Attached files
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EX-5.1 - FENNEC PHARMACEUTICALS INC. | v210514_ex5-1.htm |
EX-4.5 - FENNEC PHARMACEUTICALS INC. | v210514_ex4-5.htm |
EX-4.6 - FENNEC PHARMACEUTICALS INC. | v210514_ex4-6.htm |
EX-23.3 - FENNEC PHARMACEUTICALS INC. | v210514_ex23-3.htm |
EX-23.2 - FENNEC PHARMACEUTICALS INC. | v210514_ex23-2.htm |
Registration
Statement No. 333-170570
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Amendment No. 1 to
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
ADHEREX
TECHNOLOGIES, INC.
(Exact
name of registrant as specified in its charter)
Canada
|
2836
|
20-0442384
|
||
(State
or other jurisdiction of
incorporation
or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
Number)
|
Rostislav
Raykov
|
|
Chief
Executive Officer
|
|
501
Eastowne Drive, Suite 140
|
Adherex
Technologies, Inc.
|
Chapel
Hill, NC 27514
|
501
Eastowne Drive, Suite 140
|
(919)
636-4530
|
Chapel
Hill, NC 27514
|
(919)
636-4530
|
|
(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive
offices)
|
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
|
Copies of
communications to:
Jonathan
E. Silverblatt, Esq
|
Randy
Taylor, Esq.
|
Phillips Nizer
LLP
|
LaBarge
Weinstein P.C.
|
666
Fifth Avenue
|
515
Legget Drive, Suite 800
|
New
York, New York 10103
|
Ottawa,
ON K2K 3G4
|
Phone
(212) 977-9700
|
Phone
(613) 599-9600
|
Fax
(212) 262-5152
|
Fax
(613) 599-0018
|
Approximate
date of proposed sale to the public: As soon as practicable after the effective
date of this registration statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box: x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
(Do
not check if a smaller reporting
company)
|
CALCULATION
OF REGISTRATION FEE
Title of Each
Class of Securities
to be Registered (1)
|
Amount to be
Registered (1)
|
Proposed
Maximum
Offering
Price per Unit
|
Proposed
Maximum
Aggregate
Offering Price
|
Amount of
Registration
Fee
|
||||||||||||
Subscription Rights (“Rights”) to purchase
units (“Units”) consisting of one share of common stock and a five-year
warrant to purchase one share of common stock at an exercise price of
CAD$0.08 per share (“Warrants”) (2)
|
425,000,000 | CAD$ | 0 | CAD$ | 0 | USD$ | 0.00 | (3) | ||||||||
Units
underlying the Rights
|
425,000,000 | 0.03 | 12,750,000 | 906.26 | (4) | |||||||||||
Common
stock
|
425,000,000 |
Included
with above
|
— | 0.00 | (5) | |||||||||||
Warrants
to Purchase 425,000,000 shares of common stock
|
425,000,000 |
Included
with above
|
— | 0.00 | (5) | |||||||||||
Common
stock issuable upon exercise of the Warrants
|
425,000,000 | 0.08 | 34,000,000 | 2,416.68 | (6) | |||||||||||
Total
|
— | — | CAD$ | 46,750,000 | USD$ | 3,322.94 | (7) |
(1)
Pursuant to Rule 416(a) of the Securities Act of 1933, as amended, this
registration statement shall be deemed to cover additional securities that may
be offered or issued to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
(2) This
registration statement relates to (a) the subscription rights to purchase Units,
(b) the Units, (c) the shares of common stock included in the Unit, (d) Warrants
to purchase shares of common stock and (e) the shares of common stock issuable
upon exercise of the Warrants.
(3) The
Rights are being issued without consideration. Pursuant to Rule 457(g), no
separate registration fee is payable with respect to the Rights being offered
hereby since the Rights are being registered in the same registration statement
as the securities to be offered pursuant thereto.
(4)
Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum
offering price of our common stock of CAD$12,750,000 and an exchange rate of
0.9969 CAD/USD on November 11, 2010.
(5)
Pursuant to Rule 457(g), no separate registration fee is payable with respect to
the warrants being offered hereby since the warrants are being registered in the
same registration statement as the securities to be offered pursuant
thereto.
(6)
Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum
exercise price of CAD$34,000,000 and an exchange rate of 0.9969 CAD/USD on
November 11, 2010.
(7) Previously paid by the registrant in connection
with the initial filing of this registration statement.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is declared effective. This prospectus is not an offer
to sell these securities, and we are not soliciting offers to buy these
securities, in any state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
SUBJECT
TO COMPLETION, DATED
FEBRUARY 9, 2011
ADHEREX
TECHNOLOGIES, INC.
OFFERING
UP TO 425,000,000 UNITS
We are
conducting a rights offering to our existing shareholders who reside in a
Province of Canada and the United States to purchase up to 425,000,000
Units (subject to rounding as described in this
prospectus). Every right will entitle
the holder to acquire one Unit at the
subscription price of CAD $0.03 per Unit. Each Unit will consist of one share of
our common stock, and one warrant to purchase one share of common stock at an
exercise price of CAD $0.08 per share for a period of five years from the issue
date. The warrants will not be exercisable for the first six months from
their date of issuance. Certain of our
existing shareholders that purchased units in the Company’s private placement in
April 2010 and that held an aggregate of
243,066,664 shares of our common stock as
of February 9, 2011, have agreed not to participate in this rights
offering, as further described on page 5 of this prospectus. Fractional subscription
rights resulting from such pro rata distribution will be eliminated by rounding
down
to the nearest whole right.
Each
subscription right entitles the holder of such
right to subscribe for one Unit at the subscription price of CAD $0.03
per Unit, which we refer to as the Basic Subscription Right. Holders of
rights who exercise their Basic Subscription Right in full will be entitled to
subscribe for additional Units at a price of CAD $0.03 per Unit, which we refer to as the Over-Subscription
Right. If there is a sufficient number of Units available to fully satisfy
the Over-Subscription Right requests of all Holders following the exercise of
their Basic Subscription Rights, all Over-Subscription Right requests will be
honored in full. If insufficient Units are available to fully satisfy the
Over-Subscription Right requests of Holders, the available unsubscribed Units
will be distributed proportionately among those Holders who exercised
their Over-Subscription Right based on the number
of Units each Holder subscribed for pursuant to their Over-Subscription
Right. There is no minimum number of Units you must purchase, but you may
not purchase fractional Units. For the
avoidance of doubt, upon exercise of a right the Company will distribute the
components of a Unit rather than the Unit itself.
Our
common stock is quoted on the Toronto Stock Exchange, under the symbol “AHX” and
on the Pink Sheets under the symbol “ADHXF.” The last reported sale price of our
common stock on the Pink Sheets on February 8,
2011 was $0.055 per share.
2
THIS
INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SECURITIES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS.
SEE
“RISK FACTORS” BEGINNING ON PAGE 11.
We
will be responsible for all fees and expenses incurred in connection with the
preparation and filing of this registration statement, provided, however, we
will not be required to pay any underwriters’ discounts or commissions relating
to the securities covered by the registration statement. This is not an underwritten offering. The Units
are being offered directly by us without the services of an underwriter or
selling agent. The purpose of this rights offering is to raise equity
capital in a cost-effective manner and to permit shareholders who
did not participate in the April 2010 Private Placement, the ability to purchase
Units so as to avoid dilution of their shares as a result of the April 2010
Private Placement. We intend to use the
net proceeds from this offering for working capital and general corporate purposes,
primarily for the development of eniluracil. See “Use of Proceeds” on page
24.
Our board
of directors makes no recommendation to you about whether you should exercise
any Rights. You are urged to make an independent investment decision about
whether to exercise your Rights based on your own assessment of our business and
the rights offering.
You
should read this prospectus and any prospectus supplement carefully before you
decided to invest. You should not assume that the information in this prospectus
is accurate as of any date other than the date on the front of this
document.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date of this Prospectus is February __, 2011.
3
TABLE
OF CONTENTS
Prospectus
Summary
|
5
|
The
Offering
|
6
|
Risk
Factors
|
11
|
Use
of Proceeds
|
24
|
Plan
of Distribution
|
24
|
Material
United States and Canadian Federal Income Tax
Consequences
|
30
|
Description
of Securities Being Registered
|
36
|
Interests
of Named Experts and Counsel
|
37
|
Cautionary
Statement Regarding Forward Looking Statements
|
38
|
Information
About the Company
|
38
|
Description
of Business
|
38
|
Description
of Property
|
48
|
Legal
Proceedings
|
48
|
Market
Price of and Dividends on Common Equity and Related Stockholder
Matters
|
48
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
49
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
58
|
Quantitative
and Qualitative Disclosures About Market Risk
|
58
|
Directors
and Executive Officers
|
58
|
Executive
Compensation
|
61
|
Security
Ownership and Certain Beneficial Owners and Management
|
66
|
Certain
Relationships and Related Transactions
|
68
|
Legal
Matters
|
68
|
Experts
|
68
|
Financial
Statements
|
69
|
Adherex
Technologies Inc. Index to Condensed Consolidated Financial Statements as
of September 30, 2010 and September 30, 2009
|
69
|
Adherex
Technologies Inc. Index to Financial Statements as of December 31, 2009
and December 31, 2008.
|
69
|
Report
of Independent Public Accounting Firm
|
70
|
4
ADHEREX
TECHNOLOGIES, INC.
PROSPECTUS
SUMMARY
The
following information is a summary of the prospectus and it does not contain all
of the information you should consider before making an investment decision. You
should read the entire prospectus carefully, including the financial statements
and the notes relating to the financial statements.
ABOUT
US
We
incorporated under the laws of Canada in September 1996. Our principal executive
offices are located at 501 Eastowne Drive, Suite 140, Chapel Hill, NC 27514. Our
telephone number is (919) 636-4530. Our website is www.adherex.com. Information
contained in our website does not constitute part of this
prospectus.
We are a
biopharmaceutical company focused on cancer therapeutics. We currently have the
following products in the clinical stage of development: (1) Eniluracil, an oral
dihydropyrimidine dehydrogenase, or DPD, inhibitor, which may improve the
tolerability and effectiveness of 5-fluorouracil (5-FU), one of the most widely
used oncology drugs in the world; and (2) STS, a chemoprotectant being developed
to reduce or prevent hearing loss that may result from treatment with
platinum-based chemotherapy drugs and (3) ADH-1, a peptide molecule that
selectively targets N-cadherin, a protein present on the blood vessels of solid
tumors.
We have
limited capital. Therefore, management has determined to focus our efforts
primarily on our clinical activities with eniluracil. We provide some logistical
and product support of STS and limited product support for ADH-1, however we do
not intend to focus our resources on STS or ADH-1 unless we raise additional
capital.
We
have not received and do not expect to have significant revenues from our
product candidates until we are either able to sell our product candidates after
obtaining applicable regulatory approvals or we establish collaborations that
provide us with up-front payments, licensing fees, milestone payments, royalties
or other revenue. We experienced net losses of approximately $1.2 million for
the nine months ended September 30, 2010 and $3.2 million for the nine months
ended September 30, 2009. As of September 30, 2010, our accumulated deficit was
approximately $102.2 million.
On
April 20, 2010, we entered into agreements with our largest shareholder,
Southpoint Capital Advisors LP and certain other investors for a private
placement. Participating investors purchased 240,066,664 Units at a price of
CAD$0.03 per Unit, for gross proceeds of CAD$7,202,000. Each Unit consisted of
one share of our common stock, and one warrant to purchase one share of common
stock at a purchase price of CAD$0.08 per share for a period of five years from
the issue date. Purchasers of Units in the private placement that were existing
shareholders of Adherex at such time have agreed not to participate in this
rights offering. We refer to such purchasers as
“Private Placement Holders” in this prospectus. Consequently, Rights issuable to the Private Placement
Holders pursuant to this rights offering will not be delivered to the Private
Placement Holders, but rather we will deliver certificates representing such
Rights to the subscription agent, who will hold such Rights on behalf of such
Private Placement Holders until the expiration of this offering, when at such
time such Rights will have no value and will expire. The subscription agent will
not effect any exercise or transfer any Rights issuable to Private Placement
Holders. Therefore, no Units will be issued to Private Placement Holders in
respect of any Rights issuable to Private Placement Holders. However, such Units
shall be available for issue to Holders (other than the Private Placement
Holders) who exercise their over-subscription right. See “Plan of Distribution;
Terms of Rights Offering – Allocation and Exercise of Over-Subscription Rights”
on page 24.
In the
prospectus, unless otherwise indicated, all dollar amounts and references to “$”
are to U.S. dollars and “CAD$” refers to Canadian dollars.
5
THE
OFFERING
This
prospectus relates to an equity financing for up to 425,000,000 Units. Each Unit
consists of one share of common stock and one warrant to purchase one share of
common stock at the exercise price of CAD$0.08. The purchase price for the Units
is CAD$0.03.
Securities
Offered
|
Except
as provided in this prospectus, we are distributing at no charge to each
of the holders (each, a “Holder”) of our common stock, rights to purchase
up to an aggregate of up to 425,000,000 units (the “Units”) consisting of
an aggregate of up to 425,000,000 shares of common stock and warrants (the
“Warrants”) representing the right to purchase up to an aggregate of up to
425,000,000 shares of common stock. Each Unit will consist of one share of
common stock and one Warrant representing the right to purchase one share
of common stock for CAD$0.08. We will distribute one right to each
Holder for each share of common stock held by such Holders as of 5:00 p.m., New York City
time, on February 24, 2011, the
record date for the rights offering (the
“Record Date”). Fractional subscription rights resulting from such
pro rata distribution will be eliminated by rounding down to the
nearest whole right. Assuming all of the rights offered hereby are
exercised, the total purchase price for the securities offered in
this rights offering would be approximately CAD$12.75 million; if the full
425,000,000 warrants were subsequently exercised, we would receive an
additional CAD$34.0 million in proceeds. However, it is possible the
warrants may expire before any or all of them are exercised, in which case
we may receive no proceeds from the exercise of the
Warrants.
|
Basic Subscription Right and
Subscription Price
|
The basic subscription right (the “Basic
Subscription Right”) entitles the Holder to purchase one (1) Unit for each subscription right
distributed to such Holder at the subscription price of CAD$0.03
per Unit, and each Unit will consist of one share of common stock
and one Warrant representing the right to purchase one share of common
stock. You may exercise some or all of your
Basic Subscription Rights, or you may choose not to exercise any of your
Basic Subscription Rights. There
is no minimum number of Units you must purchase, but you may not purchase
fractional Units. See “No Minimum Subscription Requirement; No
Fractional Units” on page
8.
|
|
A
participant who holds common stock of the Corporation as of the Record
Date on behalf of more than one beneficial owner may, upon providing
evidence satisfactory to the subscription
agent, exercise the Rights evidenced by its Rights certificate or
exchange its rights certificate on the same basis as though each of the
beneficial owners were a shareholder
of record as of the Record
Date.
|
Over-Subscription
Right
|
Holders
who fully exercise their Basic Subscription Right will be entitled to
subscribe for additional Units at a price of
CAD $0.03 per Unit (the “Over-Subscription Right”). There is no
standby commitment or additional subscription right. If there is a sufficient number of
Units available to fully satisfy the Over-Subscription Right requests of
all Holders following the exercise of their Basic Subscription Rights, all
Over-Subscription Right requests will be honored in full. If
insufficient Units are available to fully satisfy the Over-Subscription
Right requests of Holders, the available unsubscribed Units will be
distributed proportionately among those Holders who exercised their
Over-Subscription Right based on the number of Units each Holder
subscribed for pursuant to their Over-Subscription Right. As no Units will be issued to Private Placement
Holders in respect to any Rights issuable to such Private Placement
Holders, such Units will be available for issue to Holders (other than
Private Placement Holders), who exercise their Over-Subscription
Right.
|
6
Rights Certificates,
Registered
Holders of Common
Shares
|
To each Holder who holds shares of common stock
in definitive certificate form, certificates representing the Rights
(“Rights Certificate”) will be mailed with a copy of this prospectus to
each registered Holder as of the Record
Date.
|
Rights Certificates, Shares of Common
Stock
And Warrants Held Through CDS or
DTC
|
For
all shareholders who hold their
common stock through a securities broker or dealer, bank or trust company
or other Participant in the book-based systems administered by CDS or DTC,
we anticipate that a global certificate representing the total number of
Rights to which all such shareholders
as at the Record Date are entitled will be issued in registered form to,
and deposited with, CDS or DTC, as the case may be. In addition, we anticipate that the
common stock and warrants underlying the Units will also be issued in
registered form to, and deposited with, CDS or DTC, as the case may
be. The Corporation expects that each beneficial shareholder will receive a confirmation of
the number of Rights issued to it from its Participant in accordance with
the practices and procedures of that Participant. Once eligible with CDS
or DTC, as the case may be, CDS and DTC will be responsible for
establishing and maintaining book-entry accounts for Participants holding
rights.
|
|
Neither
we nor the subscription agent will have liability for:
(i) the records maintained by CDS, DTC or Participants relating to the
Rights, including the shares of common stock
and warrants underlying such Rights, or the book-entry accounts
maintained by them; (ii) maintaining, supervising or reviewing any records
relating to the Rights, including the shares
of common stock and warrants underlying such Rights; (iii) any
advice or representations made or given by CDS, DTC or Participants with
respect to the rules and regulations of CDS or DTC or any action to be
taken by CDS, DTC of their
Participants.
|
Record
Date
|
5:00
p.m., New York City time, on February 24,
2011.
|
Commencement Date of
Subscription Period
|
February
28, 2011.
|
Expiration Date of Subscription
Period
|
5:00
p.m., New York City time, on March 29,
2011. Any Rights not exercised at or before that time will have no
value and expire without any payment to the Holders of those Rights not
exercised.
|
Transferability of
Rights
|
The Rights will be transferable during the
subscription period and will expire on the scheduled expiration date of
this rights offering. Assignment of your rights must be accomplished
as described under “Form 3 – Transfer
of Rights in “Instructions of Exercising Rights” on page 28. The shares of our common stock which you
receive upon exercise of your rights and, separately, upon exercise of the
warrants underlying the Units will be transferable following their
issuance. The warrants to be issued pursuant to this offering will
be separately transferable following their issuance and through their
expiration date of five years from the issue date. We have applied to list the Rights, the shares of
common stock and warrants issuable upon exercise of the Rights, and the
shares of common stock issuable upon exercise of the warrants, on the
TSX. Such listing is subject to us fulfilling all of the listing
requirements of the TSX. However, we do not intend to list the Rights, such
shares of common stock or the
warrants on any other exchange.
We do not
anticipate that the
Rights will be quoted for trading on
the Pink Sheets. See “Transferability of Rights/Common
Stock/Warrants”
below.
|
7
Limitation on Purchase of
Units
|
We
will not issue Units to any Holder that is required to obtain prior
clearance or approval from, or submit a notice to, any state or federal
regulatory authority to acquire, own, or control such Units if we
determine that, as of the expiration date of the rights offering, such
clearance or approval has not been satisfactorily obtained and any
applicable waiting period has not
expired.
|
Description of
Warrants
|
Exercise
Price: The Warrants will have an exercise price of CAD$0.08 per share of
common stock and the exercise price may be adjusted in certain instances.
The exercise price will be payable by certified or bank check, or by wire
transfer, to an account designated by us of an amount equal to the then
applicable warrant price multiplied by the number of warrant shares being
issued.
|
|
Term:
The Warrants will not be exercisable
for the
first six months from their date of issuance and will terminate
five years from the date of
issuance
|
|
Anti-Dilution
Protection: The number of shares of common stock for which the Warrants
may be exercised and the exercise price applicable to the Warrants will be
proportionately adjusted in the event that we make distributions of our
common stock, or subdivide, combine or reclassify outstanding shares of
our common stock, or if we pay a dividend in securities or property other
than common stock. In the case of a merger or consolidation of us into
another company where we are not the surviving company, the Holder will
have the right to receive a new warrant in the surviving
corporation.
|
Procedure for Exercising
Rights
|
If
you are a Holder on the record date, to exercise your Rights to buy Units,
you must properly complete and execute the subscription certificate
together with any required signature guarantees and forward it, together
with the payment in full of the subscription price for each Unit you
subscribe for, to the subscription agent, Olympia Transfer Services, Inc.,
at the address set forth on the subscription certificate. The
subscription rights certificate must be received
by the subscription agent on or prior to 5:00 p.m., New York City time, on
March 29, 2011, the expiration date of the rights
offering. Once you exercise your Rights, you cannot revoke your
exercise. Persons holding equity securities through a broker,
dealer, trustee, depository for securities, custodian bank or other
nominee that desire to exercise their Rights with respect thereto should
contact the appropriate institution or nominee and request it to effect
the transaction for them. See “Payment for Units” on page
29.
|
No Minimum
Subscription
Requirement; No Fractional
Units
|
There
is no minimum subscription requirement, but
you may not purchase fractional Units. We will consummate the
rights offering regardless of the amount raised from the exercise of
subscription rights by the expiration date. For
the avoidance of doubt, upon exercise of a right the Company will
distribute the components of a Unit rather than the Unit
itself.
|
Maximum Offering
Size
|
We
will raise no more than CAD $46,750,000 in this
offering.
|
8
Common Stock Outstanding /
Dilution
|
As
of February 8, 2011, we had 368,293,451 shares of common
stock outstanding (which excludes outstanding options, warrants and
preferred stock convertible into or exercisable for shares of common
stock). If you do not exercise any of your Rights, the number of shares of
our common stock you own (or have the right to own upon exercise or
conversion of other securities) will not change. However, to the extent
that Units are purchased by other stockholders in the rights offering your
relative actual and fully-diluted ownership interest will be reduced, and
the percentage that your original shares represent of our equity after
exercise of the Rights will be diluted. Assuming that the rights offering
is fully subscribed, 425,000,000 shares of common stock and Warrants to
purchase 425,000,000 shares of common stock will be
issued.
|
Use of
Proceeds
|
We
intend to use the net proceeds, after
payment of fees and expenses of this rights offering, for working capital and general corporate
purposes, including primarily for the development of
eniluracil.
|
Stock Exchange
Listing
|
The
outstanding common stock of the Corporation is currently listed and posted
for trading on the TSX and the Pink Sheets under the symbols “AHX” and
“ADHXF”, respectively. We have applied to list the rights, the shares of
common stock and warrants issuable upon exercise of the Rights, and the
shares of common stock issuable upon exercise of the warrants on the
TSX. Such listing is subject to us fulfilling all of the listing
requirements of the TSX.
|
No Board
Recommendation
|
Our
board of directors makes no recommendation to you about whether you should
exercise any Rights. You are urged to make an independent investment
decision about whether to exercise your Rights based on your own
assessment of our business and the rights
offering.
|
Officers and
Directors
|
Certain
of our officers and directors are Holders and, as such, are eligible to
participate in this rights offering. However, we cannot guarantee to you
that any of them will exercise their Rights to purchase any
Units.
|
Subscription Agents/Warrant
Registrar
|
We
have appointed Olympia Transfer Services, Inc. as our subscription agent
for this rights offering and the warrant
registrar with respect to the warrants underlying the Rights.
|
Fees and
Expenses
|
We
will bear the fees and expenses relating to the rights
offering.
|
State Securities Law
Considerations
|
We are not making this rights offering in any
state or other jurisdiction in which it is unlawful to do so, nor are we
selling or accepting any offers to purchase any Units from rights holders
who are residents of those states or other jurisdictions. We may delay the
commencement of this rights offering in those states or other
jurisdictions, or change the terms of this rights offering, in order to
comply with the securities law requirements of those states or other
jurisdictions. We may decline to make modifications to the terms of this
rights offering requested by those states or other jurisdictions, in which
case, if you are a resident in those states or jurisdictions, you will not
be eligible to participate in this rights offering. For more
information, see “State Securities Law Considerations”
below.
|
9
Material United States and Canadian
Federal Income Tax
Consequences
|
A Holder will
not recognize income or loss for United States or Canadian Federal income tax purposes in connection with the
receipt or exercise of Rights in the rights offering. For a detailed
discussion, see “Material United States and Canadian
Federal Income Tax Consequences” beginning on page 30. You should consult your tax advisor as to
the particular consequences to you of the rights
offering.
|
Risk
Factors
|
An
investment in the Units involves risks. See “Risk Factors” beginning on
page 11, and the other information in this prospectus for a discussion of
the factors you should consider before investing in the Units offered
herein.
|
10
RISK
FACTORS
Risks
Related to Our Business
We
have a history of significant losses and have had no revenues to date through
the sale of our products. If we do not generate significant revenues, we will
not achieve profitability.
