stimuvax. Such reevaluation by management should have
resulted in the amortization of all remaining deferred revenue
over a period to end in 2018 (the period estimated by management
to represent the estimated useful life of the product and the
estimated period of the Companys ongoing obligations,
which corresponded to the estimated life of the issued patents
for Stimuvax). While total operating cash flows for any period
presented in the consolidated statement of cash flows was not
affected, the impact of correcting the error on the consolidated
statements of operations resulted in an increase in net loss and
a corresponding decrease in the net change in deferred revenue
of $0.1 million in the year ended December 31, 2007
and an increase in net income and a corresponding increase in
the net change in deferred revenue of $0.3 million in the
year ended December 31, 2008, respectively. The correction
of the error also resulted in an increase to accumulated deficit
as of January 1, 2007 of $0.2 million.
The Company has also corrected for an error in classification of
legal costs related to patents, which had incorrectly been
included as research and development, net expense. The Company
has reclassified $0.5 million and $0.4 million of
legal costs related to patents previously reported in research
and development, net expense to general and administrative
expense for 2008 and 2007, respectively. This correction had no
effect on the consolidated balance sheet or consolidated cash
flows. Additionally, the Company corrected for an error in the
classification of $0.2 million of long-term deferred rent
from current liabilities to long-term liabilities in 2008. The
consolidated statement of cash flows has been adjusted to
reflect the reduction in accrued liabilities and the related
non-cash portion of rent expense for the year ended
December 31, 2008. Finally, the Company corrected for an
error in the disclosure of deferred tax assets (See
Note 16 Income Tax).
|
|
3.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Basis of
presentation
These consolidated financial statements have been prepared using
accounting principles generally accepted in the United States of
America (U.S. GAAP) and reflect the following
significant accounting policies.
Basis of
consolidation
The Companys consolidated financial statements include the
accounts of its wholly-owned subsidiaries, including Oncothyreon
Canada Inc., Biomira Management Inc., ProlX Pharmaceuticals
Corporation, Biomira BV, Oncothyreon Luxembourg and its 90%
owned subsidiary Oncodigm Biopharma Inc., on a fully
consolidated basis. All intercompany balances and transactions
have been eliminated upon consolidation.
Accounting
estimates
The preparation of financial statements in accordance with
U.S. GAAP requires management to make complex and
subjective judgments in making estimates and
F-13
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. By
their nature, these judgments are subject to an inherent degree
of uncertainty and as a consequence actual results may differ
from those estimates.
Significant estimates inherent in the preparation of the
accompanying financial statements include the valuation of
goodwill, the fair value of stock options and restricted share
units granted to employees, the fair value of the Companys
warrants classified as liabilities, the useful lives of plant
and equipment, the amortization period of deferred revenues, the
valuation allowance offsetting deferred tax assets, and whether
goodwill is subject to impairment.
Cash and cash
equivalents
Cash equivalents include short-term, highly liquid investments
that are readily convertible to known amounts of cash with
original maturities of 90 days or less at the time of
purchase. At December 31, 2009, cash and cash equivalents
was comprised of $9.6 million in cash, $8.0 million in
money market investments and $1.4 million in certificates
of deposit with original maturities of 90 days or less. As
of December 31, 2008 the amounts were $14.1 million,
$5.0 million and zero respectively. The carrying value of
cash equivalents approximates their fair value.
Investments
Investments are classified as available for sale securities and
are carried at market value with unrealized temporary holding
gains and losses, where applicable, excluded from income and
reported in other comprehensive income and also as a net amount
in accumulated other comprehensive income until realized.
Available-for-sale
securities are written down to fair value through income
whenever it is necessary to reflect an
other-than-temporary
impairment. As at December 31, 2008, the Company had no
short term investments. Available for sale securities are
written down to fair value through income whenever it is
necessary to reflect an
other-than-temporary
impairment. As at December 31, 2009, short term investments
consisted of certificates of deposits denominated at or below
$250,000 issued by banks insured by the Federal Deposit
Insurance Corporation.
Derivative
financial instruments
The Company does not utilize derivative financial instruments.
Warrants issued in connection with the Companys May 2009
financing are recorded as liabilities as they have an exercise
price which may vary under certain circumstances and have the
potential for cash settlement upon the occurrence of a
fundamental transaction (as defined in the warrant). Changes in
the fair value of the warrants are recognized in the
consolidated statements of operations and comprehensive income
(loss).
F-14
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Plant and
equipment and depreciation
Plant and equipment are recorded at cost and depreciated over
their estimated useful lives on a straight-line basis, as
follows:
|
|
|
|
|
Scientific and office equipment
|
|
|
5 years
|
|
Manufacturing equipment
|
|
|
4 years
|
|
Computer software and equipment
|
|
|
3 years
|
|
Leased equipment
|
|
|
Shorter of useful life or the term of the lease
|
|
Leasehold improvements
|
|
|
Shorter of useful life or the term of the lease
|
|
Long-lived
assets
Long-lived assets, such as plant and equipment, and purchased
intangible assets subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset be tested for
impairment, the Company first compares the undiscounted cash
flows expected to be generated by the asset to the carrying
value of the asset. If the carrying value of the long-lived
asset is not recoverable on an undiscounted cash flow basis, an
impairment is recognized to the extent that the carrying value
exceeds its estimated fair value. Fair value is determined by
management through various valuation techniques, including
discounted cash flow models, quoted market values and
third-party independent appraisals, as considered necessary.
There were no impairment charges recorded for any of the periods
presented.
Goodwill
Goodwill is carried at cost and is not amortized, but is
reviewed annually for impairment in the fourth quarter, or more
frequently when events or changes in circumstances indicate that
the asset may be impaired. In the event that the carrying value
of goodwill exceeds its fair value, an impairment loss would be
recognized. There were no impairment charges recorded for any of
the periods presented.
Deferred
Rent
Rent expense is recognized on a straight-line basis over the
term of the lease. Lease incentives, including rent holidays
provided by lessors, and rent escalation provisions are accrued
as deferred rent. The related benefits are included in research
and development expense and general and administrative expense.
Revenue
recognition
The Company recognizes revenue when there is persuasive evidence
that an arrangement exists, delivery has occurred, the price is
fixed and determinable, and collection is reasonably assured. In
accordance with ASC Topic
605-25, the
Company evaluates revenue from arrangements with multiple
deliverables to determine whether the deliverables represent one
or more units of accounting. A delivered item is considered a
separate unit of accounting if the following separation criteria
are met: (1) the delivered item has stand-alone value to
the customer; (2) there is objective and reliable evidence
of the fair value of any undelivered items; and (3) if the
arrangement includes a general right of return relative to the
delivered item, the delivery of undelivered items is probable
and substantially in the Companys control. The relevant
revenue recognition accounting policy is then applied to each
unit of accounting.
F-15
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The Company has historically generated revenue from the
following activities:
Contract research and development. Revenue
from contract research and development consists of
non-refundable research and development payments received under
the terms of collaborative agreements. Payments under these
arrangements compensate the Company for clinical trial
activities performed with respect to the collaborative
development programs for certain product candidates of the
Company. Revenue is recognized on a proportionate performance
basis as clinical activities are performed under the terms of
collaborative agreements based on the activities performed to
date compared to the total estimated activities.
Contract manufacturing. Revenue from contract
manufacturing consists of payments received under the terms of
supply agreements for the manufacturing of clinical trial
material. Such payments compensate the Company for the cost of
manufacturing clinical trial material and are recognized after
shipment of the clinical trial material and upon the earlier of
the expiration of a specified return period, as returns cannot
be reasonably estimated, and formal acceptance of the clinical
trial material by the customer.
Licensing revenue from collaborative and license
agreements. Revenue from collaborative and
license agreements consists of (1) up-front cash payments
for initial technology access or licensing fees and
(2) contingent payments triggered by the occurrence of
specified events or other contingencies derived from the
Companys collaborative and license agreements. Royalties
from the commercial sale of products derived from the
Companys collaborative and license agreements are reported
as licensing, royalties, and other revenue.
If the Company has continuing obligations under a collaborative
agreement and the deliverables within the collaboration cannot
be separated into their own respective units of accounting, the
Company utilizes a Multiple Attribution Model for revenue
recognition as the revenue related to each deliverable within
the arrangement should be recognized upon the culmination of the
separate earnings processes and in such a manner that the
accounting matches the economic substance of the deliverables
included in the unit of accounting. As such, (1) up-front
cash payments are recorded as deferred revenue and recognized as
revenue ratably over the period of performance under the
applicable agreement and (2) contingent payments are
recorded as deferred revenue when all the criteria for revenue
recognition are met and recognized as revenue ratably over the
estimated period of the Companys ongoing obligations.
Royalties based on reported sales of licensed products, if any,
are recognized based on the terms of the applicable agreement
when and if reported sales are reliably measurable and
collectibility is reasonably assured.
Licensing, royalties, and other
revenue. Licensing, royalties, and other revenue
consists of revenue from sales of compounds and processes from
patented technologies to third parties and royalties received
pursuant to collaborative agreements and license agreements.
Royalties based on reported sales, if any, of licensed products
are recognized based on the terms of the applicable agreement
when and if reported sales are reliably measurable and
collectibility is reasonably assured.
If the Company has no continuing obligations under a license
agreement, or a license deliverable qualifies as a separate unit
of accounting included in a collaborative arrangement, license
payments that are allocated to the license deliverable are
recognized as revenue upon commencement of the license term and
contingent payments are
F-16
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
recognized as revenue upon the occurrence of the events or
contingencies provided for in such agreement, assuming
collectibility is reasonably assured.
Government
grants
Government assistance is recognized when the related research
and development expenditures that qualify for assistance are
made and the Company has complied with the conditions for the
receipt of government assistance. Government assistance is
applied to reduce eligible expenses incurred unless such amounts
are required to be repaid regardless of the outcome of the
research and development effort. For amounts subject to
repayment solely on the results of the research and development
effort, a liability to repay, if any, is recorded in the period
in which conditions arise that cause the assistance to become
repayable.
Research and
development costs
Research and development expenses include personnel and facility
related expenses, outside contract services including clinical
trial costs, manufacturing and process development costs,
research costs and other consulting services. Research and
development costs are expensed as incurred. In instances where
the Company enters into agreements with third parties for
clinical trials, manufacturing and process development, research
and other consulting activities, costs are expensed as services
are performed. Amounts due under such arrangements may be either
fixed fee or fee for service, and may include upfront payments,
monthly payments, and payments upon the completion of milestones
or receipt of deliverables.