To
date, we have been engaged primarily in research and development activities. We
have had no revenues through the sale of our products, and we do not expect to
have significant revenues until we are able to either sell our product
candidates after obtaining applicable regulatory approvals or we establish
collaborations that provide us with up-front payments, licensing fees, milestone
payments, royalties or other revenue. We have incurred significant operating
losses every year since our inception on September 3, 1996. We experienced net
losses of approximately $1.2 million in the nine months ended September 30,
2010, and approximately $3.0 million for the twelve months ended December 31,
2009, $13.6 million for the year ended December 31, 2008, and $13.4 million for
the fiscal year ended December 31, 2007. At September 30, 2010 , we had an
accumulated deficit of approximately $102.2 million. We anticipate incurring
substantial additional losses due to the need to spend substantial amounts on
our current clinical trials, anticipated research and development activities,
and general and administrative expenses, among other factors. We have not
commercially introduced any product and our product candidates are in varying
stages of development and testing. Our ability to attain profitability will
depend upon our ability to fund and develop products that are safe, effective
and commercially viable, to obtain regulatory approval for the manufacture and
sale of our product candidates and to license or otherwise market our product
candidates successfully. Any revenues generated from such products, assuming
they are successfully developed, marketed and sold, may not be realized for a
number of years. We may never achieve or sustain profitability on an ongoing
basis.
There
is no assurance that we will successfully develop a commercially viable
product.
Since our
formation in September 1996, we have engaged in research and development
programs. We have generated no revenue from product sales, do not have any
products currently available for sale, and none are expected to be commercially
available for sale until we have completed additional clinical trials, if at
all. There can be no assurance that the research we fund and manage will lead to
commercially viable products. Our intention is to commence a Phase II study for
eniluracil and we have agreements in place for Phase III studies of STS. Our
products must still undergo substantial additional regulatory review prior to
commercialization.
We
do not presently have the financial or human resources to complete Phase III
trials for our lead product candidates.
We do not
presently have the financial or human resources to complete Phase III trials for
any of our lead product candidates. We are currently designing and enrolling
patients in a Phase II trial for eniluracil. If these trials are successful, and
if we decide to continue to develop eniluracil, we will need additional funding,
or we will need to enlist a partner to conduct future trials.
We have
agreements with the International Childhood Liver Tumour Strategy Group, known
as SIOPEL, and the Children's Oncology Group to further develop STS in Phase III
trials. It is possible SIOPEL and the Children's Oncology Group may not conduct
or complete the clinical trials with STS as currently planned. Such
collaborators might not commit sufficient resources to the development of our
product candidates, which may lead to significant delays. We have already
experienced significant delays in the activation of the Children's Oncology
Group trial and subsequent accrual of patients into the Children's Oncology
Group and SIOPEL clinical trials. We do not have the resources to independently
develop or conduct such trials ourselves.
We
continue to seek a licensing or funding partner for the further development of
one or all of our product candidates. If a partner for one or all of these
technologies is not found, we may not be able to further advance these products.
If a partner is found, the financial terms that they propose may not be
acceptable to us.
11
We
anticipate the need for additional capital in the future and if we cannot raise
additional capital, we will not be able to fulfill our business
plan.
We need
to obtain additional funding in the future in order to finance our business
strategy, operations and growth. We may not be able to obtain additional
financing in sufficient amounts or on acceptable terms when needed. If we fail
to arrange for sufficient capital on a timely basis, we may be required to
curtail our business activities until we can obtain adequate financing. Debt
financing must be repaid regardless of whether or not we generate profits or
cash flows from our business activities. Equity financing may result in dilution
to existing stockholders and may involve securities that have rights,
preferences, or privileges that are senior to our common stock or other
securities. If we cannot raise sufficient capital when necessary, we will likely
have to curtail operations and you may lose part or all of your
investment.
We
have experienced significant management turnover and might not be able to
recruit and retain the experienced personnel we need to compete in the drug
discovery and development industry.
Our
future success depends on the personal efforts and abilities of the principal
members of our senior management and scientific staff to provide strategic
direction, develop business, manage our operations, and maintain a cohesive and
stable work environment. Our Chief Executive Officer and General Counsel both
left our Company in July 2009, as did a number of our directors. Also, our Chief
Financial Officer left our Company in September 2009. We retained three new
executives at that time, so their integration into our Company has been and will
continue to be critical to our success. Any future management departures could
have a material adverse effect on our business.
If
we do not maintain current or enter into new collaborations with other
companies, we might not successfully develop our product candidates or generate
sufficient revenues to expand our business.
We
currently rely on scientific and research and development collaboration
arrangements with academic institutions and other third party collaborators,
including our agreement for eniluracil with GlaxoSmithKline and an exclusive
worldwide license from Oregon Health & Science University for STS. We also
rely on collaborators for testing STS, including SIOPEL and the Children’s
Oncology Group.
The
agreements with GlaxoSmithKline and Oregon Health & Science University are
terminable by either party in the event of an uncured breach by the other party.
We may also terminate our agreement with Oregon Health & Science University
at any time upon prior written notice of specified durations to the licensor.
Termination of any of our collaborative arrangements could materially adversely
affect our business. For example, if we are unable to make the appropriate
payments under these agreements, the licensor might terminate the agreement
which might have a material adverse impact. In addition, our collaborators might
not perform as agreed in the future.
Since we
conduct a significant portion of our research and development through
collaborations, our success may depend significantly on the performance of such
collaborators, as well as any future collaborators. Collaborators might not
commit sufficient resources to the research and development or commercialization
of our product candidates. Economic or technological advantages of products
being developed by others, or other factors could lead our collaborators to
pursue other product candidates or technologies in preference to those being
developed in collaboration with us. The commercial potential of, development
stage of and projected resources required to develop our drug candidates will
affect our ability to maintain current collaborations or establish new
collaborators. There is a risk of dispute with respect to ownership of
technology developed under any collaboration. Our management of any
collaboration will require significant time and effort as well as an effective
allocation of resources. We may not be able to simultaneously manage a large
number of collaborations.
12
Our
product candidates are still in development. Due to the long, expensive and
unpredictable drug development process, we might not ever successfully develop
and commercialize any of our product candidates.
In order
to achieve profitable operations, we, alone or in collaboration with others,
must successfully fund, develop, manufacture, introduce and market our product
candidates. The time necessary to achieve market success for any individual
product is long and uncertain. Our product candidates and research programs are
in various stages of clinical development and require significant,
time-consuming and costly research, testing and regulatory clearances. In
developing our product candidates, we are subject to risks of failure that are
inherent in the development of therapeutic products based on innovative
technologies. For example, our product candidates might be ineffective, as
eniluracil was shown to be in earlier clinical trials conducted by
GlaxoSmithKline, or may be overly toxic, or otherwise might fail to receive the
necessary regulatory clearances. The results of preclinical and initial clinical
trials are not necessarily predictive of future results. Our product candidates
might not be economical to manufacture or market or might not achieve market
acceptance. In addition, third parties might hold proprietary rights that
preclude us from marketing our product candidates or others might market
equivalent or superior products.
We
must conduct human clinical trials to assess our product candidates. If these
trials are delayed or are unsuccessful, our development costs will significantly
increase and our business prospects may suffer.
Before
obtaining regulatory approvals for the commercial sale of our product
candidates, we must demonstrate, through preclinical studies with animals and
clinical trials with humans, that our product candidates are safe and effective
for use in each target indication. To date, we have performed only limited
clinical trials, and we have only done so with some of our product candidates.
Much of our testing has been conducted on animals or on human cells in the
laboratory, and the benefits of treatment seen in animals may not ultimately be
obtained in human clinical trials. As a result, we will need to perform
significant additional research and development and extensive preclinical and
clinical testing prior to any application for commercial use. We may suffer
significant setbacks in clinical trials, and the trials may demonstrate our
product candidates to be unsafe or ineffective. We may also encounter problems
in our clinical trials that will cause us to delay, suspend or terminate those
clinical trials, which would increase our development costs and harm our
financial results and commercial prospects. Identifying and qualifying patients
to participate in clinical trials of our potential products is critically
important to our success. The timing of our clinical trials depends on the speed
at which we can recruit patients to participate in testing our product
candidates. We have experienced delays in some of our clinical trials and we may
experience significant delays in the future. If patients are unwilling to
participate in our trials because of competitive clinical trials for similar
patient populations, perceived risk or any other reason, the timeline for
recruiting patients, conducting trials and obtaining regulatory approval of
potential products will be delayed. Other factors that may result in significant
delays include obtaining regulatory or ethics review board approvals for
proposed trials, reaching agreement on acceptable terms with prospective
clinical trial sites, and obtaining sufficient quantities of drug for use in the
clinical trials. Such delays could result in the termination of the clinical
trials altogether.
Regulatory
approval of our product candidates is time-consuming, expensive and uncertain,
and could result in unexpectedly high expenses and delay our ability to sell our
products.
Development,
manufacture and marketing of our products are subject to extensive regulation by
governmental authorities in the United States and other countries. This
regulation could require us to incur significant unexpected expenses or delay or
limit our ability to sell our product candidates. Our clinical studies might be
delayed or halted, or additional studies might be required, for various reasons,
including:
·
|
lack of
funding;
|
·
|
the
drug is not effective;
|
·
|
patients
experience severe side effects during
treatment;
|
·
|
appropriate
patients do not enroll in the studies at the rate
expected;
|
·
|
drug
supplies are not sufficient to treat the patients in the studies;
or
|
·
|
we
decide to modify the drug during
testing.
|
13
If
regulatory approval of any product is granted, it will be limited to those
indications for which the product has been shown to be safe and effective, as
demonstrated to the FDA’s satisfaction through clinical studies. Furthermore,
approval might entail ongoing requirements for post-marketing studies. Even if
regulatory approval is obtained, labeling and promotional activities are subject
to continual scrutiny by the FDA and state regulatory agencies and, in some
circumstances, the Federal Trade Commission. FDA enforcement policy prohibits
the marketing of approved products for unapproved, or off-label, uses. These
regulations and the FDA’s interpretation of them might impair our ability to
effectively market our products.
We and
our third-party manufacturers are also required to comply with the applicable
current FDA Good Manufacturing Practices regulations, which include requirements
relating to quality control and quality assurance, as well as the corresponding
maintenance of records and documentation. Further, manufacturing facilities must
be approved by the FDA before they can be used to manufacture our products, and
they are subject to additional FDA inspection. If we fail to comply with any of
the FDA’s continuing regulations, we could be subject to reputational harm and
sanctions, including:
·
|
delays,
warning letters and fines;
|
·
|
product
recalls or seizures and injunctions on
sales;
|
·
|
refusal
of the FDA to review pending
applications;
|
·
|
total
or partial suspension of
production;
|
·
|
withdrawals
of previously approved marketing applications;
and
|
·
|
civil
penalties and criminal
prosecutions.
|
In
addition, identification of side effects after a drug is on the market or the
occurrence of manufacturing problems could cause subsequent withdrawal of
approval, reformulation of the drug, additional testing or changes in labeling
of the product.
We
may be unable to effectively deploy the proceeds from our April 30, 2010
financing for the development of eniluracil.
In
April 2010, we announced the closing of a CAD$7,202,000 financing. This
financing requires effective management and deployment of our current employees
and consultants. Any inability on our part to manage effectively the deployment
of this capital could limit our ability to successfully develop
eniluracil.
If
our licenses to proprietary technology owned by others are terminated or expire,
we may suffer increased development costs and delays, and we may not be able to
successfully develop our product candidates.
The
development of our drug candidates and the manufacture and sale of any products
that we develop will involve the use of processes, products and information,
some of the rights to which are owned by others. Our product candidates are
licensed under agreements with GlaxoSmithKline and Oregon Health & Science
University. Although we have obtained licenses or rights with regard to the use
of certain processes, products and information, the licenses or rights could be
terminated or expire during critical periods and we may not be able to obtain,
on favorable terms or at all, licenses or other rights that may be required.
Some of these licenses provide for limited periods of exclusivity that may be
extended only with the consent of the licensor, which may not be
granted.
14
If
we are unable to adequately protect or maintain our patents and licenses related
to our product candidates, or we infringe upon the intellectual property rights
of others, we may not be able to successfully develop and commercialize our
product candidates.
The value
of our technology will depend in part upon our ability, and those of our
collaborators, to obtain patent protection or licenses to patents, maintain
trade secret protection and operate without infringing on the rights of third
parties. Although we have successfully pursued patent applications in the past,
it is possible that:
·
|
some
of all of our pending patent applications, or those we have licensed, may
not be allowed;
|
·
|
proprietary
products or processes that we develop in the future may not be
patentable;
|
·
|
any
issued patents that we own or license may not provide us with any
competitive advantages or may be successfully challenged by third parties;
or
|
·
|
the
patents of others may have an adverse effect on our ability to do
business.
|
It is not
possible for us to be certain that we are the original and first creator of
inventions encompassed by our pending patent applications or that we were the
first to file patent applications for any such inventions. Further, any of our
patents, once issued, may be declared by a court to be invalid or
unenforceable.
Eniluracil
is currently protected under issued composition of matter and method patents
that we exclusively licensed in combination with 5-FU from GlaxoSmithKline that
expire in 2014 and 2015. STS is currently protected by method of use patents
that we exclusively licensed from Oregon Health & Science University that
expire in Europe in 2021 and are currently pending in the United States. None of
the above expiry dates take into consideration additional pending patent
applications for eniluracil that, if issued, could provide additional patent
protection nor possible patent term extensions or periods of data exclusivity
that may be available upon marketing approval in the various countries
worldwide. In addition, periods of marketing exclusivity for STS may also be
possible in the United States under orphan drug status. We obtained Orphan Drug
Designation in the United States for the use of STS in the prevention of
platinum-induced ototoxicity in pediatric patients in 2004, if approved, will
have seven years of exclusivity in the United States from the approval date.
Refer to the “Description of Business” section of this registration statement
for a further description of the United States Orphan Drug
Designation.
We may be
required to obtain licenses under patents or other proprietary rights of third
parties but the extent to which we may wish or need to do so is unknown. Any
such licenses may not be available on terms acceptable to us or at all. If such
licenses are obtained, it is likely they would be royalty bearing, which would
reduce any future income. If licenses cannot be obtained on an economical basis,
we could suffer delays in market introduction of planned products or their
introduction could be prevented, in some cases after the expenditure of
substantial funds. If we do not obtain such licenses, we would have to design
around patents of third parties, potentially causing increased costs and delays
in product development and introduction or precluding us from developing,
manufacturing or selling our planned products, or our ability to develop,
manufacture or sell products requiring such licenses could be
foreclosed.
Litigation
may also be necessary to enforce or defend patents issued or licensed to us or
our collaborators or to determine the scope and validity of a third party’s
proprietary rights. We could incur substantial costs if litigation is required
to defend ourselves in patent suits brought by third parties, if we participate
in patent suits brought against or initiated by our collaborators, or if we
initiate such suits. We might not prevail in any such action. An adverse outcome
in litigation or an interference to determine priority or other proceeding in a
court or patent office could subject us to significant liabilities, require
disputed rights to be licensed from other parties or require us or our
collaborators to cease using certain technology or products. Any of these events
would likely have a material adverse effect on our business, financial condition
and results of operations.
Much of
our technological know-how that is not patentable may constitute trade secrets.
Our confidentiality agreements might not provide for meaningful protection of
our trade secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure of information. In addition, others may
independently develop or obtain similar technology and may be able to market
competing products and obtain regulatory approval through a showing of
equivalency to our product that has obtained regulatory approvals, without being
required to undertake the same lengthy and expensive clinical studies that we
would have already completed.
15
The
vulnerability to off-label use or sale of our product candidates that are
covered only by “method of use” patents may cause downward pricing pressure on
these product candidates if they are ever commercialized and may make it more
difficult for us to enter into collaboration or partnering arrangements for the
development of these product candidates.
STS, one
of our product candidates, is currently only covered by “method of use” patents,
which covers the use of certain compounds to treat specific conditions, and not
by “composition of matter” patents, which would cover the chemical composition
of the compound. Method of use patents provides less protection than composition
of matter patents because of the possibility of off-label competition if other
companies develop or market the compound for other uses. If another company
markets a drug that we expect to market under the protection of a method of use
patent, physicians may prescribe the other company’s drug for use in the
indication for which we obtain approval and have a patent, even if the other
company’s drug is not approved for such an indication. Off-label use and sales
could limit our sales and exert pricing pressure on any products we develop
covered only by method of use patents. Also, it may be more difficult to find a
collaborator to license or support the development of our product candidates
that are only covered by method of use patents.
If
our third party manufacturers breach or terminate their agreements with us, or
if we are unable to secure arrangements with third party manufacturers on
acceptable terms as needed in the future, we may suffer significant delays and
additional costs.
We have
no experience manufacturing products and do not currently have the resources to
manufacture any products that we may develop. We currently have agreements with
contract manufacturers for clinical supplies of STS, eniluracil and 5-FU,
including drug substance providers and drug product suppliers, but they might
not perform as agreed in the future or may terminate our agreement with them
before the end of the required term. Significant additional time and expense
would be required to effect a transition to a new contract
manufacturer.
We plan
to continue to rely on contract manufacturers for the foreseeable future to
produce quantities of products and substances necessary for research and
development, preclinical trials, human clinical trials and product
commercialization, and to perform their obligations in a timely manner and in
accordance with applicable government regulations. If we develop any products
with commercial potential, we will need to develop the facilities to
independently manufacture such products or secure arrangements with third
parties to manufacture them. We may not be able to independently develop
manufacturing capabilities or obtain favorable terms for the manufacture of our
products. While we intend to contract for the commercial manufacture of our
product candidates, we may not be able to identify and qualify contractors or
obtain favorable contracting terms. We or our contract manufacturers may also
fail to meet required manufacturing standards, which could result in delays or
failures in product delivery, increased costs, injury or death to patients,
product recalls or withdrawals and other problems that could significantly hurt
our business. We intend to maintain a second source for back-up commercial
manufacturing, wherever feasible. However, if a replacement to our future
internal or contract manufacturers were required, the ability to establish
second-sourcing or find a replacement manufacturer may be difficult due to the
lead times generally required to manufacture drugs and the need for FDA
compliance inspections and approvals of any replacement manufacturer, all of
which factors could result in production delays and additional commercialization
costs. Such lead times would vary based on the situation, but might be twelve
months or longer.
We
lack the resources necessary to effectively market our product candidates, and
we may need to rely on third parties over whom we have little or no control and
who may not perform as expected.
We do not
have the necessary resources to market our product candidates. If we develop any
products with commercial potential, we will either have to develop a marketing
capability, including a sales force, which is difficult and expensive to
implement successfully, or attempt to enter into a collaboration, merger, joint
venture, license or other arrangement with third parties to provide a
substantial portion of the financial and other resources needed to market such
products. We may not be able to do so on acceptable terms, if at all. If we rely
extensively on third parties to market our products, the commercial success of
such products may be largely outside of our control.
16
We
conduct our business internationally and are subject to laws and regulations of
several countries which may affect our ability to access regulatory agencies and
may affect the enforceability and value of our licenses.
We have
conducted clinical trials in the United States, Canada, Europe and the Pacific
Rim and intend to, or may, conduct future clinical trials in these and other
jurisdictions. There can be no assurance that any sovereign government will not
establish laws or regulations that will be deleterious to our interests. There
is no assurance that we, as a Canadian corporation, will continue to have access
to the regulatory agencies in any jurisdiction where we might want to conduct
clinical trials or obtain regulatory approval, and we might not be able to
enforce our license or patent rights in foreign jurisdictions. Foreign exchange
controls may have a material adverse effect on our business and financial
condition, since such controls may limit our ability to flow funds into or out
of a particular country to meet obligations under licenses, clinical trial
agreements or other collaborations.
Our
cash invested in money market funds might be subject to loss.
There has
been significant deterioration and instability in the financial markets. Even
though we believe we take a conservative approach to investing our funds, the
volatility of the current financial markets exposes us to increased investment
risk, including the risks that the value and liquidity of our money market
investments could deteriorate significantly and the issuers of the investments
we hold could be subject to credit rating downgrades. This might result in
significant losses in our money market investments that could adversely impact
our financial condition, which could be an immediate problem given our extremely
limited financial resources. While we have not experienced any loss or write
down of our money market investments in the past, we cannot guarantee that such
losses will not occur in future periods.
Risks
Related to Our Industry
If
we are unable to obtain applicable U.S. and/or foreign regulatory approvals, we
will be unable to develop and commercialize our drug candidates.
The
preclinical studies and clinical trials of our product candidates, as well as
the manufacturing, labeling, sale and distribution, export or import, marketing,
advertising and promotion of our product candidates are subject to various
regulatory frameworks in the United States, Canada and other countries. Any
products that we develop must receive all relevant regulatory approvals and
clearances before any marketing, sale or distribution. The regulatory process,
which includes extensive preclinical studies and clinical testing to establish
product safety and efficacy, can take many years and cost substantial amounts of
money. As a result of the length of time, many challenges and costs associated
with the drug development process, the historical rate of failures for drug
candidates is extremely high. For example, prior development of our compound
eniluracil by GlaxoSmithKline was not successful. Varying interpretations of the
data obtained from studies and tests could delay, limit or prevent regulatory
approval or clearance. Changes in regulatory policy could also cause delays or
affect regulatory approval. Any regulatory delays may increase our development
costs and negatively impact our competitiveness and prospects. It is possible
that we may not be able to obtain regulatory approval of any of our drug
candidates or approvals may take longer and cost more to obtain than
expected.
Regulatory
approvals, if granted, may entail limitations on the uses for which any products
we develop may be marketed, limiting the potential sales for any such products.
The granting of product approvals can be withdrawn at any time, and
manufacturers of approved products are subject to regular reviews, including for
compliance with FDA Good Manufacturing Practices regulations. Failure to comply
with any applicable regulatory requirement, which may change from time to time,
can result in warning letters, fines, sanctions, penalties, recalling or seizing
products, suspension of production, or even criminal
prosecution.
17
Future
sales of our product candidates may suffer if they fail to achieve market
acceptance.
Even if
our product candidates are successfully developed and achieve appropriate
regulatory approval, they may not enjoy commercial acceptance or success.
Product candidates may compete with a number of new and traditional drugs and
therapies developed by major pharmaceutical and biotechnology companies. Market
acceptance is dependent on product candidates demonstrating clinical efficacy
and safety, as well as demonstrating advantages over alternative treatment
methods. In addition, market acceptance is influenced by government
reimbursement policies and the ability of third parties to pay for such
products. Physicians, patients, the medical community or patients may not accept
or utilize any products we may develop.
We
face a strong competitive environment. Other companies may develop or
commercialize more effective or cheaper products, which may reduce or eliminate
the demand for our product candidates.
The
biotechnology and pharmaceutical industry, and in particular the field of cancer
therapeutics where we are focused, is very competitive. Many companies and
research organizations are engaged in the research, development and testing of
new cancer therapies or means of increasing the effectiveness of existing
therapies, including, among many others, Abbott Laboratories, Amgen, Antisoma,
Adventrix, AstraZeneca, Bayer, Bristol-Myers Squibb, EntreMed, Johnson &
Johnson, Merck & Co., NeoPharm, Novartis, Onyx, OSI Pharmaceuticals,
OXiGENE, Peregrine Pharmaceuticals, Pfizer, Roche, Sanofi-Aventis, and Taiho.
Many of these companies have marketed drugs or are developing targeted cancer
therapeutics which, depending upon the mechanism of action of such agents could
thus be competitors.
Many of
our existing or potential competitors have substantially greater financial,
technical and human resources than we do and may be better equipped to develop,
manufacture and market products. In addition, many of these competitors have
extensive experience with preclinical testing and human clinical trials and in
obtaining regulatory approvals. Also, some of the smaller companies that compete
with us have formed collaborative relationships with large, established
companies to support the research, development, clinical trials and
commercialization of any products that they may develop. Academic institutions,
government agencies and other public and private research organizations may also
conduct research, seek patent protection and establish collaborative
arrangements for research, clinical development and marketing of products
similar to those we seek to develop. These companies and institutions compete
with us in recruiting and retaining qualified scientific and management
personnel as well as in acquiring technologies complementary to our
projects.
We are
likely to face competition in the areas of product efficacy and safety, ease of
use and adaptability, as well as pricing, product acceptance, regulatory
approvals and intellectual property. Competitors could develop more effective,
safer and more affordable products than we do, and they may obtain patent
protection or product commercialization before we do or even render our product
candidates obsolete. The existence of competitive products, including products
or treatments of which we are not aware, or products or treatments that may be
developed in the future, may adversely affect the marketability of any products
that we develop.
We
may face product liability claims that could require us to defend costly
lawsuits or incur substantial liabilities that could adversely impact our
financial condition, receipt of regulatory approvals for our product candidates
and our results of operation.
The use
of our product candidates in clinical trials and for commercial applications, if
any, may expose us to liability claims in the event that such product candidates
cause injury or death or result in other adverse effects. These claims could be
made by health care institutions, contract laboratories, and subjects
participating in our clinical studies, patients or others using our product
candidates. In addition to liability claims, certain serious adverse events
could require interruption, delay and/or discontinuation of a clinical trial and
potentially prevent further development of the product candidate. We carry
clinical trial insurance but the coverage may not be sufficient to protect us
from legal expenses and liabilities we might incur. Litigation is very
expensive, even if we are successful. In addition, our existing coverage may not
be adequate if we further develop products, and future coverage may not be
available in sufficient amounts or at reasonable cost. In addition, we might
reduce the amount of this coverage due to our limited financial resources.
Adverse liability claims may also harm our ability to obtain or maintain
regulatory approvals.
18
We
use hazardous material and chemicals in our research and development, and our
failure to comply with laws related to hazardous materials could materially harm
us.
Our
research and development processes involve the controlled use of hazardous
materials, such as flammable organic solvents, corrosive acids and corrosive
bases. Accordingly, we are subject to federal, state, local and foreign laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and certain waste products. The risk of accidental contamination
or injury from these materials cannot be completely eliminated. In the event of
such an accident, we could be held liable for any damages that result and any
such liability could exceed our resources and may not be covered by our general
liability insurance. We currently do not carry insurance specifically for
hazardous materials claims. We may be required to incur significant costs to
comply with environmental laws and regulations, which may change from time to
time.
Efforts
to reduce product pricing and health care reimbursement and changes to
government policies could negatively affect the commercialization of our product
candidates.
If any of
our product candidates achieve regulatory approval, we may be materially
adversely affected by the continuing efforts of governmental and third-party
payors to contain or reduce health care costs. For example, if we succeed in
bringing one or more products to market, such products may not be considered
cost-effective and the availability of consumer reimbursement may not exist or
be sufficient to allow the sale of such products on a competitive basis. The
constraints on pricing and availability of competitive products may further
limit our pricing and reimbursement policies as well as adversely impact market
acceptance and commercialization for the products.
In many
markets, the pricing or profitability of healthcare products is subject to
government control. In recent years, federal, state, provincial and local
officials and legislators have proposed or are proposing a variety of
price-based reforms to the healthcare systems in the United States, Canada and
elsewhere. Some proposals include measures that would limit or eliminate
payments from third-party payors to the consumer for certain medical procedures
and treatments or allow government control of pharmaceutical pricing. The
adoption of any such proposals or reforms could adversely affect the commercial
viability of our product candidates.
In the
U.S., there have been numerous proposals considered at the federal and state
levels for comprehensive reforms of health care and its cost, and it is likely
that federal and state legislatures and health agencies will continue to focus
on health care reform in the future. Congress has considered legislation to
reform the U.S. health care system by expanding health insurance coverage,
reducing health care costs and making other changes. While health care reform
may increase the number of patients who have insurance coverage for our
products, it may also include cost containment measures that adversely affect
reimbursement for our products. Congress has also considered legislation to
change the Medicare reimbursement system for outpatient drugs, increase the
amount of rebates that manufacturers pay for coverage of their drugs by Medicaid
programs and facilitate the importation of lower-cost prescription drugs that
are marketed outside the U.S. Some states are also considering legislation that
would control the prices of drugs, and state Medicaid programs are increasingly
requesting manufacturers to pay supplemental rebates and requiring prior
authorization by the state program for use of any drug for which supplemental
rebates are not being paid. Managed care organizations continue to seek price
discounts and, in some cases, to impose restrictions on the coverage of
particular drugs. Government efforts to reduce Medicaid expenses may lead to
increased use of managed care organizations by Medicaid programs. This may
result in managed care organizations influencing prescription decisions for a
larger segment of the population and a corresponding constraint on prices and
reimbursement for our products.
Any
significant changes in the healthcare system in the United States, Canada or
abroad would likely have a substantial impact on the manner in which we conduct
business and could have a material adverse effect on our ability to raise
capital and the viability of product commercialization.
19
Risks
Related to This Offering
We
are registering the sale of up to 425,000,000 shares of common stock in a rights
offering to existing shareholders. The sale of such shares could depress the
market price of our common stock and you may not be able to sell your investment
for what you paid for it.
We are
registering the sale of 425,000,000 shares of common stock under the
registration statement of which this prospectus forms a part. The sale of these
shares into the public market could depress the market price of our common stock
and you may not be able to sell your investment for what you paid for
it.
If
you do not exercise your subscription rights in full, your percentage ownership
and voting rights in our Company will likely experience dilution.
If you
choose not to exercise your subscription rights, you will retain your current
number of shares of common stock of our Company. However, if you choose not to
exercise your subscription rights, your percentage ownership and voting rights
in our Company will experience dilution if and to the extent that other
shareholders exercise their subscription rights. In that event, the percentage
ownership, voting rights and other rights of all shareholders who do not fully
exercise their subscription rights will be diluted.
We
will have immediate and broad discretion over the use of the net proceeds from
this offering.
There is
no minimum offering amount required as a condition to closing this offering and
therefore net proceeds from this offering will be immediately available to us to
use at our discretion. We intend to use the net proceeds to continue to
clinically develop our products and for working capital purposes. However, we
may sell only a portion of the Units being offered by this prospectus and, as a
result, our net proceeds may be significantly less than the amount required to
complete all clinical requirements. Our judgment in how to use the net proceeds
from this offering or in whether to sell less than all the offered securities
may not result in positive returns on your investment and you will not have an
opportunity to evaluate the economic, financial, or other information upon which
we base our decisions.
We
may not be able to sell as many Units in the rights offering as we have
intended.
Our
ability to obtain funds under the rights offering is limited by the number of
shareholders who subscribe to the rights offering. If we do not sell the entire
amount of securities being offered in this rights offering, we may not have
sufficient capital to execute our business strategy.
As
the offering is not underwritten, no underwriter has conducted an independent
review to verify the things we say in this prospectus.
Our
offering is not underwritten. Thus, there has not been an independent “due
diligence” review of matters covered by this prospectus, such as might be
conducted by an underwriter had one been affiliated with this
offering.
No
trading market will exist for the subscription rights in the United
States.
The
subscription rights are a new issue of securities and will expire on the
expiration date of the rights offering. We do not intend to seek the listing of
the subscription rights on any domestic U.S. exchange nor do we anticipate that
the subscription rights will be quoted on the OTC Bulletin Board or on the “pink
sheets,” and, accordingly, the subscription rights will not be
liquid.
Stockholders
resident in certain states or other jurisdictions where the rights offering is
unlawful or not qualified under such jurisdiction’s securities laws may not be
eligible to participate in this rights offering.
We are
not making this rights offering in any state or other jurisdiction in which it
is unlawful to do so, nor are we selling or accepting any offers to purchase any
Units from rights holders who are residents of those states or other
jurisdictions. We may delay the commencement of this rights offering in those
states or other jurisdictions, or change the terms of this rights offering, in
order to comply with the securities law requirements of those states or other
jurisdictions. We may decline to make modifications to the terms of this rights
offering requested by those states or other jurisdictions, in which case, if you
are a resident in those states or jurisdictions, you will not be eligible to
participate in this rights offering.
20
Risks
Related to Our Common Stock
Our
common stock has been delisted from NYSE Alternext US LLC (formerly the American
Stock Exchange), which may make it more difficult for stockholders to dispose of
their shares.
In
December 2008, we received notice from the NYSE Alternext US, LLC (formerly the
American Stock Exchange), or AMEX, that we were not in compliance with Section
1003(a)(ii) of its Company Guide, because our stockholders’ equity was below $6
million and we had incurred losses from continued operations and net losses in
the five most recent fiscal years. On January 20, 2009, we voluntarily filed to
delist our common stock from the AMEX and effective January 30, 2009, our common
stock no longer traded on the AMEX. As a result, any trading of our common stock
in the U.S. will need to be conducted in the over-the-counter market, on the
Pink Sheets. In addition, our common stock is also subject to the SEC’s penny
stock rules, which impose additional requirements on broker-dealers who effect
trades. As a result, stockholders might have difficulty selling our common
stock.
We
may be unable to maintain the listing of our common stock on the TSX and that
would make it more difficult for stockholders to dispose of their common
stock.
Our
common stock is currently listed on the TSX. The TSX has rules for continued
listing, including minimum market capitalization and other requirements, that we
might not meet in the future, particularly if the price of our common stock does
not increase or we are unable to raise additional capital to continue
operations. In January 2009, our common stock was delisted from the AMEX as we
did not meet the continued listing requirements of that exchange. On April 22,
2010, the Toronto Stock Exchange issued an official delisting review of our
common stock. On August 18, 2010, the Toronto Stock Exchange completed its
review of the Company and determined that the Company meets TSX's continued
listing requirements.
Delisting
from the TSX would make it more difficult for stockholders to dispose of their
common stock and more difficult to obtain accurate quotations on our common
stock. This could have an adverse effect on the price of our common stock. There
can be no assurances that a market maker will make a market in our common stock
on the Pink Sheets or any other stock quotation system after delisting.
Furthermore, securities quoted on the Pink Sheets generally have significantly
less liquidity than securities traded on a national securities exchange, not
only in the number of shares that can be bought and sold, but also through
delays in the timing of transactions and lower market prices than might
otherwise be obtained. As a result, stockholders might find it difficult to
resell shares at prices quoted in the market or at all. Furthermore, because of
the limited market and generally low volume of trading in our common stock, our
common stock is more likely to be affected by broad market fluctuations, general
market conditions, fluctuations in our operating results, changes in the
market’s perception of our business, and announcements made by us, our
competitors or parties with whom we have business relationships. Our ability to
issue additional securities for financing or other purposes, or to otherwise
arrange for any financing we may need in the future, may also be materially and
adversely affected by the fact that our securities are not traded on a national
securities exchange.
The
market price of our common stock is highly volatile and could cause the value of
your investment to significantly decline.
Historically,
the market price of our common stock has been highly volatile and the market for
our common stock has from time to time experienced significant price and volume
fluctuations, some of which are unrelated to our operating performance. From
July 1, 2008 to February 7, 2011, the trading price of our stock fluctuated
from a high closing price of CAD $0.20 per share to a low closing price of CAD
$0.02 per share on the TSX. From July 1, 2008 until our delisting on January 30,
2009, the trading price of our stock fluctuated from a high closing price of
$0.23 per share to a low closing price of $0.01 per share on the AMEX.
Historically, our common stock has had a low trading volume, and may continue to
have a low trading volume in the future. This low volume may contribute to the
volatility of the market price of our common stock. It is likely that the market
price of our common stock will continue to fluctuate significantly in the
future.
21
The
market price of our stock may be significantly affected by many factors,
including without limitation:
·
|
our
immediate need to raise additional capital and the terms of any
transaction we are able to enter
into;
|
·
|
the
economic crisis or other external factors generally or stock market trends
in the pharmaceutical or biotechnology industries
specifically;
|
·
|
announcements
of licensing agreements, joint ventures, collaborations or other strategic
alliances that involve our products or those of our
competitors;
|
·
|
innovations
related to our or our competitors’
products;
|
·
|
actual
or potential clinical trial results related to our or our competitors’
products;
|
·
|
our
financial results or those of our
competitors;
|
·
|
reports
of securities analysts regarding us or our
competitors;
|
·
|
developments
or disputes concerning our licensed or owned patents or those of our
competitors;
|
·
|
developments
with respect to the efficacy or safety of our products or those of our
competitors; and
|
·
|
health
care reforms and reimbursement policy changes nationally and
internationally.
|
Our
common stock is deemed to be a “penny stock,” which may make it more difficult
for investors to sell their shares due to suitability requirements.
Our
common stock is subject to Rule 15g-1 through 15g-9 under the Exchange Act,
which imposes certain sales practice requirements on broker-dealers which sell
our common stock to persons other than established customers and “accredited
investors” who are generally individuals with a net worth in excess of
$1,000,000 (excluding their principal residence)
or annual incomes exceeding $200,000, or $300,000 together with their
spouses. For transactions covered by this rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser’s written consent to the transaction prior to the sale. This rule
adversely affects the ability of broker-dealers to sell our common stock and the
ability of our stockholders to sell their shares of common
stock.
Additionally,
our common stock is subject to the SEC regulations for “penny stock.” Penny
stock includes any equity security that is not listed on a national exchange and
has a market price of less than $5.00 per share, subject to certain exceptions.
The regulations require that prior to any non-exempt buy/sell transaction in a
penny stock, a disclosure schedule set forth by the SEC relating to the penny
stock market must be delivered to the purchaser of such penny stock. This
disclosure must include the amount of commissions payable to both the
broker-dealer and the registered representative and current price quotations for
the common stock. The regulations also require that monthly statements be sent
to holders of penny stock that disclose recent price information for the penny
stock and information of the limited market for penny stocks. These requirements
adversely affect the market liquidity of our common stock.
22
Our
existing principal stockholders hold a substantial number of shares of our
common stock and may be able to exercise influence in matters requiring approval
of stockholders.
At
February 8, 2011, our current stockholders separately
representing more than 5% ownership in our Company collectively represented
beneficial ownership of approximately 65% of our common stock. In particular,
Southpoint Capital Advisors LP owns or exercises control over 200 million shares
of common stock, representing approximately 54% of the issued and outstanding
common stock. In addition, Mr. Robert Butts, Co-Founder and former Portfolio
Manager of Southpoint Capital Advisors LP individually owns 41.5 million shares,
or 11% of our common stock, and he serves as our Chairman of our Board of
Directors. Southpoint Capital, our other 5% stockholders, and other insiders,
acting alone or together, might be able to influence the outcomes of matters
that require the approval of our stockholders, including but not limited to
certain equity transactions (such as a financing), an acquisition or merger with
another company, a sale of substantially all of our assets, the election and
removal of directors, or amendments to our incorporating documents. These
stockholders might make decisions that are adverse to your interests. The
concentration of ownership could have the effect of delaying, preventing or
deterring a change of control of our company, which could adversely affect the
market price of our common stock or deprive our other stockholders of an
opportunity to receive a premium for their common stock as part of a sale of our
company.
There
are a large number of shares of our common stock underlying outstanding warrants
and options, and reserved for issuance under our stock option plan, that may be
sold in the market, which could depress the market price of our stock and result
in substantial dilution to the holders of our common stock.
Sale
or issuance of a substantial number of shares of our common stock in the future
could cause the market price of our common stock to decline. It may also impair
our ability to obtain additional financing. At February 7, 2011, we had
outstanding warrants to purchase approximately 240.6 million shares of our
common stock which had a weighted average exercise price of $0.08. In addition,
at February 7, 2011, there were approximately 83.3 million shares issuable upon
the exercise of stock options granted by us of which approximately 70.3 million
were denominated in Canadian dollars and had a weighted average exercise price
of CAD$0.08 per common share and approximately 13.0 million were denominated in
U.S. dollars and had a weighted average exercise price of $0.56 per common
share. We may also issue further warrants as part of any future financings as
well as the additional 8.7 million options to acquire our common stock currently
remaining available for issuance under our stock option plan.
We
may need to raise substantial additional funds in the near future to continue
our operations. Any equity offering could result in significant dilution to the
ownership interests of shareholders and may result in dilution of the value of
such interests and any debt offering will increase financial risk.
In order
to satisfy our anticipated capital requirements to develop our products, we may
need to raise substantial additional funds through either the sale of additional
equity, the issue of securities convertible into equity, the issuance of debt,
the establishment of collaborations that provide us with funding, the
out-license or sale of certain aspects of our intellectual property portfolio,
or from other sources. The most likely sources of financing that may be
available to us in the near term are the sale of shares of common stock and/or
securities convertible into common stock and the issuance of debt.
We cannot
predict the size of future issues of common stock or the issue of securities
convertible into common stock or the effect that any such future issues and
sales of common stock will have on the market price of our common stock.
However, given the current market price of our common stock, any transaction
involving the issue of common stock, or securities convertible into common
stock, will likely result in immediate and substantial dilution to present and
prospective holders of common stock. Alternatively, we may rely on debt
financing and assume debt obligations that require us to make substantial
interest and capital payments and to pledge some or all of our assets as
collateral to secure such debt obligations.
We
have not paid any dividends since incorporation and do not anticipate declaring
any dividends in the foreseeable future. As a result, you will not be able to
recoup your investment through the payment of dividends on your common stock and
the lack of a dividend payable on our common stock might depress the value of
your investment.
We will
use all available funds to finance the development of our product candidates and
operation of our business. Our directors will determine if and when dividends
should be declared and paid in the future based on our financial position at the
relevant time, but since we have no present plans to pay dividends, you should
not expect receipt of dividends either for your cash needs or to enhance the
value of your common stock.
23
USE
OF PROCEEDS
The
net proceeds from this offering, after paying fees and expenses relating to the
rights offering, will be used for working capital and general corporate
purposes. We intend to primarily use the net proceeds on the development of
eniluracil.
PLAN
OF DISTRIBUTION
Terms
of the Rights Offering
We are
distributing, at no charge to the holders of our common stock, subscription
rights to subscribe for Units, which we refer to throughout this prospectus as
Units, consisting of one share of our common stock and a five-year Warrant to
purchase one additional share of our common stock at an exercise price of CAD
$0.08 per share. Our shareholders will receive one subscription right for every share of our common stock held of
record as of 5:00 p.m., New York City Time, on February 24, 2011, the record date. There is no minimum
number of Units you must purchase, but you may not purchase fractional
Units.
Each
subscription right entitles the holder to subscribe for one (1) Unit at the subscription price of CAD $0.03
per Unit, which we refer to as the basic subscription right. In addition, rights
holders who fully exercise their basic subscription rights will be entitled to
subscribe for additional Units that remain unsubscribed as a result of any
unexercised basic subscription rights, which we refer to as the
over-subscription right, at the subscription price of CAD $0.03 per
Unit.
The
rights will expire at 5:00 p.m., New York City Time, on March 29, 2011, which date we refer to as the expiration
date. Any rights not exercised at or before that time will expire
worthless without any payment to the holders of those unexercised rights. There
is no minimum subscription amount required for consummation of the rights
offering.
The
rights will be evidenced by subscription rights certificates which will
be mailed to our existing shareholders who reside in a Province of Canada and
the United States. Rights are transferable
by rights holders as described
herein. See “Transferability of Rights/Common Stock/Warrants”
on page 26.
For
purposes of determining the number of Units a rights holder may acquire in this
offering, we anticipate that brokers, dealers, custodian banks, trust companies
or others whose shares are held of record by DTC or by any other depository or
nominee will be deemed to be the holders of the rights that are issued to Cede
or the other depository or nominee on their behalf.
There is
no minimum subscription amount. We will sell no more than 425,000,000 Units in
this offering.
We will be responsible for all fees and expenses
incurred in connection with the distribution of the securities registered in
this registration statement, including the fees of our subscription agent;
however, we will not be required to pay any underwriters’ discounts or
commissions relating to the securities covered by the registration
statement. The Units are being offered directly by us without the
services of an underwriter or selling agent.
Allocation
and Exercise of Over-Subscription Rights
In
order to properly exercise an Over-Subscription
Right, a rights holder must: (i) indicate on its subscription rights
certificate that it submits with respect to the exercise of the rights issued to
it how many additional Units it is willing to acquire pursuant to its Over-Subscription Right, and (ii) concurrently deliver the
subscription payment related to your Over-Subscription Right at the time you make
payment for your Basic Subscription
Right.
24
As no Units will be issued to Private Placement Holders
in respect to any Rights issuable to such Private Placement Holders, such Units
will be available for issue to Holders,(other than Private Placement Holders)
who exercise their Over-Subscription Right. If there are
sufficient remaining Units, all Over-Subscription
Right requests will be honored in full. If requests for shares pursuant
to the Over-Subscription Right exceed the
remaining Units available, the available
remaining Units will be allocated pro rata among rights holders
who over-subscribe based on the number of over-subscription Units to which they subscribe. The allocation
process will assure that the total number of remaining Units available for over-subscriptions is
distributed on a pro
rata basis. The formula to be used in allocating the available excess
Units is as follows:
Number
of Over-Subscription Units
|
||||
Subscribed to by Exercising Rights
Holder
|
Units
Available for
|
|||
Total
Number of Over-Subscription Units
|
X
|
Rights
Holders Exercising
|
||
Available
for Rights Holders Exercising Their
Over-Subscription
Right
|
Their
Over-Subscription Right
|
Rights
payments for basic subscriptions and over-subscriptions will be deposited upon
receipt by the subscription agent and held in a segregated account with the
subscription agent pending a final
determination of the number of Units to be issued pursuant to the Over-Subscription Right. If the prorated amount
of Units allocated to you in connection with your Over-Subscription Right is less than your
over-subscription request, then the excess funds held by the subscription agent
on your behalf will be returned to you promptly without interest or deduction.
We will deliver certificates representing your Units of one share of common
stock and one Warrant to acquire one share of common stock or credit your
account at your nominee holder with one share of common stock and one Warrant to
acquire one share of common stock that you purchased pursuant to your
over-subscription right as soon as practicable after the rights offering has
expired and all proration calculations and reductions contemplated by the terms
of the rights offering have been effected.
Brokers,
dealers, custodian banks, trust companies and other nominee holders of rights
will be required to certify to the subscription agent, before any
over-subscription right may be exercised with respect to any particular
beneficial owner, as to the aggregate number of rights exercised pursuant to the
basic subscription right and the number of Units subscribed for pursuant to the
over-subscription right by such beneficial owner.
Pro
Rata Allocation if Insufficient Shares are Available for Issuance
If we
receive a sufficient number of subscriptions, the aggregate dollar amount of the
exercises could exceed the maximum dollar amount of this offering. In each case,
we would reduce on a pro
rata basis, the number of subscriptions we accept so that: (i) we will
not become obligated to issue, upon exercise of the subscriptions, a greater
number of Units than we have authorized and available for issuance and (ii) the
gross proceeds of this offering will not exceed the maximum dollar amount of
this offering. In the event of any pro rata reduction, we would
first reduce over-subscriptions prior to reducing basic
subscriptions.