The Companys accruals for clinical trials are based on
estimates of the services received and pursuant to contracts
with numerous clinical trial centers and clinical research
organizations. In the normal course of business the Company
contracts with third parties to perform various clinical trial
activities in the ongoing development of potential products. The
financial terms of these agreements are subject to negotiation
and variation from contract to contract and may result in uneven
payment flows. Payments under the contracts depend on factors
such as the achievement of certain events, the successful
accrual of patients, and the completion of portions of the
clinical trial or similar conditions. The objective of the
Companys accrual policy is to match the recording of
expenses in its consolidated financial statements to the actual
services received. As such, expense accruals related to clinical
trials are recognized based on its estimate of the degree of
completion of the event or events specified in the specific
clinical study or trial contract.
Foreign
exchange
The Companys consolidated financial statements are
reported in U.S. dollars. Assets and liabilities of foreign
subsidiaries with a
non-U.S. dollar
functional currency are translated to U.S. dollars at the
exchange rates in effect on the balance sheet date. Revenues and
expenses for these subsidiaries are translated to
U.S. dollars using an average rate for the relevant
reporting period. Translation adjustments resulting from this
process are included, net of tax, in accumulated other
comprehensive income in stockholders equity. Gains and
losses that arise from exchange rate fluctuations for balances
that are not denominated in an entitys functional currency
are included in the consolidated statements of operations and
comprehensive income (loss). Currency gains and losses of
intercompany balances deemed to be long-term in nature are
included, net of tax, in accumulated other comprehensive income
(loss) in stockholders equity.
F-17
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Effective January 1, 2008, the Company changed its
functional currency to the U.S. dollar from the Canadian
dollar in order to more accurately represent the currency of the
economic environment in which it operates as a result of the
Companys redomicile into the United States effective
December 10, 2007 (See Note 1
Description of Business) and increasing U.S. dollar
denominated revenues and expenditures. The Companys
financial statements for periods prior to this change have not
been restated for the change in functional currency. For periods
subsequent to January 1, 2008, the Companys foreign
subsidiaries are considered to be integrated foreign operations
and, accordingly, have the same functional currency as the
parent, the U.S. dollar.
Accumulated other comprehensive loss consists of cumulative
translation adjustments related to the consolidation of the
Companys investments in foreign subsidiaries arising in
periods prior to the change in functional currency discussed
above. Should the Company liquidate or substantially liquidate
its investments in its foreign subsidiaries, the Company would
be required to recognize the related cumulative translation
adjustments pertaining to the liquidated or substantially
liquidated subsidiaries, currently included as a component of
other comprehensive loss, as a charge to earnings in the
Companys consolidated statement of operations and
comprehensive income (loss).
Earnings per
share
Basic earnings per common share were calculated using the
weighted average number of common shares outstanding during the
year.
Diluted earnings per common share were calculated on the basis
of the weighted average number of shares outstanding during the
period, plus the additional common shares that would have been
outstanding if potentially dilutive common shares underlying
stock options, restricted share units and warrants had been
issued using the treasury stock method.
Income
taxes
The Company follows the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future income tax
consequences attributable to differences between the carrying
amounts and tax bases of assets and liabilities and losses
carried forward and tax credits. Deferred tax assets and
liabilities are measured using enacted tax rates and laws
applicable to the years in which the differences are expected to
reverse. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is provided
to the extent that it is more likely than not that deferred tax
assets will not be realized.
The Company follows the guidance that clarifies the accounting
for uncertainty in income taxes recognized in an
enterprises financial statements by prescribing a minimum
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
Company does not believe any such uncertain tax positions
currently pending will have a material adverse effect on its
consolidated financial statements.
Accumulated
other comprehensive income (loss)
Comprehensive income (loss) is comprised of net income (loss)
and other comprehensive income (loss). Other comprehensive
income (loss) primarily consists of foreign currency translation
adjustments which arose from the conversion of the Canadian
dollar functional
F-18
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
currency consolidated financial statements to the
U.S. dollar reporting currency consolidated financial
statements prior to January 1, 2008.
Stock-based
compensation
The Company recognizes in the income statement the estimated
grant date fair value of share-based compensation awards granted
to employees over the requisite service period. Stock-based
compensation expense in the consolidated statements of
operations is recorded on a straight-line basis over the
requisite service period for the entire award, which is
generally the vesting period, with the offset to additional
paid-in capital. The Company uses the Black-Scholes option
pricing model to estimate the fair value of stock options
granted to employees.
Recent accounting
pronouncements
Collaborative
arrangements
In October 2009, the FASB issued an accounting standards update
(ASU) entitled, Multiple-Deliverable Revenue
Arrangements, a consensus of the FASB Emerging Issues Task
Force. This standard prescribes the accounting treatment for
arrangements that contain multiple-deliverable elements and
enables vendors to account for products or services
(deliverables) separately, rather than as a combined unit, in
certain circumstances. Prior to this standard, only certain
types of evidence were acceptable for determining the relative
selling price of the deliverables under an arrangement. If that
evidence was not available, the deliverables were treated as a
single unit of accounting. This updated standard expands the
nature of evidence which may be used to determine the relative
selling price of separate deliverables to include estimation.
This standard is applicable to arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010. Early adoption is permitted; however, if the
standard is adopted early, and the period of adoption is not the
beginning of a companys fiscal year, the company will be
required to apply the amendments retrospectively from the
beginning of the companys fiscal year. The Company has not
yet adopted this standard or determined the impact of this
standard on its results of operations, cash flows and financial
position.
Fair value
measurements
On January 1, 2009, the Company adopted the provisions of
Topic 820, on a prospective basis, for its non-financial assets
and liabilities that are not recognized or disclosed at fair
value on a recurring basis. The Company estimates the fair value
of financial and non-financial assets and liabilities using the
fair value hierarchy established in Topic 820. The adoption of
the provisions under Topic 820 did not have any impact on the
Companys financial position or results of operations.
On April 9, 2009, the FASB issued FASB Staff Position
(FSP)
FAS 115-2
and
FAS 124-2,
codified as ASC Topic
320-10-35,
which modifies the existing
other-than-temporary-impairments
(OTTI) model for investments in debt securities.
Under the new guidance, the primary change to the OTTI model for
debt securities is the change in focus from an entitys
intent and ability to hold a security until recovery. Instead,
an OTTI is triggered if (1) an entity has the intent to
sell the security, (2) it is more likely than not that it
will be required to sell the security before recovery, or
(3) it does not expect to recover the entire amortized cost
basis of the security.
In addition, the new guidance changes the presentation of an
OTTI in the income statement if the only reason for recognition
is a credit loss (i.e., the entity does not expect
F-19
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
to recover its entire amortized cost basis). For debt securities
in an unrealized loss position which are deemed to be
other-than-temporary, the difference between the securitys
then-current amortized cost basis and fair value is separated
into (1) the amount of the impairment related to the credit loss
(i.e., the credit loss component) and (2) the amount of the
impairment related to all other factors (i.e., the non-credit
loss component). The credit loss component is recognized in
earnings. The non-credit loss component is recognized in
accumulated other comprehensive loss.
Instruments
indexed to an entitys own stock
In September 2008, the FASB ratified the consensus reached on
Emerging Issues Task Force Issue
No. 07-5,
Determining Whether an Instrument (or an Embedded Feature) is
Indexed to an Entitys Own Stock, codified as
ASC 815-40-15-5
(Topic
815-40-15-5).
Topic
815-40-15-5
provides guidance for determining whether an equity-linked
financial instrument (or embedded feature) is indexed to an
entitys own stock and applies to any freestanding
financial instrument or embedded feature that has all the
characteristics of a derivative under
ASC 815-10-15-13
through
15-139, for
purposes of determining whether that instrument or embedded
feature qualifies for the scope exception under
ASC 815-10-15-74.
Topic
815-40-15-5
also applies to any freestanding financial instrument that is
potentially settled in an entitys own stock, regardless of
whether the instrument has all the characteristics of a
derivative for purposes of determining whether the instrument is
within the scope of ASC subtopic
815-40.
Topic
815-40-15-5
was effective beginning the first quarter of fiscal 2009 and was
applied by the Company in its accounting for the warrants issued
in May and August 2009. See Note 4 Fair
Value Measurements and Note 10
Share Capital for further discussion.
|
|
4.
|
FAIR VALUE
MEASUREMENTS
|
The Company measures at fair value certain financial assets and
liabilities in accordance with a hierarchy which requires an
entity to maximize the use of observable inputs which reflect
market data obtained from independent sources and minimize the
use of unobservable inputs which reflect the Companys
market assumptions when measuring fair value. There are three
levels of inputs that may be used to measure fair value:
|
|
|
Level 1 quoted prices in active markets for
identical assets or liabilities;
|
|
|
Level 2 observable inputs other than
Level 1 prices such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities; and
|
|
|
Level 3 unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities.
|
F-20
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The Companys financial assets and liabilities measured at
fair value consisted of the following as of December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Money market funds (asset)
|
|
$
|
8,039
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,039
|
|
|
$
|
5,029
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,029
|
|
Certificates of deposits (asset)
|
|
|
|
|
|
|
14,244
|
|
|
|
|
|
|
|
14,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (liability)
|
|
|
|
|
|
|
|
|
|
|
10,059
|
|
|
|
10,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If quoted market prices in active markets for identical assets
are not available to determine fair value, then the Company uses
quoted prices from similar assets or inputs other than the
quoted prices that are observable either directly or indirectly.
These investments are included in Level 2 and consist of
certificates of deposits denominated at or below $250,000 issued
by banks insured by the Federal Deposit Insurance Corporation.
The estimated fair value of warrants accounted for as
liabilities was determined on the date of closing and marked to
market at each financial reporting period. The change in fair
value of the warrants is recorded in the statement of operations
as a gain (loss) and is estimated using the Black-Scholes
option-pricing model with the following inputs:
|
|
|
|
|
|
|
For the
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2009
|
|
Exercise price
|
|
$
|
3.92
|
|
Market value of stock at end of period
|
|
$
|
5.39
|
|
Expected dividend rate
|
|
|
0
|
%
|
Expected volatility
|
|
|
76
|
%
|
Risk-free interest rate
|
|
|
2.4
|
%
|
Expected life (in years)
|
|
|
4.40
|
|
The changes in fair value of the warrants during the year ended
December 31, 2009 were as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2009
|
|
$
|
|
|
Issuance of warrants
|
|
|
4,218
|
|
Change in fair value recorded in earnings
|
|
|
6,150
|
|
Transferred to equity upon exercise
|
|
|
(309
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
10,059
|
|
|
|
|
|
|
|
|
5.
|
ACCOUNTS
RECEIVABLE AND GOVERNMENT GRANT RECEIVABLE (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Customer, net of allowance for doubtful accounts $0
(2008 $0)
|
|
$
|
|
|
|
$
|
1,777
|
|
Other
|
|
|
41
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
41
|
|
|
$
|
1,828
|
|
|
|
|
|
|
|
|
|
|
Government grant receivable
|
|
$
|
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
F-21
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
One customer accounted for 100% of customer accounts receivable
at December 31, 2008. The Company does not require a
provision for doubtful accounts.
|
|
6.
|
NOTES RECEIVABLE,
EMPLOYEES
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Notes receivable
|
|
$
|
186
|
|
|
$
|
215
|
|
|
|
|
|
|
|
|
|
|
Pursuant to the acquisition of ProlX, the Company advanced notes
of $0.3 million to certain employees of ProlX and a former
director of ProlX. The principal amount of the loans, together
with interest accrued at the rate of 5.0% per annum to the date
of payment, was due and payable on April 28, 2009. The
former director repaid his loan in 2008 and one of the employees
repaid $38,635 of interest and principal during 2009. The
original due dates for the remaining loans were extended to
April 28, 2010 and to April 28, 2011. Interest income
of $9,000 and $12,000 related to these loans has been recorded
in the consolidated statements of operations in 2009 and 2008,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Scientific equipment
|
|
$
|
968
|
|
|
$
|
515
|
|
|
$
|
453
|
|
Office equipment
|
|
|
100
|
|
|
|
80
|
|
|
|
20
|
|
Computer software and equipment
|
|
|
308
|
|
|
|
183
|
|
|
|
125
|
|
Leasehold improvements
|
|
|
1,527
|
|
|
|
49
|
|
|
|
1,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,903
|
|
|
$
|
827
|
|
|
$
|
2,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Scientific equipment
|
|
$
|
856
|
|
|
$
|
399
|
|
|
$
|
457
|
|
Office equipment
|
|
|
95
|
|
|
|
80
|
|
|
|
15
|
|
Computer software and equipment
|
|
|
313
|
|
|
|
84
|
|
|
|
229
|
|
Leasehold improvements
|
|
|
179
|
|
|
|
13
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,443
|
|
|
$
|
576
|
|
|
$
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Operating
leases
The Company is committed to annual minimum payments under
operating lease agreements for premises over the next five
years, as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
436
|
|
2011
|
|
|
441
|
|
2012
|
|
|
573
|
|
2013
|
|
|
582
|
|
2014
|
|
|
591
|
|
Thereafter
|
|
|
2,432
|
|
|
|
|
|
|
|
|
$
|
5,055
|
|
|
|
|
|
|
Minimum rental expense for premises and equipment in the amount
of $0.7 million, $0.7 million and $0.5 million
have been recorded in the consolidated statements of operations
in 2009, 2008 and 2007 respectively. In May 2008, the Company
entered into a sublease agreement for an office and laboratory
facility in Seattle, Washington totaling approximately
17,000 square feet where the Company has consolidated
certain of its operations. The sublease expires on
December 17, 2011. The sublease provides for a monthly base
rent of $33,000 increasing to $36,000. In May 2008, the Company
also entered into a lease agreement directly with the landlord
beginning on December 18, 2011 for a period of
84 months to December 18, 2017. The lease provides for
a monthly base rent of $48,000 increasing to $0.1 million
in 2017.
The lease for the Companys corporate facilities in
Edmonton, Alberta was assumed by Merck KGaA in December 2008.
(See Note 12 Collaborative and License
Agreements)
The Company has two non-interest bearing notes payable to
Innovation Works Inc which are payable upon the earlier of the
successful commercialization of or the date consideration is
received on the sale and license of PX-12. No interest is
imputed for these notes payable as amounts that will be paid and
the timing thereof cannot be determined with any certainty. The
Company does not anticipate payment on these notes in the
foreseeable future
Authorized
shares
Class UA
preferred stock
As of December 31, 2009, the Company had 12,500 shares
of Class UA preferred stock authorized, issued and
outstanding. The Class UA preferred stock has the following
rights, privileges, and limitations:
Voting. Each share of Class UA preferred
stock will not be entitled to receive notice of, or to attend
and vote at, any Stockholder meeting unless the meeting is
called to consider any matter in respect of which the holders of
the shares of Class UA preferred stock would be entitled to
vote separately as a class, in which case the holders of the
shares of Class UA preferred stock shall be entitled to
receive notice of and to attend and vote at such meeting.
Amendments to the certificate of incorporation of Oncothyreon
that would increase or decrease the par value of the
Class UA preferred stock or alter or change the
F-23
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
powers, preferences or special rights of the Class UA
preferred stock so as to affect them adversely would require the
approval of the holders of the Class UA preferred stock.
Conversion. The Class UA preferred stock
is not convertible into shares of any other class of Oncothyreon
capital stock.
Dividends. The holders of the shares of
Class UA preferred stock will not be entitled to receive
dividends.
Liquidation preference. In the event of any
liquidation, dissolution or winding up of the Company, the
holders of the Class UA preferred stock will be entitled to
receive, in preference to the holders of the Companys
common stock, an amount equal to the lesser of (1) 20% of
the after tax profits (net profits), determined in
accordance with Canadian generally accepted accounting
principles, where relevant, consistently applied, for the period
commencing at the end of the last completed financial year of
the Company and ending on the date of the distribution of assets
of the Company to its stockholders together with 20% of the net
profits of the Company for the last completed financial year and
(2) CDN $100 per share.
Holders of Class UA preferred stock are entitled to
mandatory redemption of their shares if the Company realizes
net profits in any year. For this purpose, net
profits . . . means the after tax profits determined in
accordance with generally accepted accounting principles, where
relevant, consistently applied. The Company has taken the
position that this applies to Canadian GAAP and accordingly
there have been no redemptions to date.
Redemption. The Company may, at its option and
subject to the requirements of applicable law, redeem at any
time the whole or from time to time any part of the
then-outstanding shares of Class UA preferred stock for CDN
$100 per share. The Company is required each year to redeem at
CDN $100 per share that number of shares of Class UA
preferred stock as is determined by dividing 20% of the net
profits by CDN $100.
The difference between the redemption value and the book value
of the Class UA preferred stock will be recorded at the
time that the fair value of the shares increases to redemption
value based on the Company becoming profitable.
Preferred
stock
As of December 31, 2009, the Company had
10,000,000 shares of undesignated preferred stock,
$0.0001 par value per share, authorized, with none
outstanding. Shares of preferred stock may be issued in one or
more series from time to time by the Board of Directors of the
Company, and the Board of Directors is expressly authorized to
fix by resolution or resolutions the designations and the
powers, preferences and rights, and the qualifications,
limitations and restrictions thereof, of the shares of each
series of preferred stock. Subject to the determination of the
Board of Directors of the Company, the preferred stock would
generally have preferences over common stock with respect to the
payment of dividends and the distribution of assets in the event
of the liquidation, dissolution or winding up of the Company.
Common
stock
As of December 31, 2009, the Company had
100,000,000 shares of common stock, $0.0001 par value
per share, authorized. The holders of common stock are entitled
to receive such dividends or distributions as are lawfully
declared on the Companys common stock, to have notice of
any authorized meeting of stockholders, and to exercise one vote
for each share of common stock on all matters which are properly
submitted to a vote of the Companys stockholders. As a
Delaware corporation, the Company is subject to
F-24
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
statutory limitations on the declaration and payment of
dividends. In the event of a liquidation, dissolution or winding
up of the Company, holders of common stock have the right to a
ratable portion of assets remaining after satisfaction in full
of the prior rights of creditors, including holders of the
Companys indebtedness, all liabilities and the aggregate
liquidation preferences of any outstanding shares of preferred
stock. The holders of common stock have no conversion,
redemption, preemptive or cumulative voting rights.
Warrants
On May 26, 2009, the Company closed the sale of
3,878,993 shares of its common stock and warrants to
purchase an additional 2,909,244 shares of common stock for
gross proceeds of approximately $11.1 million. The purchase
price per unit, consisting of one share of common stock and a
warrant to purchase 0.75 shares of common stock, was $2.85.
The exercise price of the warrants is $3.92 per share. The
warrants are exercisable at any time on or after
November 26, 2009 and on or prior to May 26, 2014.
Upon exercise, holders of the warrants are required to deliver
the aggregate exercise price with respect to the number of
underlying shares; provided that if a registration statement is
not available with respect to the issuance of such shares upon
exercise, under certain circumstances, holders may exercise
warrants on a net basis. If holders exercise
warrants on a net basis, the Company would not
receive any cash in respect of the shares issued upon exercise.
At the election of the warrant holder, upon certain
transactions, including a merger, tender offer or sale of
substantially all of the assets of the Company, the holder may
receive cash in exchange for the warrant, in an amount
determined by application of the Black-Scholes option valuation
model.
Due to certain provisions in the warrants issued in May 2009
that provide for an adjustment to the exercise price, if the
Company issues or sells shares below the exercise price and cash
settlement upon the occurrence of a fundamental transaction (as
defined in the warrant agreement), the warrants have been
classified as a liability, as opposed to equity. The warrants
were valued on date of closing and subsequent changes in their
estimated fair value at each financial reporting period are
recorded in the statement of operations as a gain (loss).
On August 7, 2009, the Company closed the sale of
2,280,502 shares of its common stock and warrants to
purchase an additional 684,150 shares of common stock for
gross proceeds of approximately $15.0 million. The purchase
price per unit, consisting of one share of common stock and a
warrant to purchase 0.30 shares of common stock, was
$6.5775. The exercise price of the warrants is $6.5775 per
share. The warrants are exercisable at any time on or after
August 7, 2009 and on or prior to August 7, 2011. Upon
exercise, holders of the warrants are required to deliver the
aggregate exercise price with respect to the number of
underlying shares; provided that if a registration statement is
not available with respect to the issuance of such shares upon
exercise, under certain circumstances, holders may exercise
warrants on a net basis. If holders exercise
warrants on a net basis, the Company would not
receive any cash in respect of the shares issued upon exercise.
Holders of warrants issued in the August 2009 financing are not
entitled to receive cash in connection with a merger, tender
offer or sale of substantially all of the assets of the Company.
The warrants issued in August 2009 have been classified as
equity.
A summary of outstanding warrants as of December 31, 2009
and 2008 and changes during the years then ended is presented
below (in thousands).