Expiration
of the Rights Offering and Termination
You
may exercise your subscription rights at any time before 5:00 p.m., New York
City Time, on March 29, 2011, the expiration date of the rights
offering. Any rights not exercised at or before that time will have
no value and expire without any payment to the holders of those unexercised
rights. We will not be obligated to honor your exercise of subscription rights
if the subscription agent receives the documents relating to your exercise after
the rights offering expires, regardless of when you transmitted the
documents.
Reasons
for the Rights Offering; Determination of the Offering Price
We are
making the rights offering for working capital and general corporate purposes.
We intend to primarily use the proceeds on the development of eniluracil. Prior
to approving the rights offering, our Board of Directors carefully considered
current market conditions and financing opportunities, as well as the potential
dilution of the ownership percentage of the existing holders of our common stock
that may be caused by the rights offering.
25
After
weighing the factors discussed above and the effect of the additional capital,
before expenses, that may be generated by the sale of shares pursuant to the
rights offering, our Board of Directors believes that the rights offering is in
the best interests of our Company. As described in the section of this
prospectus entitled “Use of Proceeds,” the proceeds from the rights offering,
less fees and expenses incurred in connection with this offering, will be used
for working capital and general corporate purposes. Although we believe that the
rights offering will strengthen our financial condition, our Board of Directors
is not making any recommendation as to whether you should exercise your
subscription rights.
The
subscription price per share for the rights offering was set by our Board of
Directors. In determining the subscription price of the Units, the board of
directors considered, among other things, the following factors:
•
|
the
historical and current market price of our common
stock;
|
•
|
the
fact that holders of rights will have an over-subscription
right;
|
•
|
the
terms and expenses of this offering relative to other alternatives for
raising capital,
|
•
|
the
size of this offering; and
|
•
|
the
general condition of the securities
market.
|
Transferability of Rights/Common
Stock/Warrants
The Rights will be transferable during the course of the
subscription period, however, except as
described below, the Rights will not be
listed on any other exchange or quoted for trading on the OTC Bulletin Board
or on the “pink sheets” and, accordingly, it is unlikely there will be any
trading market for your Rights. Should you identify another person or
entity to whom to transfer your Rights, you will be
able to assign your Rights to such person or entity during the subscription
period by completing and signing Form 3 on
the Rights Certificate, as described under “Form 3 –
Transfer of Rights in “Instructions of Exercising Rights" on page 28. Your ability to assign your Rights will expire
on the scheduled expiration date of this rights
offering.
Our common stock is currently quoted on the Pink Sheets
under the symbol “ADHXF” and the TSX under the symbol “AHX.” The
shares of our common stock which you receive upon exercise of your Rights will be
separately transferable following their issuance and would be available for
trading on the Pink Sheets and the TSX. In addition, the shares of
common stock you would receive upon exercise of your warrants would be available
for trading on the Pink Sheets and the TSX. However, there is
currently a very limited trading market in our common stock and a more active
market is not expected to develop as a result of this offering, and,
accordingly, you may have difficulty in selling your shares of common stock
received upon the exercise of the rights and upon the exercise of warrants
should you desire to do so in the future. See “Risk Factors — Risks
Related to Our Common Stock” on page
21.
The warrants to be issued pursuant to this offering will
be separately transferable following their issuance and through their expiration
date of five years from the issue date. However,
except as described below, we do not intend to list the warrants on any exchange
and we do not anticipate that they will be quoted for trading on the Pink Sheets
and, accordingly, we do not anticipate that any trading market for the warrants
will develop in the future and you may have to hold your warrants
indefinitely.
We have applied to list the Rights, the shares of
common stock and warrants issuable upon exercise of the Rights, and the shares
of common stock issuable upon exercise of the warrants on the
TSX. Such listing is subject to us fulfilling all of the listing
requirements of the TSX.
26
Subscription
Agent/Warrant Registrar
Olympia
Transfer Services, Inc. will act as the subscription agent and warrant registrar in connection with this
offering. The subscription agent will receive for its administrative,
processing, invoicing and other services a fee estimated to be approximately
$7,500 plus reimbursement for all reasonable out-of-pocket expenses related to
this offering.
Completed
subscription rights certificates must be sent together with full payment of the
subscription price for all Units subscribed for through the exercise of the
subscription right and the over-subscription right to the subscription agent by
one of the methods described below.
We
will accept only properly completed and duly executed subscription rights
certificates actually received at any of the addresses listed below, at or prior
to 5:00 p.m., New York City Time, on the expiration date of this offering. See
“Payment for Units” on page 30. In this prospectus, close of business
means 5:00 p.m., New York City Time, on the relevant date.
Subscription
Rights Certificate Delivery Method:
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By
Mail/Commercial Courier/Hand Delivery
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|
Address/Number:
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Olympia
Transfer Services
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Suite
920, 120 Adelaide Street West
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Toronto,
Ontario M5H 1T1
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(416)
364-8081
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Delivery
to an address other than the address listed above will not constitute valid
delivery and, accordingly, may be rejected by us.
Any
questions or requests for assistance concerning the method of subscribing for
Units or for additional copies of this prospectus or subscription rights
certificates may be directed to the subscription agent at its telephone number
and address listed below:
Olympia
Transfer Services
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Suite
920, 120 Adelaide Street West
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Toronto,
Ontario M5H 1T1
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(416)
364-8081
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Stockholders
may also contact their broker, dealer, custodian bank, trustee or other nominee
for information with respect to this offering.
Instructions
for Exercising Rights
Rights
are evidenced by Rights Certificates that will be mailed to record date
shareholders or, if a record date shareholder’s shares are held by a depository
or nominee on his, her or its behalf, to such depository or nominee. Rights may
be exercised by completing and signing the subscription rights certificate that
accompanies this prospectus and mailing it in the envelope provided, or
otherwise delivering the completed and duly executed Rights Certificate to the
subscription agent, together with payment in full for the Units at the
subscription price by the expiration date of this offering. Completed Rights
Certificates and related payments must be received by the subscription agent
prior to 5:00 p.m., Toronto, Ontario Time, on or before the expiration date, at
the offices of the Subscription Agent at the address set forth
above.
Form
1 - Exercise of Basic Subscription Right
The
maximum number of Rights that may be exercised pursuant to the Basic
Subscription Right is shown in the box on the upper right hand corner of the
face of the Rights Certificate. Form 1 must be completed and signed to exercise
all or some of the Rights represented by the Rights Certificate pursuant to the
Basic Subscription Right. If Form 1 is completed so as to exercise some but not
all of the Rights represented by the Rights Certificate, the holder of the
Rights Certificate will be deemed to have waived the unexercised balance of such
Rights, unless at the time the Rights Certificate is surrendered the
Subscription Rights Holder has provided that the Rights are to be transferred to
a third party or are to be retained by the Holder using the appropriate Forms on
the Rights Certificate or otherwise by advising the subscription agent in
writing.
27
Form
2 - Exercise of the Over-Subscription Right
Rights
holders who fully exercise all Basic Subscription Rights issued to them may
participate in the Over-Subscription Right by completing and signing Form 2 on
the Rights Certificate indicating the number of Units they are willing to
acquire. If sufficient remaining Units are available after the basic
subscription, all over-subscriptions will be honored in full; otherwise,
remaining Units will be allocated on a pro rata basis as
described under “Allocation of Over-Subscription Right” above.
Form
3 – Transfer of Rights.
Complete
and sign Form 3 on the Rights Certificate only if you wish to transfer the
Rights. Your signature must be guaranteed in the manner described on the Rights
Certificate. It is not necessary for a transferee to obtain a new Rights
Certificate to exercise the Rights, but the signatures of the transferee on
Forms 1 and 2 must correspond in every particular with the name of the
transferee (or the bearer if no transferee is specified) as the absolute owner
of the Rights Certificate for all purposes. If Form 3 is completed, the
Subscription Agent will treat the transferee as the absolute owner of the Rights
Certificate for all purposes and will not be affected by notice to the
contrary.
Form
4 – Dividing or Combining.
Complete
and sign Form 4 on the Rights Certificate only if you wish to divide or combine
the Rights Certificate, and surrender it to the Subscription Agent. New Rights
Certificate(s) will be issued in the same name as that reflected on the Rights
Certificate(s) surrendered. The Subscription Agent will then issue a
new Rights Certificate in such denominations (totalling the same number of
Rights as represented by the Rights Certificate(s) being divided or combined) as
are required by the Rights Certificate holder. Rights Certificates must be
surrendered for division or combination in sufficient time prior to the Expiry
Time to permit the new Rights Certificates to be issued to and used by the
Rights Certificate holder.
Form
5 – Delivery to Different Address
Complete
by providing an alternate address, then sign and have your signature guaranteed
in the manner described on the Rights Certificate, if you wish to have the
shares and warrants underlying the Rights to be delivered to an address
different from that which is reflected in the records of the Corporation (i.e.,
the address at which the Rights Certificate was initially
received).
Record
Date Stockholders Whose Shares are Held by a Nominee
Record
date stockholders whose shares are held by a nominee, such as a broker, dealer,
custodian bank, trustee or other nominee, must contact that nominee to exercise
their rights. In that case, the nominee will complete the subscription rights
certificate on behalf of the record date stockholder and arrange for proper
payment by one of the methods set forth under “Payment for Units” on page
29.
Nominees
Nominees,
such as brokers, dealers, custodian banks, trustees or depositories for
securities, who hold shares for the account of others, should notify the
respective beneficial owners of the shares as soon as possible to ascertain the
beneficial owners’ intentions and to obtain instructions with respect to the
rights. If the beneficial owner so instructs, the nominee should complete the
subscription rights certificate and submit it to the subscription agent with the
proper payment as described under “Payment for Units” on page
29.
General
All
questions as to the validity, form, eligibility (including times of receipt and
matters pertaining to beneficial ownership) and the acceptance of subscription
forms and the subscription price will be determined by us, which determinations
will be final and binding. No alternative, conditional or contingent
subscriptions will be accepted. We reserve the right to reject any or all
subscriptions not properly submitted or the acceptance of which would, in the
opinion of our counsel, be unlawful.
28
We
reserve the right to reject any exercise if such exercise is not in accordance
with the terms of this rights offering or not in proper form or if the
acceptance thereof or the issuance of Units thereto could be deemed unlawful. We
reserve the right to waive any deficiency or irregularity with respect to any
subscription rights certificate. Subscriptions will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as we determine in our sole discretion. We will not be under any duty
to give notification of any defect or irregularity in connection with the
submission of subscription rights certificates or incur any liability for
failure to give such notification.
Payment
for Units
A
participating rights holder may send the subscription rights certificate
together with payment for the Units acquired in the subscription right and any
additional Units subscribed for pursuant to
the Over-Subscription Right to the
subscription agent based on the subscription price of CAD$0.03 per Unit. To be
accepted, the payment, together with a properly completed and executed
subscription rights certificate, must be received by the subscription agent at
one of the subscription agent’s offices set forth above (see “Subscription
Agent/Warrant Registrar” above), at or
prior to 5:00 p.m., New York City Time, on the expiration date.
All
payments by a participating rights holder must be in either Canadian dollars or
U.S. dollars. If the Holder elects to pay the subscription
price in U.S. Dollars, the subscription price shall be calculated based on an
exchange rate of USD 1: CAD 0.990 (the US/Canadian currency exchange rate in
effect on February 8, 2011). Payment for the exercise of the
subscription rights shall be by money order, check or bank draft drawn on a
bank or branch located in the U.S. or Canada or, if permitted by the
subscription agent, by wire transfer, in each case payable to Olympia Transfer
Services as Agent for benefit of (FBO) Adherex Technologies, Inc. The
subscription agent will deposit all funds received by it prior to the final
payment date into a segregated account pending pro-ration and distribution of
the Units.
The method of delivery of
subscription rights certificates and payment of the subscription price to us
will be at the election and risk of the participating rights holders, but if
sent by mail it is recommended that such certificates and payments be sent by
registered mail, properly insured, with return receipt requested, and that a
sufficient number of days be allowed to ensure delivery to the subscription
agent and clearance of payment prior to 5:00 p.m., New York City Time, on the expiration date. Because
uncertified personal checks may take at least five business days to clear, you
are strongly urged to pay, or arrange for payment, by means of certified or
cashier’s check or money order. Whichever of the methods described
above is used, issuance of the shares purchased is subject to collection of
checks and actual payment.
If a
participating rights holder who subscribes for Units as part of the subscription right or
over-subscription right does not make payment of any amounts due by the
expiration date, the subscription agent reserves the right to take any or all of
the following actions: (i) reallocate the Units to other participating rights holders in
accordance with the over-subscription right; (ii) apply any payment actually
received by it from the participating rights holder toward the purchase of the
greatest whole number of Units which could
be acquired by such participating rights holder upon exercise of the basic
subscription any over-subscription right; and/or (iii) exercise any and all
other rights or remedies to which it may be entitled, including the right to set
off against payments actually received by it with respect to such subscribed for
Units.
All
questions concerning the timeliness, validity, form and eligibility of any
exercise of rights will be determined by us, whose determinations will be final
and binding. We, in our sole discretion, may waive any defect or irregularity,
or permit a defect or irregularity to be corrected within such time as we may
determine, or reject the purported exercise of any right. Subscriptions will not
be deemed to have been received or accepted until all irregularities have been
waived or cured within such time as we determine in our sole discretion. The
subscription agent will not be under any duty to give notification of any defect
or irregularity in connection with the submission of subscription rights
certificates or incur any liability for failure to give such
notification.
29
Participating
rights holders will have no right to rescind their subscription after receipt of
their payment for Units.
Delivery
of Stock Certificates;
Warrants
We
anticipate that stockholders whose shares are held of record by DTC or by any
other depository or nominee on their behalf or on behalf of their broker,
dealer, custodian bank, trustee or other nominee will have any shares and warrants that they acquire credited to the
account of Cede & Co. or the other depository or nominee. With respect to
all other stockholders, stock certificates for all shares acquired and warrants will be mailed promptly after
payment for all the Units subscribed for
has cleared.
State Securities Law
Considerations
We are not making this rights offering in any state
or other jurisdiction in which it is unlawful to do so, nor are we selling or
accepting any offers to purchase any Units from rights holders who are residents
of those states or other jurisdictions. We may delay the commencement of this
rights offering in those states or other jurisdictions, or change the terms of
this rights offering, in order to comply with the securities law requirements of
those states or other jurisdictions. We may decline to make modifications to the
terms of this rights offering requested by those states or other jurisdictions,
in which case, if you are a resident in those states or jurisdictions, you will
not be eligible to participate in this rights offering.
We have applied for qualification of this rights
offering with certain state securities commissions. Prior to the commencement of
this rights offering, we will advise residents of any such state if the
securities commission in that state has disapproved this rights offering, or has
imposed any conditions or limitations on this rights offering in such state.
Such disapproval would result in holders of rights in that state not being able
to exercise their rights in this rights offering, and such conditions or
limitations could affect the terms of this rights offering with respect to
holders of rights in that state. We have the discretion to delay or to refuse to
distribute any shares you may elect to purchase through the exercise of rights
if we deem it necessary to comply with applicable securities laws, including
state securities and blue sky laws.
ALTHOUGH
WE HAVE FILED AN APPLICATION WITH THE DEPARTMENT OF CORPORATIONS OF THE STATE OF
CALIFORNIA IN ORDER TO PERMIT US TO ACCEPT THE EXERCISE OF RIGHTS FROM RESIDENTS
OF THE STATE OF CALIFORNIA, THE DEPARTMENT OF CORPORATIONS HAS NOT APPROVED OUR
APPLICATION. UNLESS OUR APPLICATION IS APPROVED IN THE STATE OF CALIFORNIA PRIOR
TO THE EXPIRATION OF THIS RIGHTS OFFERING, WE WILL NOT BE PERMITTED TO ACCEPT
THE EXERCISE OF RIGHTS FROM RESIDENTS OF THE STATE OF CALIFORNIA AND RESIDENTS
OF THE STATE OF CALIFORNIA WILL NOT BE PERMITTED TO PURCHASE UNITS IN THIS
RIGHTS OFFERING.
The aggregate amount of our Units we are offering to
Arizona residents pursuant to this rights offering is limited to $500,000, and
we will not issue more than this amount of our common stock to rights holders
residing in Arizona upon exercise of their rights. Therefore, if the
subscription agent receives exercise documentation that otherwise would require
us to issue to Arizona residents more than $500,000 (or approximately 16,666,667 Units), we will issue to all such exercising
stockholders their pro rata portion of such amount of Units and return the
excess payment amount, if any, to such stockholders, without interest, as soon
as practicable after the expiration date of this rights
offering.
MATERIAL U.S.
AND
CANADIAN FEDERAL
INCOME
TAX
CONSEQUENCES OF RIGHTS OFFERING
The
following discussion sets forth certain material United States and Canadian
federal income tax consequences resulting from the distribution to a "U.S.
Holder" and related transactions by the U.S. Holder, including the exercise or
expiration of rights, and the disposition of rights, common stock or warrants.
For purposes of this discussion, a U.S. Holder means (1) any U.S. person who
receives a distribution of rights pursuant to this rights offering and who holds
such rights or common stock issued upon the exercise of the rights ("Initial
U.S. Holder") and (2) any U.S. person other than an Initial U.S. Holder who
acquires such rights or common stock issued upon exercise of such rights
("Subsequent U.S. Holder"). For purposes of our discussion, a U.S. person
is:
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an
individual who is a citizen or resident of the United
States;
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a
corporation (or other entity taxed as a corporation for U.S. federal
income tax purposes) created or organized in the United States or under
the laws of the United States or any subdivision
thereof;
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an
estate, the income of which is includable in gross income for U.S. federal
income tax purposes regardless of its source; or
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¨
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a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust (or if the trust was in existence on August 20, 1996, and has
validly elected to be treated as a U.S. person under applicable Treasury
regulations); and
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for
purposes of the Income Tax Act (Canada) (the “Tax Act”) is neither
resident nor deemed to be resident in Canada and does not use or hold, and
is not deemed to use or hold their rights, common shares or warrants in
connection with carrying on business in Canada (a “Non-Resident
Holder”).
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Material
U.S. Federal Income Tax Considerations
We
have not sought, and will not seek, a ruling from the IRS regarding the Federal
income tax consequences of this offering or the related share and warrant
issuance. The discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended (the “Code”), current and proposed Treasury
Regulations promulgated thereunder, and administrative and judicial decisions as
of the date hereof, all of which are subject to change, possibly on a
retroactive basis. This discussion is not a representation of, nor does it
address, all aspects of United States federal income taxation that may be
relevant to any particular U.S. Holder based on such U.S. Holder’s individual
circumstances. The following discussion does not address the tax
consequences of this offering or the related rights issuance under foreign,
state, or local tax laws, or the alternative minimum tax provisions or U.S.
federal income tax consequences to U.S. Holders that are subject to special
treatment. Additionally, the discussion does not consider the tax
treatment of persons who hold rights or common stock through a partnership or
other pass-through entity or the possible application of U.S. federal gift or
estate tax.
THIS
DISCUSSION DOES NOT ADDRESS THE IMPACT OF AN INVESTOR'S INDIVIDUAL TAX
CIRCUMSTANCES. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF AN INVESTMENT IN
THE COMMON STOCK OR THE RIGHTS, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL
OR FOREIGN TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
Receipt
of Rights.
Initial
U.S. Holders will not recognize gain or loss upon receipt of rights pursuant to
the rights offering.
Tax Basis and Holding Period of
Rights.
The
discussion under this subheading applies only to Initial U.S.
Holders. The tax basis of the rights will be determined by allocating
the tax basis of a U.S. Holder’s common stock between such common stock and the
rights in proportion to their respective fair market values on the date of
distribution. If the fair market value of the rights on the date of
distribution is less than 15% of the fair market value of such U.S. Holder’s
common stock on such date, however, no such allocation will be made (and thus,
the basis of the rights will be zero) unless the U.S. Holder makes an
irrevocable election to do so. The election to allocate basis is to
be made by attaching a statement to the U.S. Holder’s federal income tax return
filed for the taxable year in which the rights are received. The
election, if made, will apply to all of the rights received by the U.S. Holder
pursuant to the rights offering. In addition, the tax basis allocated
to the subscription rights must be apportioned between the right to acquire
common stock and the right to receive a warrant in proportion to their values on
the date of distribution. For these purposes, the value of the right to
acquire common stock will be that amount which bears the same ratio to the value
of a subscription right as the value of one share of common stock bears to the
value of one package, consisting of one share of common stock and one
warrant. The value of the right to receive a warrant will be the
difference between the value of the subscription right and the right to acquire
common stock as determined above. If the rights expire without
exercise, as described below, the amount of basis allocated to the rights shall
be reallocated to the common stock.
31
The
holding period of the rights will include the period during which the U.S.
Holder held the common stock with respect to which such rights were
distributed.
Exercise of Rights; Basis and Holding
Period of Acquired Shares and Warrants; Sale, Exchange or Other Disposition of
Acquired Shares and Warrants.
This
discussion is qualified by the discussions below under the subheading “Tax
Consequences if We Are a Passive Foreign Investment Company.”
The
tax basis of the common stock or warrants acquired through exercise of the
subscription rights will equal the sum of (a) the exercise price and
(b) the portion of a U.S. Holder’s tax basis, if any, in the subscription
rights (determined as described above) allocated to the rights to acquire common
stock or warrants, as applicable. The holding period for the common stock and
warrants acquired through exercise of the subscription rights will begin on the
date the subscription rights are exercised.
Gain
or loss will be recognized by a U.S. Holder upon the sale, exchange or other
disposition of the warrants or shares of common stock in an amount equal to the
difference between the amount realized and the tax basis of the warrants or
shares of common stock. Such gain or loss will be a capital gain or
loss and will be considered long-term capital gain or loss if the U.S. Holder's
holding period in the warrants or shares of common stock is more than one year.
Long-term capital gains of certain non-corporate taxpayers generally are taxed
at lower rates than items of ordinary income. The deductibility of capital
losses is subject to limitations.
No
gain or loss will be recognized by a holder of warrants upon the exercise of the
warrant. The shares of common stock that the U.S. Holder acquires as a
result of exercising the warrant will have a tax basis equal to the holder’s
adjusted tax basis in the warrant, plus the amount paid to exercise the
warrant. The holding period of shares acquired upon exercise of a warrant
will begin on the day the warrant is exercised.
If the
U.S. Holder allows the warrant to lapse or expire without exercise, the warrant
is deemed to be sold or exchanged on the date of expiration. Therefore,
the holder will generally recognize a capital loss in an amount equal to the
holder’s tax basis in the warrant. The loss is treated as short-term or
long-term depending on the holder’s holding period in the
warrant.
Gains
and losses recognized by a U.S. Holder on a sale, exchange or other disposition
of rights or common stock or warrants, as applicable, generally will have a U.S.
source for foreign tax credit purposes.
Expiration
of Rights.
If an
Initial U.S. Holder allows the rights to expire unexercised, such U.S. Holder’s
tax basis in the common stock will be the same as it was prior to the
distribution of the rights and no gain or loss will be recognized by such U.S.
Holder on the expiration of such rights.
32
Sale, Exchange or Other Disposition
of Rights.
Upon
the sale, exchange or other disposition of rights, a U.S. holder generally will
recognize capital gain or loss equal to the difference between the amount
realized and such U.S. holder's basis in the rights. Such gain or loss will be
considered long-term capital gain or loss if the U.S. holder's holding period in
the rights is more than one year on the date of the sale, exchange or other
disposition. Long-term capital gains generally are taxed at lower rates than
items of ordinary income. The deductibility of capital losses is subject to
limitations.