F-25
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Shares
|
|
|
Shares
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Warrant
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
795,150
|
|
|
|
795,150
|
|
Equity placements
|
|
|
3,593,394
|
|
|
|
|
|
Exercise of warrants
|
|
|
(91,500
|
)
|
|
|
|
|
Expiration of warrants
|
|
|
(458,126
|
)
|
|
|
|
|
Balance, end of year
|
|
|
3,838,918
|
|
|
|
795,150
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information regarding warrants
outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Underlying
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
Exercise Prices
|
|
Warrants
|
|
|
Expiry Date
|
|
|
$11.16
|
|
|
337,024
|
|
|
|
December 18, 2010
|
|
$3.92
|
|
|
2,817,744
|
|
|
|
May 26, 2014
|
|
$6.5775
|
|
|
684,150
|
|
|
|
August 7, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,838,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
Years Ended
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
Shares underlying warrants outstanding classified as liabilities
|
|
|
2,817,744
|
|
|
|
|
|
Shares underlying warrants outstanding classified as equity
|
|
|
1,021,174
|
|
|
|
795,150
|
|
Conversion of
restricted share units
Restricted share units of 9,920 and 6,543 with a weighted
average fair value of $7.56 and $7.81 were converted in 2009 and
2008, respectively. No restricted share units were converted in
2007.
Exercise of
warrants
In 2009, holders of warrants exercised such warrants with
respect to 91,500 shares of the Companys common
stock. No warrants were exercised during 2008 or 2007.
F-26
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Earnings (loss)
per share
The following is a reconciliation of the numerators and
denominators of basic and diluted earnings per share
computations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17,219
|
)
|
|
$
|
7,422
|
|
|
$
|
(20,428
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used to compute earnings per
share basic
|
|
|
22,739,138
|
|
|
|
19,490,621
|
|
|
|
19,485,889
|
|
Effect of dilutive RSUs
|
|
|
|
|
|
|
79,549
|
|
|
|
|
|
Weighted average shares outstanding and dilutive securities used
to compute earnings per share diluted
|
|
|
22,739,138
|
|
|
|
19,570,170
|
|
|
|
19,485,889
|
|
Shares potentially issuable upon the exercise or conversion of
director and employee stock options of 1,836,657, 1,223,386 and
1,315,036; non-employee director restricted share units of
186,266, 0 and 86,092; and warrants of 3,838,918, 795,150 and
795,150 have been excluded from the calculation of diluted loss
per share in years ended December 31, 2009, 2008 and 2007,
respectively because their effect was anti-dilutive.
For 2009 and the comparative years presented, shares
contingently issuable in connection with the May 2, 2001
Merck KGaA agreement (discussed below), contingently issuable
shares in connection with the October 30, 2006 ProlX
acquisition, and purchase warrants issued in connection with the
2004, 2006 and 2009 equity financings, have been excluded from
the calculation of diluted loss per share because the effect
would have been anti-dilutive.
In May 2001, under the terms of a common stock purchase
agreement, the Company issued to Merck KGaA 318,702 shares
of Company common stock for proceeds of $15.0 million net
of issue costs of $9,000. Upon the first submission of a BLA for
Stimuvax, if any, the Company is required to sell and Merck KGaA
is required to purchase from the Company a number of shares of
Company common stock equal to (1) $1.5 million divided
by (2) 115% of the
90-day
weighted average per share price of such shares immediately
prior to such submission date. During periods presented, no
additional common shares were issued to Merck KGaA under such
agreement.
|
|
11.
|
STOCK-BASED
COMPENSATION
|
Stock option
plan
The Company sponsors a stock option plan (the Option
Plan) under which a maximum fixed reloading percentage of
10% of the issued and outstanding common shares of the Company
may be granted to employees, directors, and service providers.
Prior to April 1, 2008, options were granted with a per
share exercise price, in Canadian dollars, equal to the closing
market price of the Companys shares of common stock on the
Toronto Stock Exchange on the date immediately preceding the
date of the grant. After April 1, 2008, options were
granted with a per share exercise price, in U.S. dollars,
equal to the closing price of the Companys shares of
common stock on The NASDAQ Global Market on the date of grant.
Canadian dollar amounts reflected in the tables below
approximate their U.S. dollar equivalents as differences
between the U.S. dollar and Canadian dollar exchange rates for
the periods reflected below are not material. In general,
options granted under
F-27
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
the Option Plan begin to vest after one year from the date of
the grant, are exercisable in equal amounts over four years on
the anniversary date of the grant, and expire eight years
following the date of grant. The current maximum number of
shares of common stock reserved for issuance under the Option
Plan is 2,575,340. As of December 31, 2009,
738,683 shares of common stock remain available for future
grant under the Option Plan.
A summary of the status of the Option Plan as of
December 31, 2009, 2008 and 2007, and changes during the
years ended on those dates is presented below. As described
above, prior to April 1, 2008, exercise prices were
denominated in Canadian dollars and in U.S. dollars
thereafter. The weighted average exercise prices listed below
are in their respective dollar denominations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Stock
|
|
|
Exercise
|
|
|
Stock
|
|
|
Price
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
$CDN
|
|
|
Outstanding, beginning of year $CDN
|
|
|
1,119,486
|
|
|
$
|
9.85
|
|
|
|
1,315,036
|
|
|
$
|
13.99
|
|
|
|
1,150,414
|
|
|
$
|
15.51
|
|
Outstanding, beginning of year $US
|
|
|
103,900
|
|
|
|
3.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted $CDN
|
|
|
0
|
|
|
|
0
|
|
|
|
8,000
|
|
|
|
4.60
|
|
|
|
246,266
|
|
|
|
7.93
|
|
Granted $US
|
|
|
786,000
|
|
|
|
3.97
|
|
|
|
142,600
|
|
|
|
3.43
|
|
|
|
|
|
|
|
|
|
Exercised $US
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited $CDN
|
|
|
(146,373
|
)
|
|
|
12.88
|
|
|
|
(112,774
|
)
|
|
|
17.45
|
|
|
|
(81,644
|
)
|
|
|
17.12
|
|
Forfeited $US
|
|
|
(25
|
)
|
|
|
2.45
|
|
|
|
(38,700
|
)
|
|
|
3.43
|
|
|
|
|
|
|
|
|
|
Expired $CDN
|
|
|
(26,081
|
)
|
|
|
37.95
|
|
|
|
(90,776
|
)
|
|
|
59.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year $CDN
|
|
|
947,032
|
|
|
|
8.59
|
|
|
|
1,119,486
|
|
|
|
9.85
|
|
|
|
1,315,036
|
|
|
|
13.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year $US
|
|
|
889,625
|
|
|
|
3.92
|
|
|
|
103,900
|
|
|
|
3.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of year $CDN
|
|
|
843,553
|
|
|
$
|
8.68
|
|
|
|
764,973
|
|
|
$
|
10.74
|
|
|
|
625,704
|
|
|
$
|
20.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of year $US
|
|
|
27,250
|
|
|
|
3.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, there were 843,806
U.S. dollar denominated options vested and expected to vest
with a weighted-average exercise price of U.S. $3.87, a
weighted-average remaining contractual term of 7.47 years
and an aggregate intrinsic value of $1.3 million. For the
same period, there were 865,780 Canadian dollar denominated
options vested and expected to vest with a weighted-average
exercise price of CDN $8.27, a weighted-average remaining
contractual term of 4.25 years and an aggregate intrinsic
value of CDN $4,700.
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the
quoted price of the Companys common stock for all options
that were
in-the-money
at December 31, 2009. The aggregate intrinsic value at
December 31, 2009 for options outstanding was
$1.3 million and for options exercisable was
$0.1 million. The aggregate intrinsic value of options
exercised under the Option Plan was immaterial during 2009. No
options were exercised in 2008 and 2007.
F-28
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The following table summarizes information on stock options
outstanding and exercisable at December 31, 2009. The range
of exercise prices and weighted average exercise prices are
listed in their respective dollar denominations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
Outstanding
|
|
|
Stock Options
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
Range of Exercise Prices
|
|
Number
|
|
|
Life
|
|
|
Exercise
|
|
|
Number
|
|
|
Life
|
|
|
Exercise
|
|
($CDN per share)
|
|
Outstanding
|
|
|
(Years)
|
|
|
Price
|
|
|
Outstanding
|
|
|
(Years)
|
|
|
Price
|
|
|
4.60
|
|
|
|
7.50
|
|
|
|
|
488,431
|
|
|
|
4.58
|
|
|
$
|
7.31
|
|
|
|
476,424
|
|
|
|
4.55
|
|
|
$
|
7.34
|
|
7.51
|
|
|
|
10.00
|
|
|
|
|
279,078
|
|
|
|
4.49
|
|
|
|
8.14
|
|
|
|
187,606
|
|
|
|
4.29
|
|
|
|
8.18
|
|
10.01
|
|
|
|
12.50
|
|
|
|
|
55,808
|
|
|
|
1.56
|
|
|
|
10.88
|
|
|
|
55,808
|
|
|
|
1.56
|
|
|
|
10.88
|
|
12.51
|
|
|
|
15.00
|
|
|
|
|
121,152
|
|
|
|
1.83
|
|
|
|
13.30
|
|
|
|
121,152
|
|
|
|
1.83
|
|
|
|
13.30
|
|
15.01
|
|
|
|
25.00
|
|
|
|
|
897
|
|
|
|
1.93
|
|
|
|
16.02
|
|
|
|
897
|
|
|
|
1.93
|
|
|
|
16.02
|
|
25.01
|
|
|
|
36.42
|
|
|
|
|
1,666
|
|
|
|
.16
|
|
|
|
36.42
|
|
|
|
1,666
|
|
|
|
.16
|
|
|
|
36.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
947,032
|
|
|
|
4.01
|
|
|
$
|
8.59
|
|
|
|
843,553
|
|
|
|
3.89
|
|
|
$
|
8.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Exercise Prices
($USD per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.10
|
|
|
|
3.00
|
|
|
|
|
172,625
|
|
|
|
7.19
|
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
3.01
|
|
|
|
4.00
|
|
|
|
|
109,000
|
|
|
|
5.68
|
|
|
|
3.43
|
|
|
|
27,250
|
|
|
|
5.68
|
|
|
|
3.43
|
|
4.01
|
|
|
|
5.00
|
|
|
|
|
580,500
|
|
|
|
7.91
|
|
|
|
4.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.01
|
|
|
|
6.56
|
|
|
|
|
27,500
|
|
|
|
7.62
|
|
|
|
6.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
889,625
|
|
|
|
7.49
|
|
|
$
|
3.92
|
|
|
|
27,250
|
|
|
|
5.68
|
|
|
$
|
3.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 250 stock options exercised in 2009. No
stock options were exercised in 2008 or 2007. As of
December 31, 2009, there were 28,425 exercisable,
in-the-money
options based on the Companys closing share price of $5.39
on The NASDAQ Global Market.
A summary of the status of non-vested stock options as of
December 31, 2009 and changes during 2009 is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
|
|
|
Non-Vested
|
|
|
Grant Date
|
|
|
|
|
|
|
Options
|
|
|
Fair Value $
|
|
|
|
|
|
Balance at December 31, 2008 $CDN
|
|
|
354,513
|
|
|
$
|
6.54
|
|
|
|
|
|
Balance at December 31, 2008 $US
|
|
|
103,900
|
|
|
|
2.93
|
|
|
|
|
|
Granted $US
|
|
|
786,000
|
|
|
|
3.03
|
|
|
|
|
|
Vested $CDN
|
|
|
(249,079
|
)
|
|
|
6.55
|
|
|
|
|
|
Vested $US
|
|
|
(27,525
|
)
|
|
|
2.93
|
|
|
|
|
|
Forfeited $CDN
|
|
|
(1,955
|
)
|
|
|
6.90
|
|
|
|
|
|
Forfeited $US
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 $CDN
|
|
|
103,479
|
|
|
$
|
6.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 $US
|
|
|
862,375
|
|
|
$
|
3.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense related to the stock option
plan of $1.0 million, $1.5 million and
$1.6 million were recognized in 2009, 2008 and 2007
respectively which related to the current period recognition of
the estimated fair value of new awards, the unvested portion of
existing awards and to awards modified, repurchased or cancelled
F-29
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
after January 1, 2006. The expense includes adjustments of
$0, $0.1 million and $0.1 million in 2009, 2008 and
2007 respectively relating to workforce reduction costs
described in Note 13. These adjustments include the
immediate expensing of the remaining unrecognized fair value of
the affected stock options and modification adjustments of the
affected stock options. Total compensation cost related to
non-vested stock options not yet recognized was
$2.6 million as of December 31, 2009, which will be
recognized over the next 41 months on a weighted-average
basis.
The Company uses the Black-Scholes option pricing model to value
the options at each grant date, under the following weighted
average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Weighted average grant-date fair value per stock option $CDN
|
|
$
|
|
|
|
$
|
3.84
|
|
|
$
|
6.47
|
|
Weighted average grant-date fair value per stock option $US
|
|
$
|
3.03
|
|
|
$
|
2.93
|
|
|
$
|
|
|
Expected dividend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
92.46
|
%
|
|
|
114.19
|
%
|
|
|
102.52
|
%
|
Risk-free interest rate
|
|
|
2.47
|
%
|
|
|
3.09
|
%
|
|
|
4.21
|
%
|
Expected life of options in years
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
Until April 1, 2008 the risk-free interest rate for the
expected term of the option was based on the yield available on
Government of Canada benchmark bonds with an equivalent expected
term. Subsequent to April 1, 2008 the Company uses the
yield at the time of grant of a U.S. Treasury security. The
expected life of options in years represents the period of time
stock-based awards are expected to be outstanding, giving
consideration to the contractual terms of the awards, vesting
schedules and historical employee behavior. The expected
volatility is based on the historical volatility of the
Companys common stock for a period equal to the stock
options expected life. The amounts estimated according to
the Black-Scholes option pricing model may not be indicative of
the actual values realized upon the exercise of these options by
the holders.
Restricted
share unit plan
The Company also sponsors a Restricted Share Unit Plan (the
RSU Plan) for non-employee directors that was
established in 2005. The RSU Plan provides for grants to be made
from time to time by the Board of Directors or a committee
thereof. Each grant will be made in accordance with the RSU Plan
and terms specific to that grant and will be converted into one
common share of common stock at the end of the grant period (not
to exceed five years) without any further consideration payable
to the Company in respect thereof. The current maximum number of
common shares of the Company reserved for issuance pursuant to
the RSU Plan is 466,666. As of December 31, 2009,
260,771 shares of common stock remain available for future
grant under the RSU Plan.
F-30
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
A summary of the status of the Companys RSU Plan as of
December 31, 2009, 2008 and 2007, and changes during the
years ending on those dates is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average
|
|
|
Restricted
|
|
|
Average
|
|
|
Restricted
|
|
|
Average
|
|
|
|
Share
|
|
|
Fair Value
|
|
|
Share
|
|
|
Fair Value
|
|
|
Share
|
|
|
Fair Value
|
|
|
|
Units
|
|
|
per Unit
|
|
|
Units
|
|
|
per Unit
|
|
|
Units
|
|
|
per Unit
|
|
|
Outstanding, beginning of year
|
|
|
79,549
|
|
|
$
|
7.25
|
|
|
|
86,092
|
|
|
$
|
7.29
|
|
|
|
80,158
|
|
|
$
|
7.27
|
|
Granted
|
|
|
116,637
|
|
|
|
2.20
|
|
|
|
|
|
|
|
|
|
|
|
5,934
|
|
|
|
7.49
|
|
Converted
|
|
|
(9,920
|
)
|
|
|
7.56
|
|
|
|
(6,543
|
)
|
|
|
7.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
186,266
|
|
|
|
4.07
|
|
|
|
79,549
|
|
|
|
7.25
|
|
|
|
86,092
|
|
|
|
7.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted share units convertible, end of year
|
|
|
|
|
|
$
|
|
|
|
|
6,543
|
|
|
$
|
7.78
|
|
|
|
6,543
|
|
|
$
|
7.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense of $0.3 million, $0 and
$44,000 were recognized on the RSU Plan in 2009, 2008 and 2007
respectively, representing the fair value of restricted share
units granted.
Amounts of $0.1 million, $0.1 million and $0 arising
from the conversion of these restricted share units during the
years ending 2009, 2008 and 2007 respectively were credited to
share capital.
Prior to June 12, 2009 the fair value of the restricted
share units has been determined to be the equivalent of the
Companys common shares closing trading price on the date
immediately prior to the grant as quoted in Canadian dollars on
the Toronto Stock Exchange. Subsequent to June 12, 2009 the
fair value of the restricted share units has been determined to
be the equivalent of the Companys common shares closing
trading price on the date immediately prior to the grant as
quoted on The NASDAQ Global Market.
|
|
12.
|
COLLABORATIVE AND
LICENSE AGREEMENTS
|
2001 Merck
KGaA Agreements
On May 3, 2001, the Company entered into a collaborative
arrangement with Merck KGaA to pursue joint global product
research, clinical development, and commercialization of two of
the Companys product candidates, Stimuvax and Theratope.
The collaboration covered the entire field of oncology for these
two product candidates and was documented in collaboration and
supply agreements (the 2001 Agreements). The
Companys deliverables under the 2001 Agreements included
(1) the license of rights to the product candidates,
(2) collaboration with Merck KGaA, including shared
responsibilities for the clinical development and
post-commercialization promotion of the product candidates,
(3) participation in a joint steering committee,
(4) participation in a manufacturing/CMC Project team,
(5) delivery of any improvements of Stimuvax to Merck and
(6) manufacturing of the product candidates.
Pursuant to the 2001 collaboration agreement, the Company
granted a co-exclusive license to Merck KGaA with respect to the
clinical development and commercialization of such product
candidates in North America and an exclusive license with
respect to the clinical development and commercialization of
such product candidates in the rest of the world. Merck KGaA did
not obtain the right to sublicense the rights licensed to it
pursuant to the
F-31
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
2001 collaboration agreement. The license term commenced as of
the effective date of the 2001 collaboration agreement. The
exclusivity provisions of such license were to remain in effect
during the period beginning on the effective date of such
license agreement and ending, on a
product-by-product
and
country-by-country
basis, on the latter of (1) the expiration of patent rights
with respect to the applicable product candidate and
(2) the 15th anniversary of the product launch. After
the expiration of such period, such license would be perpetual
and non-exclusive.
Under the 2001 Agreements, the parties agreed to collaborate in
substantially all aspects of the clinical development and
commercialization of the product candidates and coordinate their
activities through a joint steering committee. Pursuant to the
2001 collaboration agreement, the parties agreed to share the
responsibilities and obligations, for the clinical development
and commercialization of the product candidates in North America
(other than with respect to the right to promote product
candidates in Canada, which was retained by the Company). In the
rest of the world, Merck KGaA was responsible for the clinical
development of the product candidates (although the Company
agreed to reimburse Merck KGaA for 50% of the clinical
development and regulatory costs) and commercialization of the
product candidates. The 2001 collaboration agreements term
corresponded with the exclusivity period of the Companys
license to the product candidates. Additionally, Merck KGaA was,
and is, entitled to terminate the agreements with us with
respect to a particular product candidate upon 30 days
prior written notice to the Company, if, in the exercise of
Merck KGaAs reasonable judgment, it determined that there
were issues concerning the safety or efficacy of such product
candidate that would materially adversely affect the
candidates medical, competitive or economic viability. If
the agreements are terminated by Merck KGaA in accordance with
their terms, the Company does not have legal recourse against
Merck KGaA with respect to contingent or other future payments.
Pursuant to the 2001 supply agreement, the Company was
responsible for the manufacturing of the clinical and commercial
supply of the product candidates for which Merck KGaA agreed to
reimburse the Company for its manufacturing costs. The 2001
supply agreements term corresponded to the exclusivity
period of the Companys license to the product candidates.
In connection with the execution of the 2001 collaboration
agreement and supply agreement, the Company received up-front
cash payments of $2.8 million ($1.0 million for
executing the agreement and $1.8 million as reimbursement of
pre-agreement clinical development expenses incurred by the
Company) and $4.0 million, respectively. In addition, under
the 2001 Agreements the Company was entitled to receive
(1) a $5.0 million payment contingent upon enrollment
of the first patient in a Phase 3 clinical trial,
(2) various additional contingent payments, up to a maximum
of $90.0 million in the aggregate (excluding payments
payable with respect to Theratope, the development of which was
discontinued in 2004), tied to biologics license application, or
BLA, submission for first and second cancer indications, for
regulatory approval for first and second cancer indications, and
for various sales milestones, and (3) royalties in the low
twenties based on net sales outside of North America. Under the
2001 supply agreement, the Company was entitled to receive
reimbursements from Merck KGaA for a portion of the Stimuvax
manufacturing costs.
The Company recorded the payments received in connection with
the execution of the 2001 Agreements as deferred revenue and
recognized such revenue ratably over the period from the date of
the 2001 Agreements to 2011. The Company determined that the
F-32
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
estimated useful life of the products and estimated period of
its ongoing obligations corresponded to the estimated life of
the issued patents for such products. The Company chose that
amortization period because, at the time, the Company believed
it reflected an anticipated period of market
exclusivity based upon the Companys expectation of
the life of the patent protection, after which the market entry
of competitive products would likely occur. Under the 2001
supply agreement, the cost of manufacturing Stimuvax associated
with clinical trial material costs was recorded as incurred and
reported under contract research and development expense and
revenue related to Merck KGaAs reimbursement of the
Companys cost of manufacturing was recognized as payments
were received from Merck KGaA, commensurate with the culmination
of the separate earnings process, and reported under contract
research and development revenue. The Company did not receive
any contingent payments or royalties under the 2001 Agreements.