Tax
Consequences if We Are a Passive Foreign Investment Company
A
foreign corporation generally will be treated as a “passive foreign investment
company” (“PFIC”) if, after applying certain “look-through” rules, either (i)
75% or more of its gross income is passive income or (ii) 50% or more of the
average value of its assets is attributable to assets that produce or are held
to produce passive income. Passive income for this purpose generally includes
dividends, interest, rents, royalties and gains from securities and commodities
transactions. The look-through rules require a foreign corporation that owns at
least 25% by value, of the stock of another corporation to treat a proportionate
amount of assets and income as held or received directly by the foreign
corporation.
The
Company has not made the analysis necessary to determine whether or not it is
currently a PFIC or whether it has ever been a PFIC. There can be no
assurance that the Company is not, has never been or will not in the future be a
PFIC. If the Company were to be treated as a PFIC, any gain recognized by a U.S.
Holder upon the sale (or certain other dispositions) of common stock (or the
receipt of certain distributions) generally would be treated as ordinary income,
and a U.S. Holder may be required, in certain circumstances, to pay an interest
charge together with tax calculated at maximum rates on certain “excess
distributions,” including any gain on the sale or certain dispositions of common
stock. In order to avoid this tax consequence, a U.S. Holder (i) may be
permitted to make a “qualified electing fund” election, in which case, in lieu
of such treatment, such holder would be required to include in its taxable
income certain undistributed amounts of the Company’s income or (ii) may elect
to mark-to-market the common stock and recognize ordinary income (or possible
ordinary loss) each year with respect to such investment and on the sale or
other disposition of the common stock. Additionally, if the Company is deemed to
be a PFIC, a U.S. Holder who acquires common stock in the Company from a
decedent will be denied the normally available step-up in tax basis to fair
market value for the common stock at the date of the death and instead will have
a tax basis equal to the decedent’s tax basis if lower than fair market value.
Neither the Company nor its advisors have the duty to or will undertake to
inform U.S. Holders of changes in circumstances that would cause the Company to
become a PFIC. U.S. Holders should consult their own tax advisors regarding the
application of the PFIC rules including eligibility for and the manner and
advisability of making certain elections in the event the Company is
determined to be a PFIC at any point in time after the date of this
Prospectus. The Company does not currently intend to take the action
necessary for a U.S. Holder to make a “qualified electing fund” election in the
event the Company is determined to be a PFIC.
Tax Consequences if We Are a
Controlled Foreign Corporation.
A
foreign corporation will be treated as a “controlled foreign corporation”
(“CFC”) for United States federal income tax purposes if, on any day during the
taxable year of such foreign corporation, more than 50% of the equity interests
in such corporation, measured by reference to the combined voting power or value
of the equity of the corporation, is owned directly or by application of the
attribution and constructive ownership rules of Sections 958(a) and 958(b) of
the Code by United States Shareholders. For this purpose, a “United States
Shareholder” is any United States person that possesses directly, or by
application of the attribution and constructive ownership rules of Sections
958(a) and 958(b) of the Code, 10% or more of the combined voting power of all
classes of equity in such corporation. If a foreign corporation is a CFC for an
uninterrupted period of 30 days or more during any taxable year, each United
States Shareholder of the corporation who owns, directly or indirectly, shares
in the corporation on the last day of the taxable year on which it is a CFC will
be required to include in its gross income for United States federal income tax
purposes its pro rata share of the CFC’s “Subpart F income,” even if the Subpart
F income is not distributed. Subpart F income generally includes passive income
but also includes certain related party sales, manufacturing and services
income.
33
United
States persons who might, directly, indirectly or constructively, acquire 10% or
more of the shares of the Company or any of its non-U.S. subsidiaries, and
therefore might be a United States Shareholder, should consider the possible
application of the CFC rules, and consult a tax advisor with respect to such
matter.
DIVIDENDS
PAID ON THE COMMON STOCK
Distributions
paid on common stock (including any Canadian taxes withheld) to a U.S. Holder
will be treated as ordinary dividend income for United States federal income tax
purposes to the extent of the Company’s current and accumulated earnings and
profits (as computed for U.S. federal income tax purposes). Such dividends,
which will be treated as foreign source income for U.S. foreign tax credit
purposes, generally will not qualify for the dividends-received deduction
available to corporations. Distributions in excess of such earnings and profits
will be applied against and will reduce the shareholder’s tax basis in the
common stock and, to the extent in excess of such tax basis, will be treated as
gain from a sale or exchange of such common stock. The amount of the
distribution will equal the US Dollar value of the distribution, calculated by
reference to the exchange rate in effect on the date the distribution is
received (or otherwise made available to the U.S. Holders), regardless of
whether a payment in Canadian currency is actually converted to US Dollars at
that time. U.S. Holders should consult their own tax advisors concerning the
treatment of foreign currency gain or loss, if any, on any Canadian currency
received which is converted into US Dollars subsequent to
receipt.
Qualified
dividend income received by an individual (as well as certain trusts and
estates) U.S. Holder are taxed at reduced rates of either 5 or 15 percent,
depending upon the amount of such shareholder’s taxable income. If a
non-corporate U.S. Holder does not hold common stock for more than 60 days
during the 120 day period beginning 60 days before an ex-dividend date,
dividends received on common stock are not eligible for reduced rates. Dividends
received from a foreign corporation that was a passive foreign investment
company (as further discussed above) in either the taxable year of the
distribution or the preceding taxable year are not qualified dividend income.
Qualified dividend income includes dividends received from a “qualified foreign
corporation.” A “qualified foreign corporation” includes a foreign corporation
whose shares are readily tradable on an established securities market in the
United States as well as a foreign corporation that is entitled to the benefits
of a comprehensive income tax treaty with the United States which includes an
exchange of information program. Canada and the United States are
parties to a comprehensive income tax treaty which includes an exchange of
information program. The United States Treasury Department will periodically
issue guidance regarding which income tax treaties will be satisfactory for
treating a corporation as a “qualified foreign corporation”. In the event common
stock should not be readily tradable on an established securities market in the
United States, non-corporate U.S. Holders should consult their own tax advisors
as to whether any distributions paid on common stock will be taxed for United
States federal income tax purposes at reduced tax rates.
CREDIT
FOR CANADIAN TAXES WITHHELD
Subject
to certain conditions and limitations, any Canadian tax withheld or paid with
respect to dividends on the common stock generally will be eligible for credit
against a U.S. Holder’s United States federal income tax liability at such U.S.
Holder’s election. The Code provides limitations on the amount of foreign tax
credits that a U.S. Holder may claim, including extensive separate computation
rules under which foreign tax credits allowable with respect to specific
categories of income cannot exceed the United States federal income taxes
otherwise payable with respect to each such category of income. Dividends with
respect to the common stock generally will be classified as foreign source
“passive income” for the purpose of computing a U.S. Holder’s foreign tax credit
limitations for U.S. foreign tax credit purposes. The availability of the
Canadian withholding tax as a foreign tax credit will also be subject to certain
restrictions on the use of such credits, including a prohibition on the use of
the credit to reduce liability for the United States individual and corporate
minimum taxes by more than 90%. Alternatively, U.S. Holders that do not elect to
claim a foreign tax credit may instead claim a deduction for Canadian income tax
withheld or paid, but only for a year in which these U.S. Holders elect to do so
for all foreign income taxes. The rules relating to foreign tax credits are
complex, and you should consult your tax advisor to determine whether and if you
would be entitled to this credit.
34
Tax
Consequences for Non-U.S. Holders of Common stock
Except
as described in “Information Reporting and Back-up Withholding” below, a
non-U.S. holder of common stock will not be subject to U.S. federal income or
withholding tax on the payment of dividends on, and the proceeds from the
disposition of, common stock, unless:
|
—
|
the
item is effectively connected with the conduct by the non-U.S. holder of a
trade or business in the United States
and:
|
|
(i)
|
in
the case of a resident of a country which has a treaty with the United
States, the item is attributable to a permanent establishment;
or
|
|
(ii)
|
in
the case of an individual, the item is attributable to a fixed place of
business in the United States;
|
|
—
|
the
non-U.S. holder is an individual who holds the common stock as a capital
asset and is present in the United States for 183 days or more in the
taxable year of the disposition and does not qualify for an exemption;
or
|
|
—
|
the
non-U.S. holder is subject to tax under the provisions of U.S. tax law
applicable to U.S. expatriates.
|
INFORMATION
REPORTING AND BACK UP WITHHOLDING.
A
non-corporate U.S. Holder may, under certain circumstances, be subject to
information reporting requirements and “backup withholding” at a 28% rate on
cash payments in the United States of dividends on, and the proceeds of
disposition of, common stock. Backup withholding will apply only if a U.S.
Holder: (a) fails to furnish its social security or other taxpayer
identification number (“TIN”) within a reasonable time after the request
therefore; (b) furnishes an incorrect TIN; (c) is notified by the IRS that it
has failed properly to report payments of interest and dividends; or (d) under
certain circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the IRS that it is subject
to backup withholding for failure to report interest and dividend payments. U.S.
Holders should consult their tax advisors regarding their qualification for
exemption, if applicable. Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules may be allowed as a refund
or credit against such U.S. Holder’s federal income tax liability, provided that
the required information is furnished to the IRS.
Material
Canadian Federal Income Tax Considerations
Non-Residents
of Canada
The
following portion of the summary is generally applicable to a U.S. Holder.
Special rules, which are not discussed in this summary, may apply to a U.S.
Holder that is an insurer that carries on an insurance business in Canada and
elsewhere.
Receipt
of Rights
The
issuance of Rights to a U.S Holder will not be subject to Canadian withholding
tax and no other tax will be payable under the Tax Act by a U.S. Holder in
respect of the receipt of Rights. The cost of Rights received under the
offering will be nil.
Exercise
of Rights
The
exercise of Rights will not constitute a disposition of property for purposes of
the Tax Act and, consequently, no tax will be payable under the Tax Act by a
U.S. Holder upon the exercise of Rights. Shares of common stock and
warrants acquired by a U.S. Holder upon the exercise of Rights will have a cost
to the U.S. Holder equal to the aggregate of the exercise price for the rights
paid plus the adjusted cost base to the U.S. Holder of the Rights exercised (if
any).
35
The
adjusted cost base of each share of common stock held by a U.S. Holder acquired
upon exercise of the Rights will be averaged with the adjusted cost base of each
other share of Common stock held by the U.S. Holder.
Exercise
of Warrants
The
exercise of warrants will not constitute a disposition of property for purposes
of the Tax Act and, consequently, no tax will be payable under the Tax Act by an
U.S. Holder upon the exercise of warrants. Shares of common stock acquired
by an U.S. Holder upon the exercise of Warrants will have a cost to the U.S.
Holder equal to the aggregate of the warrant exercise price and the adjusted
cost base to the U.S. Holder of the exercised warrants. The adjusted cost
base of each such share of common stock held by a U.S. Holder will be averaged
with the adjusted cost base of each other share of common stock held by the U.S.
Holder.
Disposition
of Rights, Common Stock or Warrants
Upon
the disposition of a right, share of common stock or warrant by a U.S. Holder
(in the case of rights or warrants, other than pursuant to the exercise or
expiry thereof), the U.S. Holder will not be subject to tax under the Tax Act in
respect of any capital gain realized unless the right, common stock or warrant,
as the case may be, disposed of constitutes “taxable Canadian property” of the
U.S. Holder and the U.S. Holder is not entitled to relief under an applicable
tax treaty or convention. Rights, common stock and warrants will generally
not constitute “taxable Canadian property” of such U.S. Holder unless (a) (i)
the rights or warrants are exercisable for or entitle the U.S. Holder to receive
common stock that, together with the other shares of common stock held by such
U.S. Holder and persons with whom the U.S. Holder does not deal at arm’s length,
represent 25% or more of the common stock of the Company; or (ii) the U.S.
Holder, together with persons with whom the U.S. Holder does not deal at arm’s
length, owned not less than 25% of the issued shares of any class or series of
shares of the capital stock of the Company; and (b) more than 50% of the fair
market value of the common stock was derived directly or indirectly from one or
any combination of (i) real or immovable property situated in Canada, (ii)
Canadian resource properties, (iii) timber resource properties, and (iv) options
in respect of, or interests in, or for civil law rights in, property described
in any of (i) to (iii).
Upon
the expiry of an unexercised right or warrant, a U.S. Holder will not be subject
to tax under the Tax Act in respect of the disposition of the unexercised right
or warrant.
U.S.
Holders whose rights or common stock constitute “taxable Canadian property”
should consult their own tax advisors for advice having regard to their
particular circumstances.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
The
following description of our capital stock and provisions of our Articles of
Incorporation, as amended, and Bylaws, as amended is only a summary. You should
also refer to our Articles of Incorporation, as amended, a copy of which is
incorporated by reference as an exhibit to the registration statement of which
this prospectus is a part, and our Bylaws, a copy of which is incorporated by
reference as an exhibit to the registration statement of which this prospectus
is a part.
Rights
We are
distributing Subscription Rights to all Holders of our common stock. We will distribute one Right for every share of common stock held by
such Holder as of 5:00 p.m., New York City
time, on February 24, 2011, the record date
of the offering. The Basic Subscription Right entitles the Holder of such right to purchase one Unit. Holders who
fully exercise their Basic Subscription
Right will be entitled to subscribe for an
additional amount of Units that
remain unsubscribed as a result of any unexercised Basic Subscription Rights, subject to reduction on a pro -rata basis with all other holders exercising their Over-Subscription Right. There is no
standby commitment or additional subscription right.
36
Units
We are
authorized to issue up to 425,000,000 Units, each consisting of one share of our
common stock and one warrant to purchase our common stock. Each Unit may be
purchased at the subscription price of CAD$0.03 per Unit, for total gross
proceeds of up to CAD$12,750,000, however
it is possible not all Units will be purchased, and the resulting gross proceeds
raised will be smaller.
Common
Stock
We are
authorized to issue an unlimited number of shares of common stock, no par value.
Each holder of common stock is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. We have not
provided for cumulative voting for the election of directors in our Articles of
Incorporation, as amended. This means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. Subject
to preferences that may apply to shares of preferred stock outstanding at the
time, the holders of outstanding shares of our common stock are entitled to
receive dividends out of assets legally available at the times and in the
amounts that our board of directors may determine from time to
time.
Holders
of common stock have no preemptive subscription, redemption or conversion rights
or other subscription rights. Upon our liquidation, dissolution or winding-up,
the holders of common stock are entitled to share in all assets remaining after
payment of all liabilities and the liquidation preferences of any outstanding
preferred stock. Each outstanding share of common stock is, and all shares of
common stock to be issued in this offering, when they are paid for, will be
fully paid and non-assessable.
Warrants
Each
Unit purchased will include a warrant to purchase one share of our common stock.
The Warrants will have an exercise price of CAD$0.08 per share and the exercise
price may be adjusted in certain instances. The exercise price will be payable
by certified or bank check to an account designated by us of an amount equal to
the then applicable warrant price multiplied by the number of warrant shares
being issued. The Warrants will not be
exercisable for the first six months from their date of issuance and
will terminate five years from the date of issuance. The number of shares
for which the Warrants may be exercised and the exercise price applicable to the
Warrants will be proportionately adjusted in the event that we make
distributions of our common stock, or subdivide, combine or reclassify
outstanding shares of our common stock, or if we pay a dividend in securities or
property other than common stock. In the case of a merger or consolidation of us
into another company where we are not the surviving company, the Holder will
have the right to receive a new warrant in the surviving corporation. As of September 30, 2010, the registrant has
approximately 240,066,664 warrants issued and outstanding, which are exercisable
at CAD$0.08 and that expire on April 30, 2015.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No expert
or counsel named in this prospectus as having prepared or certified any part of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed for such purpose on a contingency
basis, or had, or is to receive, in connection with this offering, a substantial
interest, direct or indirect, in us or any of our parents or subsidiaries, nor
was any such person connected with us or any of our parents or subsidiaries as a
promoter, managing or principal underwriter, voting trustee, director, officer,
or employee.
37
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Some
of the statements contained or incorporated by reference in this prospectus are
“forward-looking statements” and we intend that such forward-looking statements
be subject to the safe harbors thereby. These statements are based on the
current expectations, forecasts, and assumptions of our management and are
subject to various risks and uncertainties that could cause our actual results
to differ materially from those expressed or implied by the forward-looking
statements. Words such as “may,” “will,” “expect,” “believe,” “anticipate,”
“intend,” “could,” “estimate,” “project,” “plan,” and other similar words are
one way to identify such forward-looking statements. Forward-looking statements
in this prospectus include, but are not limited to, statements with respect to
(1) our anticipated sources and uses of cash and cash equivalents; (2) our
anticipated commencement dates, completion dates and results of clinical trials;
(3) our efforts to pursue collaborations with the government, industry groups or
other companies; (4) our anticipated progress and costs of our clinical and
preclinical research and development programs; (5) our corporate and development
strategies; (6) our expected results of operations; (7) our anticipated levels
of expenditures; (8) our ability to protect our intellectual property; (9) our
ability to fully comply with domestic and international governmental regulation;
(10) the anticipated applications and efficacy of our drug candidates; (11)
future legal liability; and (12) our ability to attract and retain key
employees. All statements, other than statements of historical fact, included in
this prospectus that address activities, events or developments that we expect
or anticipate will or may occur in the future are forward-looking statements. We
include forward-looking statements because we believe that it is important to
communicate our expectations to our investors. However, all forward-looking
statements are based on management’s current expectations of future events and
are subject to a number of risks and uncertainties, including specifically our
need to raise money in the very near term and others, as discussed under the
caption “Risk Factors” beginning on page 11 of this prospectus. Although we
believe the expectations reflected in the forward-looking statements are based
upon reasonable assumptions, we can give no assurance that our expectations will
be attained, and we caution you not to place undue reliance on such statements.
Readers should carefully review this information as well as the risks and other
uncertainties described in other filings we may make after the date of this
prospectus with the Securities and Exchange Commission.
Our
periodic and current reports are available, free of charge, after the material
is electronically filed with, or furnished to, the SEC and EDGAR at http://www.sec.gov
and the Canadian securities regulators on SEDAR, at www.sedar.com . The
information provided on our website is not part of this report and is therefore
not incorporated herein by reference.
INFORMATION
ABOUT THE COMPANY
DESCRIPTION
OF BUSINESS
Overview
Adherex
Technologies, Inc. is a biopharmaceutical company focused on cancer
therapeutics. We incorporated under the Canada Business Corporations
Act and we have three wholly-owned subsidiaries: Oxiquant, Inc. and
Adherex, Inc., both Delaware corporations, and Cadherin Biomedical Inc., a
Canadian company.
On July
7, 2009, there was a restructuring of our Board of Directors and management
team. We accepted the resignation of certain members of our Board, and appointed
Robert Butts to serve as Chairman of the Board, Rostislav Raykov to serve as a
director and our Chief Executive Officer, Robert Andrade to serve as a director
and our Vice President and Thomas Spector to serve as our Chief Scientific
Officer.
On
September 4, 2009, Jim Klein, our Chief Financial Officer resigned. We
subsequently appointed Robert Andrade as our new Chief Financial
Officer.
On
July 7, 2009, we announced that we intended to primarily focus our remaining
financial resources on the development of eniluracil. We have terminated our
eniluracil study using our topical formulation and will focus our resources on
the development of a redesigned study combining eniluracil and 5-fluorouracil,
or 5-FU, targeting anti-cancer indications. After a careful evaluation of the
data from the prior GlaxoSmithKline studies, data from our studies and other
studies using eniluracil, we believe we can design and implement a Phase II
study with eniluracil within the next three to six months assuming we have
adequate financial resources to conduct such a study. Additionally, throughout
the remainder of 2009, we conducted an evaluation of ADH-1 and STS. Our
evaluation of ADH-1 resulted in the termination of our license agreement with
McGill University and the return of ADH-1 composition of matter patents and
licenses to McGill University. We continue to hold various ADH-1method of use
and small molecule patents that are property of Adherex. With regards to STS, we
continue our Phase III studies with STS for both the International Childhood
Liver Tumour Strategy Group, known as SIOPEL, and the Children's Oncology Group.
Our evaluation of STS continues to pursue strategic alternatives, including
collaborations with other pharmaceutical and biotechnology
companies.
38
On April
20, 2010, we entered into agreements with our largest shareholder, Southpoint
Capital Advisors LP and certain other investors for a non-brokered private
placement. Participating investors purchased 240,066,664 units at a price of
CAD$0.03 per unit, for gross proceeds of CAD$7,202,000. Each unit consisted of
one share of our common stock and one warrant to purchase one share of our
common stock at a price of CAD$0.08 per share. Purchasers of units in the
private placement that are existing shareholders of Adherex have agreed not to
participate in the rights offering. The availability of additional working
capital provided us with the funding necessary to move the development of
eniluracil forward and to develop a study design for Phase II
trials.
Eniluracil
Eniluracil
was previously under development by GlaxoSmithKline. GlaxoSmithKline advanced
eniluracil into a comprehensive Phase III clinical development program that did
not produce positive results and GlaxoSmithKline terminated further development.
We developed a hypothesis as to why the GlaxoSmithKline Phase III trials were
not successful and licensed the compound from GlaxoSmithKline in July 2005 We
believe that eniluracil might enhance and expand the therapeutic spectrum of
activity of 5-FU, reduce the occurrence of a disabling side effect known as hand
foot syndrome and allow 5-FU to be given orally. We expect the working capital
infusion we received in April 2010 will be sufficient to fund a Phase II trial
involving approximately 140 patients. We expect results from those trials to be
indicative of the future viability of eniluracil and will allow us to assess
whether further development and testing of enliuracil is warranted.
Eniluracil
is an irreversible inhibitor of DPD, the enzyme primarily responsible for the
rapid breakdown of 5-FU in the body. Eniluracil is being developed by Adherex to
improve the therapeutic value of 5-FU by making it effective in cancers and
reducing the debilitating side effects.
While
5-FU is a current mainstay of contemporary oncology treatment, it has some
therapeutic drawbacks and limitations; including that 5-FU:
·
|
is
given by vein (intravenously) and often by prolonged, multi-day
infusions;
|
·
|
produces
highly variable blood levels in patients. Low levels can reduce its
effectiveness and high levels can increase its side effects;
and
|
·
|
is broken down
(catabolized) to f orm α-fluoro-β-alanine, or F-BAL . This compound
appears to cause neurotoxicity and “hand-foot syndrome” which are
debilitating and dose-limiting side effects of 5-FU therapy. Importantly,
F-BAL also decreases the antitumor activity of 5-FU in lab animals.
|
Eniluracil:
Mechanism of Action
By
inactivating DPD, eniluracil prevents the breakdown of 5-FU to F-BAL. Eniluracil
also greatly prolongs exposure of the tumor cells to 5-FU. When eniluracil is
properly used in combination with 5-FU, it resolves many of the therapeutic
drawbacks and limitations of 5-FU noted above. For instance, we believe
eniluracil:
·
|
enables
5-FU to be dosed orally;
|
·
|
converts
highly variable blood levels of 5-FU to highly consistent and predictable
levels;
|
·
|
extends
the elimination half-life of 5-FU from about 10 minutes to about 5 hours;
and
|
39
·
|
prevents
the formation of F-BAL, which is the apparent causative agent for
hand-foot syndrome and for 5-FU-induced neurotoxicity. F-BAL also
decreases the antitumor efficacy of 5-FU in lab
animals.
|
Thus,
eniluracil has the potential to make 5-FU more effective and better
tolerated.
Eniluracil:
Clinical Development
Eniluracil
plus 5-FU was previously being developed by GlaxoSmithKline. Although the
therapy was successful in Phase I and Phase II clinical trials, it tended to
produce less antitumor activity than the control therapy in two Phase III
trials. Development was subsequently stopped.
We
believe that the dose and schedule used in the previous GlaxoSmithKline Phase
III trials may not have been optimal. Preclinical studies have shown that when
eniluracil is present in high ratios to 5-FU, it decreases the antitumor
activity. In the GlaxoSmithKline Phase III trials, the ratio of eniluracil to
5-FU was 10 to 1.