For more information regarding the Companys revenue
recognition policies, see Note 3
Significant Accounting Policies Revenue
Recognition.
In June 2004, following the failure of Theratope in a Phase 3
clinical trial, Merck KGaA returned to the Company all rights to
Theratope and development of Theratope was discontinued;
however, the parties continued to collaborate under the terms of
the 2001 Agreements with respect to the development of Stimuvax,
which in 2004 had shown positive results in a Phase 2 clinical
trial. In connection with the discontinuation of Theratope, the
Company accelerated recognition of approximately
$4.5 million in previously deferred revenue, which
corresponded to the portion of the up-front cash payments under
the 2001 Agreements that was allocated to Theratope. The
remaining deferred revenue related to Stimuvax was then
amortized over a period to end in 2018, the period estimated by
management to represent the estimated useful life of the product
and estimated period of its ongoing obligations, which
corresponded to the estimated life of the issued patents for
Stimuvax.
2006 Merck
KGaA LOI
On January 26, 2006, the parties entered into a binding
letter of intent (the LOI) pursuant to which the
2001 Agreements were amended in part and the parties agreed to
negotiate in good faith to amend and restate the 2001
collaboration and supply agreements, as necessary, to implement
the provisions contemplated by the LOI. The Companys
deliverables under the 2001 Agreements, as amended by the LOI,
remained (1) the license of rights to Stimuvax,
(2) participation in a joint steering committee,
(3) participation in a manufacturing/CMC Project team,
(4) delivery of any improvements of Stimuvax to Merck and
(5) manufacturing of the product candidate.
Pursuant to the LOI, in addition to the rights granted pursuant
to the 2001 Collaboration Agreement, the Company granted to
Merck KGaA an exclusive license with respect to the clinical
development and commercialization of Stimuvax in the United
States and, subject to certain conditions, to act as a secondary
manufacturer of Stimuvax. The Companys right to
commercialize Stimuvax in Canada remained unchanged. The license
grant was effective as of March 1, 2006. The exclusivity
period of such license corresponded to that under the 2001
collaboration agreement.
Pursuant to the LOI, the joint steering committee continued to
meet and served as the vehicle through which Merck KGaA provided
updates and shared information regarding clinical development
and marketing; however, it ceased to be a decision-making body.
The Company continued to have responsibility for manufacturing.
Further, the parties
F-33
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
collaboration, including the term of the 2001 collaboration
agreement, was not otherwise affected.
Pursuant to the LOI, the Company continued to be responsible for
the manufacturing of the clinical supply of Stimuvax for which
Merck KGaA agreed to pay the Company its cost of manufacturing.
The 2001 supply agreements term was not modified by the
LOI.
Further, under the LOI, the $5.0 million contingent payment
payable to the Company under the 2001 Agreements upon enrollment
of the first patient in a Phase 3 clinical trial was amended
such that the Company was entitled to receive a
$2.5 million contingent payment upon the execution of the
amended and restated collaboration and supply agreements
contemplated by the LOI and a $2.5 million contingent
payment upon enrollment of the first patient in such Phase 3
clinical trial. In addition, under the LOI the Company was
entitled to receive (1) various additional contingent
payments tied to the same events and up to the same maximum
amounts as under the 2001 Agreements, (2) royalties based
on net sales outside of North America at the same rates as under
the 2001 Agreements and (3) royalties based on net sales
inside of the North America ranging from a percentage in the
high-twenties to the mid-twenties, depending on the territory in
which the net sales occur. The royalty rate was higher in North
America than in the rest of the world in return for the Company
relinquishing its rights to Stimuvax in the United States. In
February 2007, the Company announced that the first patient had
been enrolled in the global Phase 3 Stimuvax clinical trial for
non-small cell lung cancer, triggering the contingent payment by
Merck KGaA to the Company of $2.5 million. This payment was
received in March 2007.
The Company assessed whether objective and reliable evidence of
fair value of the undelivered elements under the 2001
Agreements, as amended by the LOI, existed as the manufacturing
deliverable was shipped, and concluded such evidence did not
exist. As a result, it was concluded that all deliverables in
the arrangement were to be considered a single unit of
accounting.
The Company recorded the payments received under the LOI as
deferred revenue and recognized such revenue ratably over the
remaining estimated product life of Stimuvax, which was until
2018. The Company did not receive any royalties under the LOI.
For more information regarding the Companys revenue
recognition policies, see Note 3
Significant Accounting Policies Revenue
Recognition.
2007 Merck
KGaA Agreements
On August 8, 2007, the parties amended and restated the
collaboration and supply agreements (as amended and restated,
the 2007 Agreements), which restructured the 2001
Agreements and formalized the terms set forth in the LOI. The
Companys deliverables under the 2007 Agreements remained
(1) the license of rights to Stimuvax,
(2) participation in a joint steering committee,
(3) participation in a manufacturing/CMC Project team,
(4) delivery of any improvements of Stimuvax to Merck and
(5) manufacturing of the product candidates.
Under the 2007 collaboration agreement, in addition to the
rights granted pursuant to the 2001 collaboration agreement (as
modified by the LOI), the Company granted to Merck KGaA an
exclusive license to develop and commercialize Stimuvax in
Canada. For accounting purposes, the license grant to develop
Stimuvax in Canada was effective as of the date of the 2007
collaboration agreement. As a result, Merck KGaA obtained an
exclusive world-wide license with respect to the development and
commercialization of Stimuvax. The exclusivity period of such
license corresponded to that under the 2001
F-34
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
collaboration agreement; however, where the license was
perpetual and was subject to termination by Merck KGaA the
Company believes that the appropriate amortization period, and
therefore the period of performance under the agreements, for
amounts arising under the contract corresponds to the estimated
product life of Stimuvax, or until 2018.
Under the 2007 collaboration agreement, the joint steering
committee continued to meet and serve as the vehicle through
which Merck KGaA provided updates and shared information
regarding clinical development and marketing; however, it ceased
to be a decision-making body. The Company continued to have
responsibility for the development of the manufacturing process
and plans for the
scale-up for
commercial manufacturing and the parties collaboration was
not otherwise materially affected from the LOI. The 2007
collaboration agreements term corresponded to that under
the 2001 collaboration agreement.
Under the 2007 supply agreement, the Company continued to be
responsible for the manufacturing of the clinical and commercial
supply of Stimuvax for which Merck KGaA agreed to pay the
Company its cost of goods (which included amounts owed to third
parties) and provisions for certain contingent payments to the
Company related to manufacturing
scale-up and
process transfer were added. The 2007 supply agreements
term corresponded to that under the 2001 collaboration agreement.
The entry into the 2007 Agreements triggered a payment to the
Company of $2.5 million. Such payment was received in
September 2007 and recorded as deferred revenue and recognized
ratably over the remaining estimated product life of Stimuvax,
which was until 2018. In addition, under the 2007 Agreements,
the Company was entitled to receive (1) a $5.0 million
payment tied to the transfer of certain assays and methodology
related to the manufacturing of Stimuvax, a $3.0 million
payment tied to the transfer of certain Stimuvax manufacturing
technology and a $2.0 million payment tied to the receipt
of the first manufacturing run at commercial scale of Stimuvax
(provided that, in each case, such payments would have been
payable by December 31, 2009, regardless of whether the
applicable triggering event had been met), (2) various
additional contingent payments tied to the same events and up to
the same maximum amounts as under the 2001 Agreements,
(3) royalties based on net sales outside of North America
at the same rates as under the 2001 Agreements and
(4) royalties based on net sales inside of North America
with percentages in the mid-twenties, depending on the territory
in which the net sales occur. If the manufacturing process
payments due by December 31, 2009 were paid in full, the
royalty rates would be reduced in all territories by 1.25%,
relative to the 2001 Agreements and the LOI. In December 2007
and May 2008, the Company received from Merck KGaA a
$5.0 million and a $3.0 million payment, respectively,
related to the transfer of certain manufacturing information and
technology.
The Company assessed whether objective and reliable evidence of
fair value of the undelivered elements under the 2007 Agreements
existed as the manufacturing deliverable was shipped, and
concluded such evidence did not exist. As a result, it was
concluded that all deliverables in the arrangement was to be
considered a single unit of accounting.
The Company recorded the manufacturing process transfer payments
received under the 2007 Agreements as deferred revenue and
recognized such revenue ratably over the remaining estimated
product life of Stimuvax. After execution of the 2007 supply
agreement, the Company reported revenue and associated clinical
trial material costs related to the supply of Stimuvax
separately in the consolidated statements of operations
F-35
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
as contract manufacturing revenue and manufacturing expense,
respectively. Under the 2007 supply agreement, the Company was
entitled to invoice and receive a specified upfront payment on
the contractual purchase price for Stimuvax clinical trial
material after the receipt of Merck KGaAs quarterly
12-month
rolling forecast requirements. The Company invoiced the
remaining balance of the contractual purchase price after
shipment of the clinical trial material to Merck KGaA. The
upfront entitlements were recorded as deferred revenue and such
entitlements and the remaining balance of the purchase price
were recognized as contract manufacturing revenue after shipment
to Merck KGaA upon the earlier of (1) the expiration of a
60-day
return period (since returns could not be reasonably estimated)
and (2) formal acceptance of the clinical trial material by
Merck KGaA. Concurrently, the associated costs of the clinical
trial material was removed from inventory and recorded as
manufacturing expense. The Company did not receive any royalties
under the 2007 Agreements. For more information regarding the
Companys revenue recognition policies, see
Note 3 Significant Accounting
Policies Revenue Recognition.
2008 Merck
KGaA Agreements
On December 18, 2008, the Company entered into a license
agreement with Merck KGaA which replaced the 2007 Agreements.
Pursuant to the 2008 license agreement, in addition to the
rights granted pursuant to the 2007 collaboration agreement, the
Company granted to Merck KGaA the exclusive right to manufacture
Stimuvax and the right to sublicense to other persons all such
rights licensed to Merck KGaA. The license grant was effective
as of the date of the 2008 license agreement. The exclusivity
period of such license corresponded to that under the 2007
collaboration agreement.
In addition, (1) the joint steering committee was
abolished, (2) the Company transferred certain
manufacturing know-how to Merck KGaA, (3) the Company
agreed not to develop any product that is competitive with
Stimuvax, other than its product candidate ONT-10, (4) the
Company granted to Merck KGaA a right of first negotiation in
connection with any contemplated collaboration or license
agreement with respect to the development or commercialization
of ONT-10 and (5) the Company sold other Stimuvax-related
assets as described in further detail below.
The only deliverable under the 2008 license agreement was the
license grant. Upon the execution of the agreements with Merck
KGaA in December 2008, all future Company performance
obligations related to the collaboration for the clinical
development and development of the manufacturing process of
Stimuvax were removed and continuing involvement by the Company
in the development and manufacturing of Stimuvax ceased
(although the Company continues to be entitled to certain
information rights with respect to clinical testing, development
and manufacture of Stimuvax).
In return for the license of manufacturing rights and transfer
of manufacturing know-how under the 2008 license agreement, the
Company received an up-front cash payment of approximately
$10.5 million. In addition, under the 2008 license
agreement (1) the provisions with respect to contingent
payments under the 2007 Agreements remained unchanged and
(2) the Company is entitled to receive royalties based on
net sales of Stimuvax ranging from a percentage in mid-teens to
high single digits, depending on the territory in which the net
sales occur. The royalties rates under the 2008 license
agreement were reduced by a specified amount which management
believes is consistent with the estimated costs of goods,
manufacturing scale up costs and certain other expenses
F-36
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
assumed by Merck KGaA. In December 2009, the Company received
the final manufacturing process transfer payment of
$2.0 million.
Since the Company had no further deliverables under the 2008
License Agreement, the Company (1) recognized as revenue
the balance of all previously deferred revenue of
$13.2 million relating to the Merck KGaA collaboration and
(2) the final $2.0 million manufacturing process
transfer payment was recognized as revenue when received in
December 2009. For more information regarding the Companys
revenue recognition policies, see Note 3
Significant Accounting Policies Revenue
Recognition.
The table below presents the roll-forward of the deferred
revenue balances resulting from the payments received from Merck
KGaA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred revenue balance, beginning of year
|
|
$
|
|
|
|
$
|
18,067
|
|
|
$
|
915
|
|
Additional revenues deferred in the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing revenue from collaborative and license agreements
|
|
|
|
|
|
|
3,000
|
|
|
|
10,000
|
|
Contract manufacturing
|
|
|
|
|
|
|
4,060
|
|
|
|
7,040
|
|
Less revenue recognized in the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing revenue from collaborative and license agreements
|
|
|
|
|
|
|
(25,009
|
)
|
|
|
(423
|
)
|
Contract research and development
|
|
|
|
|
|
|
|
|
|
|
(506
|
)
|
Effect of changes in foreign exchange rates
|
|
|
|
|
|
|
(118
|
)
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue balance, end of year
|
|
|
|
|
|
|
|
|
|
|
18,067
|
|
Less deferred revenue current portion
|
|
|
|
|
|
|
|
|
|
|
(5,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue long term
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing process transfer payment received and recognized
currently
|
|
$
|
2,000
|
|
|
|
|
|
|
|
|
|
In connection with the entry into the 2008 license agreement,
the Company also entered into an asset purchase agreement
pursuant to which the Company sold to Merck KGaA certain assets
related to the manufacture of, and inventory of, Stimuvax,
placebo and raw materials, and Merck KGaA agreed to assume
certain liabilities related to the manufacturing of Stimuvax and
the Companys obligations related to the lease of the
Companys Edmonton, Alberta, Canada facility.
The plant and equipment in the Edmonton facility and inventory
of raw materials,
work-in-process
and finished goods were sold for a purchase price of
$0.6 million (including the assumption of lease obligation
of $0.1 million) and $11.2 million, respectively. The
purchase price of the inventory was first offset against
advances made in prior periods resulting in net cash to the
company of $2.0 million. The Company recorded the net gain
from the sale of the plant and equipment of $0.1 million in
other income and $11.2 million as contract manufacturing
revenue.
As result of the December 2008 transactions, 43 persons who
had previously been employed by the Company in its Edmonton
facility were transferred to Merck KGaA, which will
significantly reduce the Companys operating expenses in
future periods.
F-37
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
|
|
13.
|
RESEARCH AND
DEVELOPMENT COSTS
|
Government grant funding of $0.8 million, $1.3 million
and $2.1 million were received in the year ended
December 31, 2009, 2008 and 2007, respectively and credited
against research and development costs for those years.
|
|
14.
|
WORKFORCE
REDUCTION COSTS
|
In 2008, as a result of the sale of the manufacturing rights and
know-how to Merck KGaA, the Company reduced its workforce by
eight employees (which does not take into account
43 employees who became employed by Merck KGaA as a result
of December 2008 transactions described above, for which there
were no workforce reduction costs). During 2007 the Company
reduced its workforce by three employees. During 2008, the
Company recorded workforce reduction costs of $0.8 million,
of which $0.3 million was reported as research and
development expenses, and $0.5 million as general and
administrative expenses. During 2007, the Company recorded
workforce reduction costs of $0.9 million, of which $0.4
million was reported as research and development expense,
$0.1 million as general and administrative expenses and
$0.4 million as marketing and business development costs.
The following table provides details of the workforce reduction
costs for 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
|
Reduction
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Reduction
|
|
|
|
Costs at
|
|
|
Workforce
|
|
|
|
|
|
|
|
|
Costs at
|
|
|
|
Beginning
|
|
|
Reduction
|
|
|
Draw downs
|
|
|
End of
|
|
|
|
of Year
|
|
|
Costs
|
|
|
Cash
|
|
|
Non-Cash
|
|
|
Year
|
|
|
|
(In thousands)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
408
|
|
|
$
|
926
|
|
|
$
|
(652
|
)
|
|
$
|
|
|
|
$
|
682
|
|
Stock compensation expense
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
(82
|
)
|
|
|
|
|
Other
|
|
|
4
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates
|
|
|
|
|
|
|
(85
|
)
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
412
|
|
|
$
|
923
|
|
|
$
|
(571
|
)
|
|
$
|
(82
|
)
|
|
$
|
682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
682
|
|
|
$
|
777
|
|
|
$
|
(567
|
)
|
|
$
|
|
|
|
$
|
892
|
|
Stock compensation expense
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
Effect of changes in foreign exchange rates
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
682
|
|
|
$
|
832
|
|
|
$
|
(569
|
)
|
|
$
|
(53
|
)
|
|
$
|
892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
892
|
|
|
$
|
|
|
|
$
|
(591
|
)
|
|
$
|
|
|
|
$
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
892
|
|
|
$
|
|
|
|
$
|
(591
|
)
|
|
$
|
|
|
|
$
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accrued workforce reduction costs at December 31, 2009
and December 31, 2008 have been recorded in accounts
payable and accrued liabilities in the consolidated balance
F-38
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
sheets. The accrued workforce reduction costs at
December 31, 2009 will be fully paid by the end of June
2010.
|
|
15.
|
INVESTMENT AND
OTHER (INCOME) LOSS, NET
|
Investment and other (income) loss includes the following
components for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Investment (income) loss
|
|
$
|
(82
|
)
|
|
$
|
(303
|
)
|
|
$
|
(1,069
|
)
|
Net Foreign Exchange (income) loss
|
|
|
83
|
|
|
|
53
|
|
|
|
1,440
|
|
Sale of equipment (gain) loss
|
|
|
7
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment and other (income) loss, net
|
|
$
|
8
|
|
|
$
|
(298
|
)
|
|
$
|
371
|
|
The tax provision includes the following components for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In thousands)
|
|
Domestic
|
|
$
|
200
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009, the Company recorded a tax provision of
$0.2 million for the year ended December 31, 2009,
which consists of federal alternative minimum tax due to
limitations on net operating loss usage.
The provision for income taxes is different from applying the
statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Tax expense at statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Previously recognized revenue
|
|
|
|
|
|
|
(63.5
|
)%
|
|
|
|
|
Research and development credits
|
|
|
|
|
|
|
(1.3
|
)%
|
|
|
6.3
|
%
|
Warrant liability
|
|
|
(12.7
|
)%
|
|
|
|
|
|
|
|
|
Other
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
(0.4
|
)%
|
Change in valuation allowance
|
|
|
(22.9
|
)%
|
|
|
29.8
|
%
|
|
|
(40.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Deferred income taxes are comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net deferred income tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
$
|
(49
|
)
|
|
$
|
(58
|
)
|
|
$
|
660
|
|
Intangible assets
|
|
|
1,520
|
|
|
|
1,628
|
|
|
|
|
|
Other
|
|
|
1,083
|
|
|
|
837
|
|
|
|
|
|
Tax benefits from losses carried forward and tax credits
|
|
|
121,944
|
|
|
|
96,380
|
|
|
|
63,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset before allowance
|
|
|
124,498
|
|
|
|
98,787
|
|
|
|
64,378
|
|
Less valuation allowance
|
|
|
(124,498
|
)
|
|
|
(98,787
|
)
|
|
|
(64,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset before allowance changed from the
previously reported amount in 2008 due to unrecorded intangible
assets and tax benefits from losses carried forward and tax
credits in the amounts of $1.6 million and
$33.9 million, respectively. These previously unrecorded
deferred income tax assets were fully offset by an increase in
the valuation allowance in the same amounts.
Based on the available evidence, the Company has recorded a full
valuation allowance against its net deferred income tax assets
as it is more likely than not it will not realize the benefit of
these deferred tax assets.
United
States
The Company has accumulated net operating losses in the
U.S. of $58.4 million and $50.9 million for
federal purposes at December 31, 2009 and 2008
respectively, some of which are restricted pursuant to
Section 382 of the Internal Revenue Code, and which may not
be available entirely for use in future years. These losses
expire in fiscal years 2010 through 2029. The Company also has
federal research and development credits of $0.8 million
that will expire in fiscal years 2010 through 2029, if not
utilized.
Canada
The Company has unclaimed federal investment tax credits of
$19.6 million and $16.9 million at December 31,
2009 and 2008, respectively that expire in fiscal years 2010
through 2018. Also available to offset income in future periods
are Canadian scientific research and experimental development
expenditures of $131.5 million and $113.3 million for
federal purposes and $56.0 million and $48.2 million
for provincial purposes at December 31, 2009 and 2008
respectively. These expenditures may be utilized in any period
and may be carried forward indefinitely. The Company also has
federal capital losses of $177.2 million and
$152.7 million and provincial capital losses of
$177.3 million and $152.7 million at December 31,
2009 and 2008 respectively that can be carried forward
indefinitely to offset future capital gains. The Company has
accumulated net operating losses of $5.5 million and
$4.3 million at December 31, 2009 and 2008 for federal
tax purposes which expire between 2017 and 2019.
F-40
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Other
The Company files federal, state and foreign income tax returns
in many jurisdictions in the United States and abroad. For
federal income tax purposes, the statute of limitations is open
for 1994 and onward for the United States and Canada due to NOLs
carried forward.
|
|
17.
|
CONTINGENCIES,
COMMITMENTS, AND GUARANTEES
|
Royalties
In connection with the issuance of the Class UA preferred
stock (See Note 10 Share Capital),
the Company has agreed to pay a royalty in the amount of 3% of
the net proceeds of sale of any products sold by the Company
employing technology acquired in exchange for the shares. None
of the Companys products currently under development
employ the technology acquired.