Our Chief
Scientific Officer, Dr. Spector, is the principal inventor of eniluracil/5-FU
treatment and has over 20 years of experience with eniluracil. Dr. Spector has
created a revised protocol designed to avoid the problems of the earlier
GlaxoSmithKline Phase III trials as well as those encountered in our more recent
trials.
STS
STS is
currently marketed for use in humans as part of a treatment for cyanide
poisoning. We have licensed from Oregon Health & Science University
intellectual property rights for the use of STS as a chemoprotectant, and are
developing STS as a protectant against the hearing loss often caused by
platinum-based anti-cancer agents, in both children and adults. Preclinical and
clinical studies conducted by Oregon Health & Science University and others
have indicated that STS can effectively reduce the incidence of hearing loss
caused by platinum-based anti-cancer agents. We have received Orphan Drug
Designation in the United States for the use of STS in the prevention of
platinum-induced ototoxicity in pediatric patients.
Hearing
loss among children receiving platinum-based chemotherapy is frequent, permanent
and often severely disabling. The incidence of hearing loss in these children
depends upon the dose and duration of chemotherapy, and many of these children
require lifelong hearing aids. There is currently no established preventive
agent for this hearing loss and only expensive, technically difficult and
sub-optimal cochlear (inner ear) implants have been shown to provide some
benefit. In addition, adults undergoing chemotherapy for several common
malignancies, including ovarian cancer, testicular cancer, and particularly head
and neck cancer and brain cancer, often receive intensive platinum-based therapy
and may experience severe, irreversible hearing loss, particularly in the high
frequencies.
Investigators
at Oregon Health & Science University have conducted Phase I and Phase II
studies which have shown STS reduces the hearing loss associated with
platinum-based chemotherapy. In one study at Oregon Health & Science
University, the need for hearing aids to correct high frequency hearing loss was
reduced from about 50% to less than 5%.
In
October 2007, we announced that our collaborative partner, the International
Childhood Liver Tumour Strategy Group, known as SIOPEL, a multi-disciplinary
group of specialists under the umbrella of the International Society of
Pediatric Oncology, had launched a randomized Phase III clinical trial to
investigate whether STS reduces hearing loss in children receiving cisplatin, a
platinum-based chemotherapy often used in children. The study initially opened
in the United Kingdom and will include SIOPEL centers in up to 33 additional
further countries. The clinical trial is expected to enroll approximately 100
children with liver (hepatoblastoma) cancer. Patients will receive cisplatin
alone or cisplatin plus STS. The study, which is being coordinated through the
Children’s Cancer and Leukemia Group in the United Kingdom, is intended to
compare the level of hearing loss associated with cisplatin alone versus the
combination of cisplatin plus STS, as well as the safety, tolerability and
anti-tumor activity in both arms of the study. Under the terms of our agreement,
SIOPEL will conduct and fund the clinical activity and we will provide drug,
drug distribution and pharmacovigilance, or safety monitoring, for the
study.
40
In March
2008, we announced the activation of a Phase III trial with STS to prevent
hearing loss in children receiving cisplatin-based chemotherapy in collaboration
with the Children’s Oncology Group. The goal of this Phase III study is to
evaluate in a multi-centered, randomized trial whether STS is an effective and
safe means of preventing hearing loss in children receiving cisplatin-based
chemotherapy for newly diagnosed germ cell, liver (hepatoblastoma), brain
(medulloblastoma), nerve tissue (neuroblastoma) or bone (osteosarcoma) cancers.
Eligible children, one to eighteen years of age, who are to receive cisplatin
according to their disease-specific regimen and, upon enrollment in this study,
will be randomized to receive STS or not. Efficacy of STS will be determined
through comparison of hearing sensitivity at follow-up relative to baseline
measurements using standard audiometric techniques. The trial is expected to
enroll up to 120 patients in up to 230 Children’s Oncology Group centers in the
United States, Canada, Australia and Europe. The Children’s Oncology Group will
fund the clinical activities for the study and we will be responsible for
providing the drug, drug distribution and pharmacovigilance, or safety
monitoring, for the study.
ADH-1
ADH-1 is
a small peptide molecule that selectively targets N-cadherin, a protein present
on certain tumor cells and tumor blood vessels. N-cadherin is found throughout
the body and, like other cadherins, is important in cell-to-cell binding and in
maintaining the structural integrity of cells. ADH-1 appears to inhibit the
binding of the N-cadherin protein molecules to each other. Within tumors, the
N-cadherin protein can be found on the tumor cells themselves and on the blood
vessels that supply blood to the tumor. Therefore, N-cadherin is a single target
where antagonizing N-cadherin binding with ADH-1 could have a dual effect; both
on the tumor cells directly and on the tumor blood vessels.
Intellectual
Property
Patents
are important to developing and protecting our competitive position. Our general
policy is to seek patent protection in the United States, major European
countries, Japan, Canada and other jurisdictions as appropriate for our
compounds and methods. U.S. patents, as well as most foreign patents, are
generally effective for 20 years from the date the earliest (priority)
application was filed; however, U.S. patents that issue on applications filed
before June 8, 1995 may be effective until 17 years from the issue date, if that
is later than the 20 year date. In some cases, the patent term may be extended
to recapture a portion of the term lost during FDA regulatory review or because
of U.S. Patent and Trademark Office, or USPTO, delays in prosecuting the
application. The duration of foreign patents varies similarly, in accordance
with local law.
Currently,
we own or have licensed 62 issued patents world-wide. We have been issued 25
U.S. and one foreign patent, and we have 21 patents pending throughout the
world. We have licensed from GlaxoSmithKline 9 U.S. and 17 foreign patents, and
we have licensed from Oregon Health and Science University one U.S. and 9
foreign patents, with an additional 5 patents pending.
In
addition, periods of marketing exclusivity for STS may also be possible in the
United States under orphan drug status. We obtained U.S. Orphan Drug Designation
for the use of STS in the prevention of platinum-induced ototoxicity in
pediatric patients in 2004.
Our
success is significantly dependent on our ability to obtain and maintain patent
protection for our product candidates, both in the United States and abroad. The
patent position of biotechnology and pharmaceutical companies, in general, is
highly uncertain and involves complex legal and factual questions, which often
results in apparent inconsistencies regarding the breadth of claims allowed and
general uncertainty as to their legal interpretation and enforceability.
Further, some of our principal candidates, including STS, are based on
previously known compounds, and candidates or products that we develop in the
future may include or be based on the same or other compounds owned or produced
by other parties, some or all of which may not be subject to effective patent
protection. In addition, regimens that we may develop for the administration of
pharmaceuticals, such as specifications for the frequency, timing and amount of
dosages, may not be patentable. Accordingly, our patent applications may not
result in patents being issued and issued patents may not afford effective
protection. In addition, products or processes that we develop may turn out to
be covered by third party patents, in which case we may require a license under
such patents if we intend to continue the development of those products or
processes.
41
Our
patent position and proprietary rights are subject to certain risks and
uncertainties. Please read the “Risk Factors” section of this registration
statement for information about certain risks and uncertainties that may affect
our patent position and proprietary rights.
We also
rely upon unpatented confidential information to remain competitive. We protect
such information principally through confidentiality agreements with our
employees, consultants, outside scientific collaborators, and other advisers. In
the case of our employees, these agreements also provide, in compliance with
relevant law, that inventions and other intellectual property conceived by such
employees during their employment shall be our exclusive property.
Corporate
Relationships
License
Agreement with Oregon Health & Science University
In
November 2002, we acquired an exclusive license agreement with Oregon Health
& Science University through our acquisition of Oxiquant Inc., which had
entered into the license agreement with Oregon Health & Science University
in September 2002. Pursuant to the license agreement, Oregon Health &
Science University granted us an exclusive worldwide license to intellectual
property directed to thiol-based compounds including STS and their use in
oncology. In consideration, Oregon Health & Science University was issued
250,250 shares of common stock of Oxiquant that were subsequently converted upon
the acquisition of Oxiquant into 382,514 shares of Adherex common stock, and
warrants to purchase shares of Adherex common stock that subsequently expired in
2007. In addition, we made the following milestone payments: (i) $50,000 upon
completion of Phase I clinical trials, (ii) $200,000 upon completion of Phase II
clinical trials, (iii) $500,000 upon completion of Phase III clinical trials. We
will also be liable for an additional milestone payment of $250,000 upon the
first commercial sale for any licensed product. We are also required to pay
Oregon Health & Science University a 2.5% royalty on net sales of any
licensed products and a 15% royalty on any consideration received from
sublicensing of the licensed technology.
The term
of the license agreement expires on the date of the last to expire claim(s)
covered in the patents licensed to us, unless earlier terminated as provided in
the agreement. The agreement is terminable by Oregon Health & Science
University in the event of a material breach of the agreement by us or our
sublicensees after 60 days prior written notice from Oregon Health & Science
University. We have the right to terminate the agreement at any time upon 60
days prior written notice and payment of all fees due to Oregon Health &
Science University under the agreement.
Development
and License Agreement with GlaxoSmithKline
On
July 14, 2005, we entered into a development and license agreement with
GlaxoSmithKline, or GSK. The agreement included the in-license by our
Company of GSK’s oncology product, eniluracil, and an option for GSK to license
ADH-1. As part of the transaction, GSK invested $3.0 million in our
Company's common stock. On October 11, 2006, the GSK option to license
ADH-1 expired unexercised. Under the terms of the agreement relating to
eniluracil, we received an exclusive license to develop eniluracil for all
indications and GSK retained options to buy-back and assume development of the
compound at various points in time.
On
March 1, 2007, the GSK agreement was amended and we purchased all of GSK’s
remaining buy-back options for a fee of $1.0 million. As a result of the
amendment to the GSK agreement, we now may be required to pay GSK development
and sales milestones and royalties. Specifically, if we file a New Drug
Application, or NDA, with the Food and Drug Administration, or FDA, we may be
required to pay development milestones of $5.0 million to GSK.
Additionally, depending upon whether the NDA is approved by the FDA and whether
eniluracil becomes a commercial success, we may be required to pay up to an
additional $70.0 million in development and sales milestones for the initially
approved indication, plus royalties in the low-double digit range based on
annual net sales. If we pursue other indications, we may also be required
to pay up to an additional $15 million to GSK for each FDA-approved
indication. The GSK agreement continues until terminated by either party in the
event of an uncured breach by the breaching party after 60 days prior
written notice.
42
Collaboration
Agreement with McGill University
In
February 2001, we entered into a general collaboration agreement with McGill
University. Pursuant to the terms of the agreement, McGill granted us a 27-year
exclusive worldwide license to develop, use and market certain cell adhesion
technology and compounds. In particular, McGill granted us an exclusive
worldwide license to U.S. Patent 6,031,072 covering specific compounds including
ADH-1 (composition of matter), U.S. Patent 6,551,994 covering alpha-catenin and
beta-catenin inhibiting compounds, related international filings under the
Patent Cooperation Treaty, or PCT, continuations and certain other patents and
patent applications.
In
consideration, we issued 508,416 shares of our common stock to McGill. We also
agreed to pay to McGill future royalties of 2% of any gross revenues from the
use of the technology and compounds. In addition, we agreed to fund research at
McGill over a period of 10 years totaling CAD$3.3 million. Annual funding
commenced in 2001, the first year of the agreement, for a total of CAD$200,000,
and increases annually by 10% through 2010, when the required annual funding
reaches CAD$500,000.
The
general collaboration agreement with McGill University was terminated on
November 19, 2009. All remaining costs were forgiven, and we returned all
licenses granted in the agreement to McGill. We continue to hold various
ADH-1method of use and small molecule patents that are property of
Adherex.
Competition
Competition
in the biotechnology and pharmaceutical industries is intense. We expect that if
any of our product candidates achieve regulatory approval for sale, they will
compete on the basis of drug efficacy, safety, patient convenience, reliability,
ease of manufacture, price, marketing, distribution and patent protection, among
other variables. Our competitors may develop technologies or drugs that are more
effective, safer or more affordable than any we may develop.
There are
a number of different approaches to the development of therapeutics for the
treatment of cancer that are currently being used and studied. These approaches
include: (i) surgery to excise the cancerous tissue; (ii) radiation therapy,
which attacks cancerous cells but does not easily distinguish between healthy
and diseased cells; (iii) chemotherapy, which works by preventing a cancerous
cell from dividing or by killing cells that quickly divide; (iv) immunotherapy,
which stimulates the body’s immune system to respond to the disease; and (v)
hormone therapy, which may slow the growth of cancer cells or even kill
them.
We are
aware of a number of companies engaged in the research, development and testing
of new cancer therapies or means of increasing the effectiveness of existing
therapies, including, among many others, Abbott Laboratories, Amgen, Antisoma,
AstraZeneca, Bayer, Bristol-Myers Squibb, EntreMed, Merck & Co., NeoPharm,
Novartis, Johnson & Johnson, OSI Pharmaceuticals, Onyx, OXiGENE, Peregrine
Pharmaceuticals, Pfizer, Roche, Taiho and Sanofi-Aventis. Some of these
companies have products that have already received, or are in the process of
receiving, regulatory approval or are in later stages of clinical development
than our products. Many of them have much greater financial resources than we
do. Many of these companies have marketed drugs or are developing targeted
cancer therapeutics which, depending upon the mechanism of action of such
agents, could be viewed as competitors.
There are
several potential therapies that may be competitive to eniluracil, including
capecitabine (Xeloda®) which is an oral pro-drug of 5-FU marketed by Roche that
is converted to 5-FU following absorption from the gastrointestinal tract.
Capecitabine is approved by the FDA and many other regulatory agencies worldwide
for use in breast and colorectal cancer, but eniluracil/5-FU has a potential
competitive advantage in having minimal hand foot syndrome compared to the up to
60% incidence with Xeloda®. Hand foot syndrome is a major complication of the
use of Xeloda® and there is currently no adequate treatment, with most
physicians resorting to reducing the starting dosage of Xeloda®.
43
5-FU is
normally rapidly metabolized and broken down by the enzyme DPD. Eniluracil is an
irreversible inhibitor of DPD and its use with 5-FU leads to prolonged and
elevated levels of 5-FU. Uracil is a competitive inhibitor of DPD. Although not
FDA approved as a therapeutic agent, uracil has been used with 5-FU and tegafur,
a reversible DPD inhibitor (5-chloro-2, 4-dihydrozypyidine, or CDHP) for the
treatment of certain cancers. UFT is an orally active combination of uracil and
tegafur that is available in some international markets through Merck
KGaA.
S-1,
which is marketed by Taiho in Japan for gastric cancer, colorectal cancer, head
and neck cancer, non-small cell lung cancer, and inoperable or recurrent breast
cancer, is an orally active combination of tegafur and oxonic acid, an inhibitor
of phosphoribosyl pyrophosphate transferase, an enzyme that reduces the
incorporation of 5-FU into RNA. Both S-1 and UFT have been shown to have very
low levels of hand foot syndrome, but because they are reversible inhibitors of
DPD, these products would not be expected to be as successful at targeting new
product indications where DPD levels are intrinsically high, such as
hepatocellular cancer, compared to an irreversible DPD inhibitor like
eniluracil. Other reversible DPD inhibitors in development include a Roche
molecule, Ro 09-4889, which has completed a Phase I clinical study. To our
knowledge, no other irreversible DPD inhibitors are currently in
development.
We are
not aware of any commercially available agents that reduce the incidence of
hearing loss associated with the use of platinum-based anti-cancer agents, for
which purpose we are developing STS. There are several potential competitive
agents with activity in preclinical or limited clinical settings. These include:
D-methionine, an amino acid that has been shown to protect against hearing loss
in experimental settings but was demonstrated to be inferior to STS in
comparative studies; SPI-3005, an oral agent primarily being developed by Sound
Pharmaceuticals for noise and age-related hearing loss but in early Phase I
trials for chemotherapy related hearing loss, which mimics glutathione
peroxidase and induces the intracellular induction of glutathione;
N-acetylcysteine and amifostine, which have shown effectiveness (but less than
STS) in experimental systems; and Vitamin E, salicylate and tiopronin, which
have all demonstrated moderate activity in rat models to protect against
cisplatin-induced ototoxicity, but no clinical trials have been performed.
Cochlear implants, which are small electronic devices that are surgically placed
in the inner ear to assist with certain types of deafness, are utilized to offer
some relief but are often suboptimal.
Many
chemotherapeutic agents are currently available and numerous others are being
developed. Any chemotherapeutic products that we develop may not be able to
compete effectively with existing or future chemotherapeutic agents. Our
competitors might obtain regulatory approval for their drug candidates sooner
than we do, or their drugs may prove to be more effective than ours. However,
cancer as a disease is not currently controlled by any one anti-cancer agent,
and there is typically a need for several agents at any one time and over
time.
Many of
our existing or potential competitors have substantially greater financial,
technical and human resources than we do and may be better equipped to develop,
manufacture and market products. In addition, many of these competitors have
extensive experience with preclinical testing and human clinical trials and in
obtaining regulatory approvals. In addition, many of the smaller companies that
compete with us have formed collaborative relationships with large, established
companies to support the research, development, clinical trials and
commercialization of any products that they may develop . We may rely on third parties
to commercialize the products we develop, and our success will depend in large
part on the efforts and competitive merit of these collaborative partners.
Academic institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for research, clinical development and marketing of
products similar to those we seek to develop. These companies and institutions
compete with us in recruiting and retaining qualified scientific and management
personnel as well as in acquiring technologies complementary to our projects.
The existence of competitive products, including products or treatments of which
we are not aware, or products or treatments that may be developed in the future,
may adversely affect the marketability of any products that we may
develop.
44
Government
Regulation
The
production and manufacture of our product candidates and our research and
development activities are subject to significant regulation for safety,
efficacy and quality by various governmental authorities around the world.
Before new pharmaceutical products may be sold in the U.S. and other countries,
clinical trials of the products must be conducted and the results submitted to
appropriate regulatory agencies for approval. Clinical trial programs must
establish efficacy, determine an appropriate dose and regimen, and define the
conditions for safe use. This is a high-risk process that requires stepwise
clinical studies in which the candidate product must successfully meet
predetermined endpoints. In the U.S., the results of the preclinical and
clinical testing of a product are then submitted to the FDA in the form of a
Biologics License Application or a New Drug Application. In response to these
submissions, the FDA may grant marketing approval, request additional
information or deny the application if it determines the application does not
provide an adequate basis for approval. Similar submissions are required by
authorities in other jurisdictions who independently assess the product and may
reach the same or different conclusions.
The
receipt of regulatory approval often takes a number of years, involves the
expenditure of substantial resources and depends on a number of factors,
including the severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. On occasion, regulatory authorities may require larger or additional
studies, leading to unanticipated delay or expense. Even after initial approval
from the FDA or other regulatory agencies has been obtained, further clinical
trials may be required to provide additional data on safety and effectiveness.
Additional trials are required to gain clearance for the use of a product as a
treatment for indications other than those initially approved. Furthermore, the
FDA and other regulatory agencies require companies to disclose clinical trial
results. Failure to disclose such results within applicable time periods could
result in penalties, including civil monetary penalties.
In
Canada, these activities are subject to regulation by Health Canada’s
Therapeutic Products Directorate, or TPD, and the rules and regulations
promulgated under the Food and Drug Act. In the United States, drugs and
biological products are subject to regulation by the FDA. The FDA requires
licensing of manufacturing and contract research facilities, carefully
controlled research and testing of products and governmental review and approval
of results prior to marketing therapeutic products. Additionally, the FDA
requires adherence to “Good Laboratory Practices” as well as “Good Clinical
Practices” during clinical testing and “Good Manufacturing Practices” and
adherence to labeling and supply controls. The systems of new drug approvals in
Canada and the United States are substantially similar, and are generally
considered to be among the most rigorous in the world.
Generally,
the steps required for drug approval in Canada and the United States,
specifically in cancer related therapies, include:
·
|
Preclinical Studies :
Preclinical studies, also known as non-clinical studies, primarily involve
evaluations of pharmacology, toxic effects, pharmacokinetics and
metabolism of a drug in animals to provide evidence of the relative safety
and bioavailability of the drug prior to its administration to humans in
clinical studies. A typical program of preclinical studies takes 18 to 24
months to complete. The results of the preclinical studies as well as
information related to the chemistry and comprehensive descriptions of
proposed human clinical studies are then submitted as part of the
Investigational New Drug, application to the FDA, a Clinical Trial
Application to the TPD, or similar submission to other foreign regulatory
bodies. This is necessary in Canada, the United States and most other
countries prior to undertaking clinical studies. Additional preclinical
studies are conducted during clinical development to further characterize
the toxic effects of a drug prior to submitting a marketing
application.
|
·
|
Phase I Clinical Trials
: Most Phase I clinical trials take approximately one year to complete and
are usually conducted on a small number of healthy human subjects to
evaluate the drug’s safety, tolerability and pharmacokinetics. In some
cases, such as cancer indications, Phase I clinical trials are conducted
in patients rather than healthy volunteers.
|
·
|
Phase II Clinical
Trials : Phase II clinical trials typically take one to two years
to complete and are generally carried out on a relatively small number of
patients, generally between 15 and 50, in a specific setting of targeted
disease or medical condition, in order to provide an estimate of the
drug’s effectiveness in that specific setting. This phase also provides
additional safety data and serves to identify possible common short-term
side effects and risks in a somewhat larger group of patients. Phase II
testing frequently relates to a specific disease, such as breast or lung
cancer. Some contemporary methods of developing drugs, particularly
molecularly targeted therapies, do not require broad testing in specific
diseases, and instead permit testing in subsets of patients expressing the
particular marker. In some cases, such as cancer indications, the company
sponsoring the new drug may submit a marketing application to seek
accelerated approval of the drug based on evidence of the drug’s effect on
a “surrogate endpoint” from Phase II clinical trials. A surrogate
endpoint is a laboratory finding or physical sign that may not be a direct
measurement of how a patient feels, functions or survives, but is still
considered likely to predict therapeutic benefit for the patient. If
accelerated approval is received, the company sponsoring the new drug must
continue testing to demonstrate that the drug indeed provides therapeutic
benefit to the patient.
|
45
·
|
Phase III Clinical
Trials : Phase III clinical trials typically take two to four years
to complete and involve tests on a much larger population of patients
suffering from the targeted condition or disease. These studies
involve conducting controlled testing and/or uncontrolled testing in an
expanded patient population, numbering several hundred to several thousand
patients, at separate test sites, known as multi-center trials, to
establish clinical safety and effectiveness. These trials also
generate information from which the overall benefit-risk relationship
relating to the drug can be determined and provide a basis for drug
labeling. Phase III trials are generally the most time consuming and
expensive part of a clinical trial program. In some instances,
governmental authorities, such as the FDA, will allow a single Phase III
clinical trial to serve as a pivotal efficacy trial to support a Marketing
Application.
|
·
|
Marketing Application :
Upon completion of Phase III clinical trials, the pharmaceutical company
sponsoring the new drug assembles all the chemistry, preclinical and
clinical data and submits it to the TPD or the FDA as part of a New Drug
Submission in Canada or a New Drug Application, in the United
States. The marketing application is then reviewed by the regulatory
body for approval to market the product. The review process
generally takes twelve to eighteen
months.
|
Any
clinical trials that we conduct may not be successfully completed, either in a
satisfactory time period or at all. The typical time periods described
above may vary substantially and may be materially longer. In addition,
the FDA and its counterparts in other countries have considerable discretion to
discontinue trials if they become aware of any significant safety issues or
convincing evidence that a therapy is not effective for the indication being
tested. It is possible the FDA and its counterparts in other countries may
not (i) allow clinical trials to proceed at any time after receiving an
Investigational New Drug, (ii) allow further clinical development phases after
authorizing a previous phase, or (iii) approve marketing of a drug after the
completion of clinical trials.