Pursuant to various license agreements, the Company is obligated
to pay royalties based both on the achievement of certain
milestones and a percentage of revenues derived from the
licensed technology.
Employee
benefit plan
Under a defined contribution plan available to permanent
employees, the Company is committed to matching employee
contributions up to limits set by the terms of the plan, as well
as limits set by the and U.S. tax authorities. The
Companys matching contributions to the plan totaled
$0.1 million, $0.2 million and $0.2 million in
2009, 2008 and 2007, respectively. There were no changes to the
plan during the year.
Guarantees
The Company is contingently liable under a mutual undertaking of
indemnification with Merck KGaA for any withholding tax
liability that may arise from payments under the license
agreement (See Note 16 Income
Tax Other).
In the normal course of operations, the Company provides
indemnities to counterparties in transactions such as purchase
and sale contracts for assets or shares, service agreements,
director/officer contracts and leasing transactions. These
indemnification agreements may require the Company to compensate
the counterparties for costs incurred as a result of various
events, including environmental liabilities, changes in (or in
the interpretation of) laws and regulations, or as a result of
litigation claims or statutory sanctions that may be suffered by
the counterparties as a consequence of the transaction. The
terms of these indemnification agreements vary based upon the
contract, the nature of which prevents the Company from making a
reasonable estimate of the maximum potential amount that could
be required to pay to counterparties. Historically, the Company
has not made any significant payments under such indemnities and
no amounts have been accrued in the accompanying consolidated
financial statements with respect to these indemnities.
Under the agreement pursuant to which the Company acquired ProlX
the Company agreed to indemnify the former ProlX stockholders
with respect to certain tax liabilities that may arise as a
result of actions taken by the Company through 2011. The Company
estimates that the maximum potential amount of future payments
to satisfy hypothetical, future claims under such indemnities is
$15 million. The Company believes the probability of having
to make any payments pursuant to such indemnities to be remote
and therefore no amounts have been recorded thereon.
F-41
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
|
|
18.
|
FINANCIAL
INSTRUMENTS
|
Financial instruments consist of cash and cash equivalents,
short-term investments, accounts receivable and notes receivable
that will result in future cash receipts, as well as accounts
payable and accrued liabilities, and notes payable that require
future cash outlays.
Credit
risk
The Company is exposed to credit risk on its short-term
investments in the event of non-performance by counterparties,
but does not anticipate such non-performance. The Company
monitors the credit risk and credit standing of counterparties
on a regular basis and deals with a small number of companies
that management believes are reputable and stable. Restricting
its portfolio to investment grade securities, and diversifying
its investments across industries, geographic regions, and types
of securities mitigates the Companys exposure to
concentration of credit risk.
Interest rate
risk
Historically, the Companys short-term investments are
primarily comprised of fixed interest securities. The
Companys earnings from its short-term investments are
exposed to interest rate risk since individual investments held
within the portfolio re-price to market interest rates as they
mature and new investments are purchased. A 100 basis
points decline in interest rates, occurring January 1, 2009
and sustained throughout the period ended December 31,
2009, would result in a decline in investment income of
approximately $0.2 million for that same period.
Foreign
exchange risk
Historically, the Company has purchased goods and services
denominated primarily in U.S. and Canadian currencies and,
to a lesser extent, in certain European currencies. Since the
Company disposed of its Canadian operations in 2008,
expenditures have been incurred primarily in U.S. dollars.
The Company does not utilize derivative instruments.
At December 31, 2009, the Company had a minimal amount of
Canadian dollar denominated cash and cash equivalents therefore
as a result, for the foreseeable future exchange rate
fluctuations should not have a material effect on the
Companys results of operations.
Short-term
investments
As of December 31, 2009, short term investments consisted
of certificates of deposit insured by the Federal Deposit
Insurance Corporation. The Company expects to and has the use of
quoted market prices to determine the fair value of its
marketable securities. When quoted market prices are
unavailable, the Company uses quotes provided by its fund
manager based on recent trading activity and other relevant
information.
Accounts
receivable, government grant receivable and accounts payable and
accrued liabilities
The carrying amounts of accounts receivable, government grant
receivable and accounts payable and accrued liabilities
approximate their fair values due to the short-term nature of
these financial instruments.
F-42
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
Notes
receivable, employees
The fair value of notes receivable are assumed to be equal to
their carrying value as the interest rate charged on the
investments (See Note 6 Notes Receivable,
Employees) approximates market.
Notes
payable
The fair value of notes payable (See
Note 9 Notes Payable) is assumed to
be equal to their carrying value as the amounts that will be
paid and the timing of the payments cannot be determined with
any certainty.
Limitations
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instrument. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment;
therefore, they cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
The Company is engaged world-wide in a single business
segment research and development of therapeutic
products for the treatment of cancer. Operations and long-lived
assets by geographic region for the periods indicated are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Revenue from operations in
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
120
|
|
United States
|
|
|
2,062
|
|
|
|
39,747
|
|
|
|
|
|
Barbados
|
|
|
|
|
|
|
509
|
|
|
|
3,517
|
|
Europe
|
|
|
|
|
|
|
23
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,078
|
|
|
$
|
40,295
|
|
|
$
|
3,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
|
|
|
$
|
280
|
|
|
$
|
204
|
|
United States
|
|
|
269
|
|
|
|
142
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
269
|
|
|
$
|
422
|
|
|
$
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
|
|
|
$
|
99
|
|
|
$
|
833
|
|
United States
|
|
|
4,193
|
|
|
|
2,885
|
|
|
|
2,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,193
|
|
|
$
|
2,984
|
|
|
$
|
3,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets consist of plant and equipment and goodwill.
F-43
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
The Company derives significant revenue from one customer. Such
customer is the only one that individually accounts for more
than 10% of revenue and total revenue, as presented in the
following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Customers
|
|
Revenue
|
|
2009
|
|
|
1
|
|
|
$
|
2,000
|
|
2008
|
|
|
1
|
|
|
$
|
40,280
|
|
2007
|
|
|
1
|
|
|
$
|
3,554
|
|
Announced and
terminated sale of Canadian subsidiaries
On February 18, 2010, the Company entered into an
arrangement agreement (the Arrangement) pursuant to
which it would sell its interests in its Canadian Subsidiaries
for approximately Cdn $8.4 million (U.S. $8.0 at
December 31, 2009) to Gamehost Income Fund
(Gamehost). The consideration to be paid by Gamehost
was to consist of Cdn $7.8 million (US
$7.4 million at December 31, 2009) in cash being
paid at closing of the Arrangement with Cdn $600,000
(U.S. $572,000 at December 31, 2009) being
delivered through retained equity in post-arrangement Gamehost.
Due to a March 2010 change in the Income Tax Act (Canada), the
Agreement was subsequently terminated. The Company continues to
explore the sale of its interests in the Canadian Subsidiaries.
Temporary
suspension of clinical development program for
Stimuvax
On March 23, 2010, the Company announced that Merck KGaA
temporarily suspended the clinical development program for
Stimuvax as the result of a suspected unexpected serious adverse
reaction in a patient with multiple myeloma participating in an
exploratory clinical trial. This action is a precautionary
measure while investigation of the cause of this adverse
reaction is conducted. The suspension affects the Phase 3
clinical program for Stimuvax, including the trials in NSCLC and
in breast cancer. During the suspension, further recruitment of
patients into the trials and ongoing treatment with Stimuvax
will be on hold.
NASDAQ
deficiency notice
On April 22, 2010 the Company announced that it received a
deficiency notice from the Listing Qualifications Department
Staff of The NASDAQ Stock Market, or NASDAQ, stating that the
Company was not in compliance with NASDAQ Marketplace
Rule 5250(c)(1) because of the Companys failure to
timely file this Annual Report on
Form 10-K
for the year ended December 31, 2009. The NASDAQ letter,
which the Company had anticipated in connection with its delayed
filing, requested that the Company submit a plan to regain
compliance with respect to the NASDAQs continued listing
standards no later than June 18, 2010. If the Company fails
to provide a timely plan or the NASDAQ staff determines the
Companys plan is insufficient to regain compliance, the
Company may be subject to delisting from The NASDAQ Stock
Market. With the filing of this Annual Report on
Form 10-K
for the year ended December 31, 2009, the Company believes
that it will regain full compliance with the NASDAQ continuing
listing standards.
F-44
ONCOTHYREON
INC.
Notes to the
Consolidated Financial
Statements (Continued)
|
|
21.
|
CONDENSED
QUARTERLY FINANCIAL DATA (unaudited)
|
The following table contains selected unaudited statement of
operations information for each quarter of 2009 and 2008. The
unaudited information should be read in conjunction with the
Companys audited financial statements and related notes
included elsewhere in this report. The Company believes that the
following unaudited information reflects all normal recurring
adjustments necessary for a fair presentation of the information
for the periods presented. The operating results for any quarter
are not necessarily indicative of results for any future period.
Quarterly Financial Data (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4
|
|
|
$
|
31
|
|
|
$
|
4
|
|
|
$
|
2,039
|
|
Net loss
|
|
$
|
(2,472
|
)
|
|
$
|
(6,332
|
)
|
|
$
|
(5,945
|
)
|
|
$
|
(2,470
|
)
|
Net loss per share basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.10
|
)
|
2008(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,996
|
|
|
$
|
1,128
|
|
|
$
|
778
|
|
|
$
|
36,393
|
|
Net income (loss)
|
|
$
|
(5,138
|
)
|
|
$
|
(4,940
|
)
|
|
$
|
(3,594
|
)
|
|
$
|
21,094
|
|
Net income (loss) per share basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
1.08
|
|
|
|
|
(1) |
|
The effect of the asset purchase agreement and 2008 license
agreement with Merck KGaA, is reflected in the fourth quarter of
2008. See Note 12 Collaborative and
License Agreements of the audited financial statements. |
|
(2) |
|
The effects of the restatement discussed in
Note 2 Restatement 2008
Change in Accounting Policy Not Previously Reported and Other
Error Corrections had the following effects on revenues,
net income (loss) and net income (loss) per share
basic and diluted for the three months ended March 31,
June 30, September 30 and December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Revenues
|
|
$
|
(24
|
)
|
|
$
|
(24
|
)
|
|
$
|
(24
|
)
|
|
$
|
370
|
|
Net income (loss)
|
|
$
|
(24
|
)
|
|
$
|
(24
|
)
|
|
$
|
(24
|
)
|
|
$
|
370
|
|
Net income (loss) per share basic and diluted
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.02
|
|
F-45