While
European, U.S. and Canadian regulatory systems require that medical products be
safe, effective, and manufactured according to high quality standards, the drug
approval process in Europe differs from that in the United States and Canada and
may require us to perform additional preclinical or clinical testing regardless
of whether FDA or TPD approval has been obtained. The amount of time
required to obtain necessary approvals may be longer or shorter than that
required for FDA or TPD approval. European Union Regulations and
Directives generally classify health care products either as medicinal products,
medical devices or in vitro diagnostics. For medicinal products, marketing
approval may be sought using either the centralized procedure of the European
Agency for the Evaluation of Medicinal Products, or EMEA, or the decentralized,
mutual recognition process. The centralized procedure, which is mandatory
for some biotechnology derived products, results in an approval recommendation
from the EMEA to all member states, while the European Union mutual recognition
process involves country by country approval.
Good
Clinical Practices
The FDA
and other regulatory agencies promulgate regulations and standards, commonly
referred to as current Good Clinical Practices for designing, conducting,
monitoring, auditing and reporting the results of clinical trials to ensure that
the data and results are accurate and that the trial participants are adequately
protected. The FDA and other regulatory agencies enforce Good Clinical Practices
through periodic inspections of trial sponsors, principal investigators and
trial sites. If our study sites fail to comply with applicable Good Clinical
Practices, the clinical data generated in our clinical trials may be deemed
unreliable and relevant regulatory agencies may require us to perform additional
clinical trials before approving our marketing applications.
46
Good
Manufacturing Practices
The FDA
and other regulatory agencies regulate and inspect equipment, facilities and
processes used in the manufacture of pharmaceutical and biologic products prior
to approving a product. If, after receiving approval from regulatory agencies, a
company makes a material change in manufacturing equipment, location or process,
additional regulatory review and approval may be required. All facilities
and manufacturing techniques that may be used for the manufacture of our
products must comply with applicable regulations governing the production of
pharmaceutical products known as "Good Manufacturing Practices."
Orphan
Drug Act
Under the
U.S. Orphan Drug Act, the FDA may grant orphan drug designation to drugs
intended to treat a “rare disease or condition,” which generally is a disease or
condition that affects fewer than 200,000 individuals in the U.S. If a product
which has an orphan drug designation subsequently receives the first FDA
approval for the indication for which it has such designation, the product is
entitled to orphan exclusivity, i.e., the FDA may not approve any other
applications to market the same drug for the same indication for a period of
seven years following marketing approval, except in certain very limited
circumstances, such as if the later product is shown to be clinically superior
to the orphan product. Legislation similar to the U.S. Orphan Drug Act has been
enacted in other countries, including within the European Union.
Other
Laws
Our
present and future business has been and will continue to be subject to various
other laws and regulations. Various laws, regulations and recommendations
relating to safe working conditions, laboratory practices, the experimental use
of animals, and the purchase, storage, movement, import and export and use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with our research
work are or may be applicable to our activities. Certain agreements entered into
by us involving exclusive license rights may be subject to national or
supranational antitrust regulatory control, the effect of which cannot be
predicted. The extent of government regulation, which might result from future
legislation or administrative action, cannot accurately be
predicted.
Research
and Development
Our
research and development efforts have been focused on the development of cancer
therapeutics and our cadherin technology platform and currently include
eniluracil and STS.
We have
established relationships with contract research organizations, universities and
other institutions, which we utilize to perform many of the day-to-day
activities associated with our drug development. Where possible, we have
sought to include leading scientific investigators and advisors to enhance our
internal capabilities. Research and development issues are reviewed
internally by our executive management and supporting scientific
staff.
Research
and development expenses totaled $2.1 million for the fiscal year ended December
31, 2009 and $10.4 million for the fiscal year ended December 31,
2008.
Our
product candidates are in various stages of development and still require
significant, time-consuming and costly research and development, testing and
regulatory clearances. In developing our product candidates, we are
subject to risks of failure that are inherent in the development of products
based on innovative technologies. For example, it is possible that any or
all of these products will be ineffective or toxic, or will otherwise fail to
receive the necessary regulatory clearances. There is a risk that our product
candidates will be uneconomical to manufacture or market or will not achieve
market acceptance. There is also a risk that third parties may hold proprietary
rights that preclude us from marketing our product candidates or that others
will market a superior or equivalent product. As a result of these
factors, we are unable to accurately estimate the nature, timing and future
costs necessary to complete the development of these product candidates. In
addition, we are unable to reasonably estimate the period when material net cash
inflows could commence from the sale, licensing or commercialization of such
product candidates, if ever.
47
Employees
We
currently employ three employees, all of which are
full time, and we engage the services of non-employee
consultants.
DESCRIPTION
OF PROPERTY
We
lease one facility which has approximately 1,100 square feet of office space in
Chapel Hill, North Carolina. The current monthly lease payments are
approximately $2,000 and the lease expired in January 2011. We are
currently a month-to-month tenant and are exploring reduced lease
payment and terms.
LEGAL
PROCEEDINGS
We may
be involved from time to time in ordinary litigation, negotiation and settlement
matters that will not have a material effect on our operations or finances. We
are not aware of any pending or threatened litigation against us or our officers
and directors in their capacity as such that could have a material impact on our
operations or finances
MARKET
PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED
STOCKHOLDER
MATTERS
Pink Sheets-Over-the-Counter
(in U.S. dollars)
|
Toronto Stock Exchange
(in Canadian dollars)
|
|||||||||||||||||||||||
High $
|
Low $
|
Volume
|
High $
|
Low $
|
Volume
|
|||||||||||||||||||
Fiscal 2010:
|
||||||||||||||||||||||||
Quarter ended
09/30/10
|
$
|
0.04
|
$
|
0.03
|
22,214
|
$
|
0.05
|
$
|
0.03
|
8,189
|
||||||||||||||
Quarter ended
06/30/10
|
0.06
|
0.03
|
59,245
|
0.06
|
0.03
|
58,890
|
||||||||||||||||||
Quarter ended
03/31/10
|
0.06
|
0.03
|
48,750
|
0.06
|
0.04
|
21,081
|
||||||||||||||||||
Fiscal 2009:
|
||||||||||||||||||||||||
Quarter ended
12/31/09
|
$
|
0.07
|
$
|
0.04
|
41,135
|
$
|
0.07
|
$
|
0.04
|
24,676
|
||||||||||||||
Quarter ended
09/30/09
|
0.08
|
0.03
|
162,329
|
0.09
|
0.03
|
50,638
|
||||||||||||||||||
Quarter ended
06/30/09
|
0.04
|
0.02
|
106,323
|
0.06
|
0.03
|
97,452
|
||||||||||||||||||
Quarter ended
03/31/09
|
0.04
|
0.01
|
73,131
|
0.07
|
0.02
|
30,298
|
||||||||||||||||||
Fiscal 2008:
|
||||||||||||||||||||||||
Quarter ended
12/31/08
|
$
|
0.09
|
$
|
0.02
|
309,656
|
$
|
0.11
|
$
|
0.02
|
91,302
|
||||||||||||||
Quarter ended
09/30/08
|
0.23
|
0.09
|
110,686
|
0.20
|
0.10
|
26,653
|
||||||||||||||||||
Quarter ended
06/30/08
|
0.37
|
0.21
|
109,689
|
0.35
|
0.21
|
30,382
|
||||||||||||||||||
Quarter ended
03/31/08
|
0.40
|
0.30
|
61,708
|
0.39
|
0.26
|
24,969
|
Market
Information
Our
common stock traded on currently trades on the Pink Sheets under the trading
symbol “ADHXF” and previously under the trading symbol “ADH” from November 12,
2004 until January 29, 2009, and has traded on the TSX, under the trading symbol
“AHX” since June 5, 2001. In December 2008, we received notice from the
AMEX that we were not in compliance with certain continued listing standards as
set forth in Part 10 of the NYSE Alternext US, LLC Company Guide. On
January 20, 2009, we voluntarily filed to delist our common stock from the AMEX
and on January 30, 2009, we no longer traded on the AMEX. The following
table sets forth the quarterly high and low market closing prices, and average
daily trading volume on the AMEX and the TSX, for the two most recent full
financial years:
48
As of
February 8, 2011, the last reported sale on the TSX was
CAD$0.06 per share and the last reported sale on the over the counter markets in
the U.S. was $0.055 per share.
Holders
As of
February 2, 2011, there were approximately 84 shareholders of
record of our common stock, one of which was Cede & Co., a nominee for
Depository Trust Company, or DTC, and one of which was The Canadian Depository
for Securities Limited, or CDS. All of our common stock held by brokerage
firms, banks and other financial institutions in the U.S. as nominees for
beneficial owners are considered to be held of record by Cede & Co.
Shares of common stock held in respect of brokerage firms, banks and other
financial institutions located in Canada are considered to be held by CDS.
Cede & Co. and CDS are each considered to be one shareholder of
record.
Dividends
We have
never declared or paid cash dividends on our common stock. We currently
expect to retain future earnings, if any, for use in the operation and expansion
of business and do not anticipate paying any cash dividends in the foreseeable
future.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
Cautionary
Statement
The
discussion below contains forward-looking statements regarding our financial
condition and our results of operations that are based upon our annual
consolidated financial statements, which have been prepared in accordance with
generally accepted accounting principles within the United States, or U.S.
GAAP, and applicable U.S. Securities and Exchange Commission, or SEC,
regulations for financial information. The preparation of these financial
statements also conform in all material respects with generally accepted
accounting principles in Canada, or Canadian GAAP, except as described in Note
10 in our annual consolidated financial statements for the year ended December
31, 2009. The preparation of these financial statements requires our
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, income and expenses, and related disclosure of contingent
assets and liabilities. We evaluate our estimates on an ongoing
basis. Our estimates are based on historical experience and on various
other assumptions that we believe to be reasonable.
Overview
In
December 2008 we received notice from the American Stock Exchange that we were
not in compliance with Section 1003(a)(ii) of its Company Guide, because our
stockholders’ equity was below $6 million and we incurred losses from continued
operation and net losses in the five most recent fiscal years. On January
29, 2009, we voluntarily filed to delist our common stock from the American
Stock Exchange and effective January 29, 2009 our common stock was no longer
traded on the American Stock Exchange. As a result, any trading of our
common stock in the U.S. must now be conducted in the over-the-counter markets,
on the Pink Sheets. Our common stock continues to trade on the Toronto
Stock Exchange. The Toronto Stock Exchange also has continued listing
standards, including minimum market capitalization and other requirements, that
we might not meet in the future, particularly if the price of our common stock
does not increase or we are unable to raise capital to continue our
operations. On April 22, 2010, the Toronto Stock Exchange issued an
official delisting review of our common stock. On August 18, 2010, the Toronto
Stock Exchange announced that it had completed its review of the common shares
of the Company and had determined that the Company meets TSX's continued listing
requirements.
We
have not received and do not expect to have significant revenues from our
product candidates until we are either able to sell our product candidates after
obtaining applicable regulatory approvals or we establish collaborations that
provide us with up-front payments, licensing fees, milestone payments, royalties
or other revenue. We experienced net losses of approximately $1.2
million for the nine months ended September 30 , 2010 and $3.2 million for the nine months ended
September 30 , 2009. We experienced net losses of approximately $3.0
million for the twelve months ended December 31, 2009 and $13.6 million
for the twelve months ended December 31, 2008. As of September 30,
2010, our deficit accumulated during development stage was approximately $102.2
million. As of December 31, 2009, our deficit accumulated during
development stage was approximately $101.0 million.
49
Our
operating expenses will depend on many factors, including the progress of our
drug development efforts and the implementation of further cost reduction
measures. Our research and development expenses, which include expenses
associated with our clinical trials, drug manufacturing to support clinical
programs, salaries for research and development personnel, stock-based
compensation, consulting fees, sponsored research costs, toxicology studies,
license fees, milestone payments, and other fees and costs related to the
development of product candidates, will depend on the availability of financial
resources, the results of our clinical trials and any directives from regulatory
agencies, which are difficult to predict. Our general and administration
expenses include expenses associated with the compensation of employees,
stock-based compensation, professional fees, consulting fees, insurance and
other administrative matters associated with our facilities in Chapel Hill,
North Carolina in support of our drug development programs.
Results
of Operations
We
have financed our operations since inception on September 3, 1996 through the
sale of equity and debt securities and have raised gross proceeds totaling
approximately $86.0 million through September 30, 2010. We have incurred
net losses and negative cash flow from operations each year, and we had an
accumulated deficit of approximately $102.2 million at September 30, 2010.
We have not generated any revenues to date through the sale of products.
We do not expect to have significant revenues or income, other than interest
income, until we are able to sell our product candidates after obtaining
applicable regulatory approvals or we establish collaborations that provide us
with up-front payments, licensing fees, milestone payments, royalties or other
payments.
Our
results of operations for the nine months ended September 30, 2010 versus the
nine months ended September 30, 2009 were as follows:
In thousands of U.S. Dollars
|
Nine
Months
Ended
September
30,
2010
|
%
|
Nine
Months
Ended
September
30,
2009
|
%
|
Change
|
|||||||||||||||
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||
Operating
expenses:
|
||||||||||||||||||||
Research
and development
|
419
|
11
|
%
|
1,976
|
60
|
%
|
(1,557
|
)
|
||||||||||||
(Gain)
on deferred lease inducements
|
-
|
-
|
(323
|
) |
(10
|
)% |
323
|
|||||||||||||
Loss
on impairment of assets held for sale
|
-
|
-
|
386
|
12
|
% |
(386
|
) | |||||||||||||
General
and administration
|
3,369
|
89
|
%
|
1,276
|
38
|
%
|
2,093
|
|||||||||||||
Total
operating expenses
|
3,788
|
100
|
%
|
3,315
|
100
|
%
|
473
|
|||||||||||||
Loss
from operations
|
(3,788
|
)
|
(3,315
|
)
|
(473
|
)
|
||||||||||||||
Other
Income
|
29
|
50
|
(21
|
) | ||||||||||||||||
Unrealized
gain on derivative liability
|
2,498
|
2,498
|
||||||||||||||||||
Interest
income
|
21
|
46
|
(25
|
)
|
||||||||||||||||
Net
loss and total comprehensive loss
|
$
|
(1,240
|
)
|
$
|
(3,219
|
)
|
$
|
1,979
|
·
|
Total
operating expense increased in the nine months ended September 30, 2010,
as compared to the same period in 2009 primarily due to an increase in
stock based compensation, which was partially offset by a decrease in our
overall clinical development studies and reductions in our employee
headcount effective April 2009. The Company recorded stock based
compensation of $2.4 million for the nine months ended September 30, 2010
as compared to $0.5 million in the same period in
2009.
|
50
·
|
We
recorded a loss on impairment of assets related to the write-down of
certain assets value held for sale and leasehold improvements during the
three months ended March 31,
2009.
|
·
|
The
decrease in interest income in the nine months ended September 30, 2010,
as compared to the same period in 2009, is due to less cash on hand as
compared to the same period in
2009.
|
Our
results of operations for Fiscal 2009 versus Fiscal 2008 were as
follows:
In thousands of U.S. Dollars
|
Fiscal
2009
|
%
|
Fiscal
2008
|
%
|
Increase
(Decrease)
|
|||||||||||||||
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||
Operating
expenses:
|
||||||||||||||||||||
Research
and development
|
2,113
|
66
|
%
|
10,366
|
75
|
%
|
(8,253
|
)
|
||||||||||||
Impairment
of Capital Assets
|
386
|
12
|
%
|
-
|
386
|
|||||||||||||||
Gain
on Deferred lease inducements
|
(497
|
)
|
-15
|
%
|
-
|
(497
|
)
|
|||||||||||||
General
and administration
|
1,214
|
38
|
%
|
3,520
|
25
|
%
|
(2,306
|
)
|
||||||||||||
Total
operating expense
|
(3,216
|
)
|
100
|
%
|
(13,886
|
)
|
100
|
%
|
10,670
|
|||||||||||
Other
Income
|
157
|
-
|
157
|
|||||||||||||||||
Interest
income
|
47
|
286
|
(239
|
)
|
||||||||||||||||
Net
loss
|
$
|
(3,012
|
)
|
$
|
(13,600
|
)
|
$
|
10,588
|
·
|
Research
and development expenses were lower in fiscal 2009, as compared to fiscal
2008 primarily due to a decrease and closing of clinical studies being
conducted throughout 2009, as compared to 2008. During fiscal 2008,
we completed our ADH-1 trial in combination with docetaxel, carboplatin,
and capecitabine and completed patient enrollment in our Phase IIb
systemic ADH-1 trial with regionally-infused melphalan for the treatment
of melanoma.
|
·
|
General
and administrative expenses decreased as a result of a reduction in our
employee headcount effective April 2009. General and administrative
expense includes non-cash stock-based compensation expense of $0.5 million
in fiscal 2009 and $1.3 million in fiscal
2008.
|
·
|
Interest
income decreased in fiscal 2009, as compared to 2008 due to less cash on
hand as a result of funding our operations during fiscal
2009.
|
Liquidity
and Capital Resources
9 Months
Ended
September
30,
|
12 Months
Ended
December
31,
|
12 Months
Ended
December
31,
|
||||||||||
Dollars in thousands
|
2010
|
2009
|
2008
|
|||||||||
Selected
Asset and Liability Data:
|
||||||||||||
Cash
and cash equivalents
|
$
|
6,602
|
$
|
685
|
$
|
5,401
|
||||||
Other
current assets
|
1
|
148
|
238
|
|||||||||
Capital
assets
|
—
|
—
|
421
|
|||||||||
Current
liabilities
|
306
|
420
|
2,430
|
|||||||||
Long
term liabilities
|
4,692
|
7
|
577
|
|||||||||
Working
capital[Current Assets – Current Liabilities]
|
6,297
|
412
|
3,209
|
|||||||||
Selected
Equity:
|
||||||||||||
Common
stock
|
$
|
64,929
|
$
|
64,929
|
$
|
64,929
|
||||||
Accumulated
deficit
|
(102,231
|
)
|
(100,991
|
)
|
(97,979
|
)
|
||||||
Shareholders’
equity
|
1,605
|
406
|
3,053
|
·
|
The
increase in cash and cash equivalents between December 31, 2009 and
September 30, 2010 was attributed to the closing of our funding
transaction for net proceeds of $7.2
million.
|
51
·
|
The
reduction in other current assets between December 31, 2009 and September
30, 2010 was attributed to a reduction in health and insurance
credits. Other current assets decreased between December 31, 2008
and December 31, 2009 primarily to the write-off in 2009 of investment tax
credits receivable in the amount of $0.1 million, offset by an increase in
accounts receivable of $0.1
million.
|
·
|
In
2009, we listed idle laboratory equipment for sale. Any remaining
unsold capital assets were revalued to nil after the assets were not sold
in 2009. We recorded a $0.1 million loss on impairment of assets for
the year ended December 31,
2009.
|
·
|
Our
long term liabilities increased $4.7 million between December 31, 2009 and
September 30, 2010. The increase was as a result of the accounting of the
warrants issued in the private placement as a derivative
liability.
|
·
|
Current
liabilities decreased between December 31, 2009 and September 30,
2010. The reduction was due to the payment of outstanding accounts
payable and accrued liabilities following the closing of our funding
transaction. The $2.1 million decrease in current liabilities
between December 31, 2008 and December 31, 2009 is primarily attributed to
the general restructuring of our balance sheet in 2009, and the
corresponding payment of outstanding
liabilities.
|
·
|
The
reduction in long term liabilities of $0.6 million between December 31,
2008 and December 31, 2009 was primarily related to the termination of our
Durham, North Carolina lease.
|
·
|
At
September 30, 2010, our working capital increased by approximately $5.9
million from December 31, 2009 due to the financing completed in April
2010 which was offset by research and development activities and general
corporate operations for the nine month
period.
|
9 Months
Ended
September
30,
|
9 Months
Ended
September
30,
|
12 Months
Ended
December
31,
|
12 Months
Ended
December
31,
|
|||||||||||||
Dollars and shares in thousands
|
2010
|
2009
|
2009
|
2008
|
||||||||||||
Selected
Cash Flow Data:
|
||||||||||||||||
Net
cash used in operating activities
|
$
|
(1,273
|
)
|
$
|
(4,505
|
)
|
$
|
(4,688
|
)
|
$
|
(10,808
|
)
|
||||
Net
cash provided from financing activities
|
7,190
|
-
|
-
|
7
|
||||||||||||
Net
cash provided from investing activities
|
-
|
24
|
24
|
(15
|
)
|
|||||||||||
Number
of shares of common stock outstanding
|
368,293
|
128,227
|
128,227
|
128,227
|
The
net cash flow used in operating activities for the nine months ended September
30, 2010 was approximately $1.3 million as compared to $4.5 million during the
same period in 2009. This decrease is due to a decrease in our overall
clinical activities and lower headcount during the nine months ended September
30, 2010, as compared to the same period in 2009. The net cash flow used
in operating activities for fiscal year 2009 was approximately $4.7 million, as
compared to $10.8 million in fiscal 2008. During fiscal 2009 our average
monthly cash burn was $0.4 million, as compared to $0.9 million for fiscal
2008. The decrease in fiscal 2009 is due to a decrease our overall
clinical activities and headcount during that period.
In July
2009, we terminated the employment of our Chief Executive Officer for one month
severance and we terminated our General Counsel and Secretary thereby reducing
our operating expense. In August 2009, we amended the employment contract
of our Chief Operating Officer at a reduced salary terminating on December 31,
2009. In September 2009, our Chief Financial Officer
resigned.
On
July 7, 2009, we announced that we intended to primarily focus our remaining
financial resources on the development of eniluracil. We have terminated
our eniluracil study using our topical formulation and will focus our resources
on the development of a redesigned study combining eniluracil and
5-fluorouracil, or 5-FU, targeting anti-cancer indications. We
continue to pursue various strategic alternatives, including, collaborations
with other pharmaceutical and biotechnology companies and we believe that our
current cash and cash equivalents will be sufficient to satisfy our currently
anticipated capital requirements through 2011. Our projections of further
capital requirements are subject to substantial uncertainty. Our working
capital requirements may fluctuate in future periods depending upon numerous
factors, including: our ability to obtain additional financial resources; our
ability to enter into collaborations that provide us with up-front payments,
milestones or other payments; results of our research and development
activities; progress or lack of progress in our preclinical studies or clinical
trials; unfavorable toxicology in our clinical programs, our drug substance
requirements to support clinical programs; change in the focus, direction, or
costs of our research and development programs; headcount expense; the costs
involved in preparing, filing, prosecuting, maintaining, defending and enforcing
our patent claims; competitive and technological advances; the potential need to
develop, acquire or license new technologies and products; our business
development activities; new regulatory requirements implemented by regulatory
authorities; the timing and outcome of any regulatory review process; and
commercialization activities, if any.
52
We had
cash and cash equivalents of approximately $6.6 million as of September 30,
2010. On April 30, 2010, we announced that we had completed a first
closing of a non-brokered private placement of 240,066,664 Units, at a price of
$0.03 per Unit for gross proceeds of CAD$7,202,000. This funding
transaction will allow for our planned clinical development of eniluracil as
well as the support of our remaining programs.
Financial
Instruments
We
invest excess cash and cash equivalents in high credit quality investments held
by financial institutions in accordance with our investment policy designed to
protect the principal investment. At September 30, 2010, we had
approximately $0.7 million in our cash accounts and $5.9 million in our money
market accounts. We have not experienced any loss or write down of our
money market investments for the nine months ended September 30, 2010 or for the
years ended December 31, 2009 and 2008.
Our
investment policy is to manage investments to achieve, in the order of
importance, the financial objectives of preservation of principal, liquidity and
return on investment. Investments may be made in U.S. or Canadian
obligations and bank securities, commercial paper of U.S. or Canadian industrial
companies, utilities, financial institutions and consumer loan companies, and
securities of foreign banks provided the obligations are guaranteed or carry
ratings appropriate to the policy. Securities must have a minimum Dun
& Bradstreet rating of A for bonds or R1 low for commercial paper. The
policy also provides for investment limits on concentrations of securities by
issuer and maximum-weighted average time to maturity of twelve months.
This policy applies to all of our financial resources.
The
policy risks are primarily the opportunity cost of the conservative nature of
the allowable investments. As our main purpose is research and
development, we have chosen to avoid investments of a trading or speculative
nature.
We
classify investments with original maturities at the date of purchase greater
than three months which mature at or less than twelve months as current.
We carry investments at their fair value with unrealized gains and losses
included in other comprehensive income (loss); however we have not held any
instruments that were classified as short term investments during the periods
presented in this Registration Statement.
Off-Balance
Sheet Arrangements
Since our
inception, we have not had any material off-balance sheet arrangements. In
addition, we do not engage in trading activities involving non-exchange traded
contracts. As such, we are not materially exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in such
activities.
Contractual
Obligations and Commitments
Since
our inception, inflation has not had a material impact on our operations.
We had no material commitments for capital expenses as of September 30,
2010. The following table represents our contractual obligations and
commitments at September 30, 2010 (in thousands of U.S.
dollars):
Less than
1 year
|
1-3
years
|
3-5
years
|
More than 5
years
|
Total
|
||||||||||||||||
Eastowne
Lease (1)
|
$
|
6
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
6
|
||||||||||
OCT
Clinical Service Agreement (2)
|
171
|
342
|
513
|
|||||||||||||||||
Drug
purchase commitments (3)
|
60
|
25
|
-
|
-
|
85
|
|||||||||||||||
Total
|
$
|
237
|
$
|
367
|
$
|
-
|
$
|
-
|
$
|
604
|
53
(1)
|
In
December 2009, we entered into a lease for new office facilities in Chapel
Hill, North Carolina. Amounts shown assume the maximum amounts due
under the lease.
|
(2)
|
Under
the service agreement with OCT Group LLC entered in August 2010, we are
required to make several payments over the course of our planned Phase II
clinical trial in Russia. The payments will be made upon the
fulfillment of several milestones during the planned clinical trial
including: regulatory approval of trial, enrollment of patients and the
completion of therapy of
patients.
|
(3)
|
Commitments
to our third party manufacturing vendors that supply drug substance
primarily for our clinical
studies.
|
Research
and Development
Our
research and development efforts have been focused on the development of cancer
therapeutics and our cadherin technology platform and currently include
eniluracil and STS.
We have
established relationships with contract research organizations, universities and
other institutions, which we utilize to perform many of the day-to-day
activities associated with our drug development. Where possible, we have
sought to include leading scientific investigators and advisors to enhance our
internal capabilities. Research and development issues are reviewed
internally by our executive management and supporting scientific staff.
.
Research
and development expenses totaled $0.4 million for the nine months ended
September 30, 2010, $2.0 million for the nine months ended September 30, 2009,
$2.1 million for the fiscal year ended December 31, 2009 and $10.4 million for
the fiscal year ended December 31, 2008.
Our
product candidates are in various stages of development and still require
significant, time-consuming and costly research and development, testing and
regulatory clearances. In developing our product candidates, we are
subject to risks of failure that are inherent in the development of products
based on innovative technologies. For example, it is possible that any or
all of these products will be ineffective or toxic, or will otherwise fail to
receive the necessary regulatory clearances. There is a risk that our product
candidates will be uneconomical to manufacture or market or will not achieve
market acceptance. There is also a risk that third parties may hold proprietary
rights that preclude us from marketing our product candidates or that others
will market a superior or equivalent product. As a result of these
factors, we are unable to accurately estimate the nature, timing and future
costs necessary to complete the development of these product candidates. In
addition, we are unable to reasonably estimate the period when material net cash
inflows could commence from the sale, licensing or commercialization of such
product candidates, if ever.
Critical
Accounting Policies and Estimates
Effective
January 1, 2007, we changed our primary basis of accounting to U.S. GAAP.
We made the change to U.S. GAAP to comply with U.S. securities law as a result
of our loss of foreign private issuer status with the Securities and Exchange
Commission.
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as at the date
of the financial statements and the reported amounts of revenue and expense
during the reporting period. These estimates are based on assumptions and
judgments that may be affected by commercial, economic and other factors.
Actual results could differ from these estimates.
An
accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates reasonably could
have been used, or changes in the accounting estimates that are reasonably
likely to occur periodically, could materially impact the financial
statements. The following description of critical accounting policies,
judgments and estimates should be read in conjunction with our December 31, 2009
consolidated financial statements.
54
Stock-based
Compensation
The
calculation of the fair values of our stock-based compensation plans requires
estimates that require management‘s judgments. Under ASC 718, the fair
value of each stock option is estimated on the grant date using the
Black-Scholes option-pricing model. The valuation models require assumptions and
estimates to determine expected volatility, expected life, expected dividends
and expected risk-free interest rates. The expected volatility was determined
using historical volatility of our stock based on the contractual life of the
award. The risk-free interest rate assumption was based on the yield on
zero-coupon U.S. Treasury strips at the award grant date. We also used
historical data to estimate forfeiture experience. In valuing options
granted in the nine months ended September 30, 2010 and fiscal years ended
December 31, 2009 and 2008 we used the following weighted average
assumptions:
Nine Months
Ended
September 30,
2010
|
Year Ended
December
31, 2009
|
Year Ended
December
31, 2008
|
||||||||||
Expected
dividend
|
0
|
%
|
0
|
%
|
0
|
%
|
||||||
Risk-free
interest rate
|
2.06
|
%
|
3.00
|
%
|
3.16
|
%
|
||||||
Expected
volatility
|
99.0
|
%
|
85.6
|
%
|
85.6
|
%
|
||||||
Expected
life
|
7
years
|
7
years
|
7
years
|
Common
stock and warrants
Common
stock is recorded as the net proceeds received on issuance after deducting all
share issuance costs and the value of investor warrants. Warrants are
recorded at fair value and are deducted from the proceeds of common stock and
recorded on the consolidated statements of stockholders’ equity as additional
paid-in capital.
During
fiscal 2008, we had warrants to purchase common stock that were denominated in
both U.S. and Canadian dollars, which results in our having warrants outstanding
that are denominated outside the Company’s U.S. dollar functional
currency.
In
June 2008, the Financial Accounting Standards Board, or FASB, issued
authoritative guidance relating to determining whether an instrument (or
embedded feature) is indexed to an entity’s own stock, which was effective
January 1, 2009. It provides guidance in assessing whether an equity-linked
financial instrument (or embedded feature) is indexed to an entity's own stock
for purposes of determining whether the equity-linked instrument qualifies as a
derivative instrument. We adopted this authoritative guidance on January 1,
2009. As a result, any outstanding warrants denominated in Canadian
dollars were not considered to be indexed to our stock and was therefore to be
treated as derivative financial instruments and recorded at their fair value as
a liability. Since the warrants to purchase common stock that are
denominated in Canadian dollars were issued on April 30, 2010 in conjunction
with the first closing of the private placement they impacted our financial
statements for the period ending September 30, 2010.
Derivative
Instruments
Effective
January 1, 2009, the Company adopted ASC Topic 815-40, "Derivatives and Hedging"
(ASC 815-40). One of the conclusions reached under ASC 815-40 was that an
equity-linked financial instrument would not be considered indexed to the
entity's own stock if the strike price is denominated in a currency other than
the issuer's functional currency. The conclusion reached under ASC 815-40
clarified the accounting treatment for these and certain other financial
instruments. ASC 815-40 specifies that a contract would not be treated as
a derivative if it met the following conditions: (a) indexed to the Company's
own stock; and (b) classified in shareholders' equity in the Company's statement
of financial position. The Company's outstanding warrants denominated in
Canadian dollars are not considered to be indexed to its own stock because the
exercise price is denominated in Canadian dollars and the Company's functional
currency is United States dollars. Therefore, these warrants have been treated
as derivative financial instruments and recorded at their fair value as a
liability. All other outstanding convertible instruments are considered to
be indexed to the Company's stock, because their exercise price is denominated
in the same currency as the Company's functional currency, and are included in
shareholders' equity.
The
Company's only derivative instruments are 240,066,664 warrants, the exercise
price for which are denominated in a currency other than the Company's
functional currency, as follows:
·
|
240,066,664
warrants exercisable at CAD$0.08 that expire on April 30,
2015
|
55
These
warrants have been recorded at their fair value at issuance and will continue to
be recorded at fair value at each subsequent balance sheet date. Any change in
value between reporting periods will be recorded as other income
(expense). These warrants will continue to be reported as a liability
until such time as they are exercised or expire. The fair value of these
warrants is estimated using the Black-Scholes option-pricing
model.
As of
September 30, 2010, the fair value of these warrants was determined to be $4.7
million. The fair value as at June 30, 2010 was $7.2 million. Accordingly the
Company recorded an unrealized gain of $2.6 million and $2.5 million on the
condensed consolidated statements of operations for both the three and nine
months ended September 30, 2010, respectively, related to the change in the fair
value of those warrants. There is no cash flow impact for these derivatives
until the warrants are exercised. If these warrants are exercised, the
Company will receive the proceeds from the exercise at the current exchange rate
at the time of exercise.
Outstanding
Share Information
The
outstanding share data for our company as of September 30, 2010 is as follows
(in thousands):
September
30,
2010
|
||||
Common
stock
|
368,293
|
|||
Warrants
|
240,066
|
|||
Stock
options
|
83,516
|
|||
Total
|
691,875
|
Canadian
Accounting Principles
We
present our consolidated financial results in accordance with U.S. GAAP.
Significant differences exist between U.S. and Canadian GAAP and are presented
in Note 10 in the December 31, 2009 consolidated financial
statements.
New
Accounting Pronouncements Adopted
In May
2009, the Financial Accounting Standards Board, or FASB, issued authoritative
guidance relating to subsequent events, which is effective June 15, 2009. It
provides guidance for disclosing events that occur after the balance sheet date,
but prior to the issuance of the financial statements. We adopted this
authoritative guidance on June 30, 2009. The adoption of this authoritative
guidance did not have any impact upon our financial position or operating
results.
In
December 2007, the Emerging Issue Task Force, or EITF, issued EITF No. 07-01,
“Accounting for Collaborative Arrangement Related to the Development and
Commercialization of Intellectual Property”, or EITF 07-01, codified as ASC
808-10. EITF 07-01 defines the accounting for collaborations between
participants. EITF 07-01 requires certain transactions between
collaborators to be recorded in the statement of operations on either a gross or
net basis within expense when certain characteristics exist in the collaborative
agreement. EITF 07-01 did not have a material impact on our financial
statements.
In
December 2007, the FASB issued ASC No. 805, “Business Combination,” or ASC 805,
which, requires an acquiring company to measure all assets acquired and
liabilities assumed, including contingent considerations and all contractual
contingencies, at the fair value at the acquisition date. ASC 805
establishes principles and requirements for how the acquirer: i) recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed and any non-controlling interest in the acquiree; ii)
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and iii) determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The adoption of ASC 805 did not have
a material impact on our financial statements.
56
In
November 2007, the Emerging Issues Task Force of the FASB issued EITF No. 07-05,
Issue Summary No.1 “Determining Whether an Instrument (or an Embedded Feature)
is Indexed to an Entity's Own Stock,” or EITF 07-05, codified as ASC
815-40. In June 2008, one of the conclusions reached under EITF 07-05 was
a consensus that an equity-linked financial instrument would not be considered
indexed to the entity's own stock if the strike price is denominated in a
currency other than the issuer's functional currency. The issues brought
to the EITF for discussion related to how an entity should determine whether
certain instruments or embedded features are indexed to its own stock.
This discussion included equity-linked financial instruments where the exercise
price is denominated in a currency other than the issuer's functional currency;
such as our outstanding warrants to purchase common stock that are denominated
in Canadian dollars. This conclusion reached under EITF 07-05 clarified
the accounting treatment for these and certain other financial instruments as it
related to FASB Statement No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” or SFAS 133, codified as ASC 815-10.
SFAS 133
specifies that a contract that would otherwise meet the definition of a
derivative under SFAS 133, issued or held by the reporting entity that is both
(a) indexed to its own stock and (b) classified in stockholders' equity in its
statement of financial position should not be considered a derivative financial
instrument for purposes of applying SFAS 133. As a result, our outstanding
warrants denominated in Canadian dollars were not considered to be indexed to
its own stock and should therefore be treated as derivative financial
instruments and recorded at their fair value as a liability. EITF 07-05 is
effective for financial statements for fiscal years beginning after December 15,
2008 and earlier adoption is not permitted. Since the warrants to
purchase common stock that are denominated in Canadian dollars expired on
December 19, 2008, EITF 07-05 did not have a material impact on our financial
statements unless we issue further equity instruments denominated outside its
functional currency.
In April
2009, an update was made to the Financial Instruments topic of the FASB
codification Fair Value Measurements and Disclosures that requires disclosures
about the fair value of financial instruments in interim financial statements as
well as in annual financial statements. The new guidance also amends the
existing requirements on the fair value disclosures in all interim financial
statements. This guidance is effective for interim periods ending after June 15,
2009, but early adoption was permitted for interim periods ending after March
15, 2009. The adoption of this standard did not have a material impact on our
consolidated financial position and results of operations.
In April
2009, an update was made to the Fair Value Measurements and Disclosures topic of
the FASB codification that provides additional guidance in determining fair
value when there is no active market or where price inputs being used represent
distressed sales. This guidance is effective for interim periods ending after
June 15, 2009, but early adoption was permitted for interim periods ending after
March 15, 2009. The adoption of this standard did not have an impact on our
consolidated financial position and results of operations.
In April
2009, an update was made to the Debt and Equity topic of the FASB codification
that provides guidance in determining whether impairments of debt securities are
other than temporary, and modifies the presentation and disclosures surrounding
such instruments. This guidance is effective for interim periods ending after
June 15, 2009, but early adoption was permitted for interim periods ending after
March 15, 2009. The adoption of this standard did not have an impact on our
consolidated financial position and results of operations.
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles, a replacement of
FASB Statement No. 162” (“SFAS 168”), which establishes the FASB Accounting
Standards Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied in the preparation of
financial statements in conformity with U.S. GAAP. SFAS 168 explicitly
recognizes rules and interpretative release of the SEC under federal securities
laws as authoritative U.S. GAAP. SFAS 168 is effective for interim and
annual periods ending after September 15, 2009. Accordingly, we were
required to adopt SFAS 168 on October 1, 2009. As the issuance of SFAS 168
and the Codification does not change U.S. GAAP, the adoption of this standard
did not have any impact on our financial statements.
57
In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity, or VIE. FASB ASC Topic 810, "Consolidation," amends
the guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC Topic 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. FASB ASC
Topic 810 became effective as of the beginning of interim and annual reporting
periods that begin after November 15, 2009 and did not have an impact on our
financial position, results of operations or cash flows.
In
January 2010, an update was made to the Fair Value Measurements and Disclosures
topic of the FASB codification that requires new disclosures for fair value
measurements and provides clarification for existing disclosure requirements.
More specifically, this update will require (a) an entity to disclose separately
the amounts of significant transfers into and out of Level 1 and 2 fair value
measurements and to describe the reasons for the transfers; and (b) information
about purchases, sales, issuances, and settlements to be presented separately on
a gross basis in the reconciliation of Level 3 fair value measurements. This
update is effective for fiscal years beginning after December 15, 2009 except
for Level 3 reconciliation disclosures which are effective for fiscal years
beginning after December 15, 2010. The adoption of this guidance did not
have an impact on our consolidated financial position and results of
operations.
FINANCIAL
DISCLOSURE
On
September 23, 2009, PricewaterhouseCoopers LLP, or PwC, resigned as our
independent registered public accounting firm. The reports of PwC on
our consolidated financial statements for the fiscal years ended December 31,
2008, 2007 and 2006 did not contain an adverse opinion or a disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit
scope or accounting principles. During our fiscal years ended
December 31, 2007 and 2008, and through September 23, 2009, we did not have any
disagreements with PwC on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of PwC, would have caused it to make reference to
the subject matter of the disagreements in connection with its reports on the
consolidated financial statements for such years. During our fiscal
years ended December 31, 2007 and 2008 and through September 23, 2009, no
“reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K
occurred. PwC indicated to us that it concurs with the foregoing
statements contained in the second, third and fourth sentences above as they
relate to PwC and furnished a letter to the Securities and Exchange Commission
to this effect.
We
engaged Deloitte & Touche LLP, as our new independent registered public
accounting firm as of September 23, 2009. Our Audit Committee participated
in and approved this decision. During our fiscal years ended December 31,
2007 and 2008 and through September 23, 2009, we did not consult with Deloitte
& Touche LLP regarding either: (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company’s financial statements; or (ii) any matter that was either the
subject of a disagreement or reportable event identified in paragraph
(a)(1)(iv) or (a)(1)(v) and related
instructions of Item 304 of Regulation S-K.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a
Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in
Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting
obligations and therefore are not required to provide the information requested
by this Item.
DIRECTORS
AND EXECUTIVE OFFICERS
The
following table sets forth the name of each Director, such person’s principal
occupation or employment, all other positions with Adherex and any significant
affiliate thereof now held by such person, if any, the year in which such person
became a director of Adherex and such person’s age.
58
The
Corporation has an Audit Committee, a Compensation Committee, and a Governance
Committee. The current members of such committees are noted below:
Name and Province/State and Country of
Residence, Position
|
|
Current Principal Occupation
and Principal Occupation
For Previous Five Years
|
|
Director Since
|
Age
|
|
Robert
W. Butts (1)(2)(3)
Tennessee,
USA
Chairman
of Board
|
Immediate
past Co-Founder and Portfolio Manager, Southpoint Capital Advisors LP;
previously Analyst, Greenlight Capital
|
April
2007
|
35
|
|||
Robert
Andrade
New
York, USA
Chief
Financial Officer, Director
|
Co-Founder
and Manager, DCML LLC; previously Portfolio Manager Millennium Partners;
previously analyst Caxton Associates
|
July
2009
|
35
|
|||
William
G. Breen (1)(2)(3)
Ontario,
Canada
Director
|
President
of William G. Breen and Associates; previously, Chairman of Simware
Inc.
|
April
2007
|
64
|
|||
Claudio
F. Bussandri, B.Eng, MBA (1)(2)(3)
Quebec,
Canada
Director
|
Immediate
past CEO of McKesson Canada; previously President of Lantic Sugar
Limited
|
April
2007
|
62
|
|||
David
Lieberman (2)(3)
New
York, USA
Director
|
Analyst
Southpoint Capital Advisors LP; previously analyst Tiedemann Investment
Group.
|
June,
2010
|
34
|
|||
Hon.
Arthur T. Porter, PC, MD, MBA (1)
Quebec,
Canada
Director
|
Director
General and Chief Executive Officer, McGill University Health Centre;
previously, President and CEO, Detroit Medical Center
|
Feb
2004
|
53
|
|||
Rostislav
Raykov (3)
New
Jersey, USA
Chief
Executive Officer, Director
|
Co-Founder
and Manager, DCML LLC; previously Portfolio Manager Alchem Partners;
previously Portfolio Manager John Levin &
Associates
|
July
2009
|
35
|
(1)
|
Member
of the Audit Committee
|
(2)
|
Member
of the Compensation Committee
|
(3)
|
Member
of the Governance Committee
|
Robert
W. Butts
Mr.
Butts has served as a director of Adherex since April 2007. Mr. Butts is
the immediate past Co-Founder and Portfolio Manager of Southpoint Capital
Advisors LP from January 2002 until March 2010, a private investment partnership
with more than $1 billion in assets under management. Prior to Southpoint,
Mr. Butts was an analyst for Greenlight Capital, a value-oriented hedge
fund. He began his career as a financial analyst in the mergers and
acquisitions group at Merrill Lynch. Mr. Butts graduated from Amherst
College, where he earned a Bachelor of Science degree with a triple major in
mathematics, physics and chemistry. As a result of these and other
professional experiences, Mr. Butts has financial expertise and experience with
the Company as it has developed within the drug development industry and, as
such, is able to provide the Company with unique insight and
guidance.
Robert
C. Andrade
Mr.
Andrade has served as a director of Adherex since July 2009 and Chief Financial
Officer since September 2009. Mr. Andrade is a General Partner at DCML, a
private investment partnership. Prior to DCML, Mr. Andrade was a portfolio
manager for Millennium Partners from November 2005 until December 2007 and a
securities analyst for Caxton Associates from March 2003 until November
2005. He began his career as a financial analyst at Bear Stearns.
Mr. Andrade graduated from University of Southern California, where he earned a
Masters of Arts degree and Bachelor of Arts degree in economics. As a result of
these and other professional experiences, Mr. Andrade possesses particular
knowledge and experience in financial analysis and capital markets that
strengthen the Board’s collective qualifications, skills, and
experience.
59
William
G. Breen
Mr.
Breen has served as a director of Adherex since April 2007. Mr. Breen has
served as President of William G. Breen and Associates since 1999. From
January 1988 to March 1999, he held various positions at Simware Inc., a
producer of internetworking and connectivity software, including Chairman,
President and Chief Executive Officer. Prior to Simware, Mr. Breen was
Senior Vice President, Operations at Cognos Inc. and Vice President, Operations
at Computel Systems Ltd. Mr. Breen has served on numerous Boards of
Directors and began his career at IBM in 1966 following graduation from the
University of Waterloo in Science. As a result of these and other professional
experiences, Mr. Breen possesses particular financial and management expertise
which strengthens the Board’s collective qualifications, skills, and
experience.
Claudio
F. Bussandri, B.Eng, MBA
Mr.
Bussandri has served as a director of Adherex since April 2007. From
January, 1995 to March 2007 Mr. Bussandri was the CEO of McKesson Canada, a
leading provider of logistics and products and services in the Canadian health
care marketplace. Prior to his tenure at McKesson, Mr. Bussandri was
President of Lantic Sugar Limited and has held senior executive positions at
Nabisco Brands Limited of Canada and Coffee Club Companies. Mr. Bussandri
graduated from McGill University with a Bachelor of Engineering (Mechanical),
and subsequently obtained an MBA. Mr. Bussandri is a member of the Board
of Directors of the McGill University Health Centre, of the Executive Committee
of the McGill University Health Centre Foundation and of the Canadian Council of
Chief Executives. He is past Chairman of the Board of the Montreal
Children Hospital Foundation, former Chairman of Canadian Association for
Pharmacy Distribution and Management and of the Food and Consumer Products
Manufacturers of Canada. As a result of these and other professional
experiences, Mr. Bussandri possesses particular healthcare industry
knowledge and experience which strengthens the Board’s collective
qualifications, skills, and experience.
David
Lieberman
Since
February, 2002, Mr. Lieberman has been an analyst at Southpoint Capital Advisors
LP, a private investment partnership with more than $1 billion in assets under
management. Prior to Southpoint, Mr. Lieberman was an analyst for
Tiedemann Investment Group. Mr. Lieberman graduated from University of
Pennsylvania, The Wharton School, where he earned a Bachelor of Science degree
in economics. In addition to his financial and investment background, as a
designee of one of the Company’s largest investors, he brings to the Board the
perspective of a major stakeholder.
Rostislav
Raykov
Mr.
Raykov has served as a director of Adherex since July 2009 and as Chief
Executive Officer since July 2009. Since May 2007, Mr. Raykov has been a
General Partner at DCML, a private investment partnership. Prior to DCML,
from January 2006 to December 2007, Mr. Raykov was a portfolio manager for
Alchem Investment Partners and John Levin & Co. He began his career as
a financial analyst at Bear Stearns. Mr. Raykov graduated from University
of North Carolina at Chapel Hill, where he earned a Bachelor of Science degree
in business administration. As a result of these and other professional
experiences, Mr. Raykov has financial expertise and experience with the Company
as it has developed within the drug development industry and, as such, is able
to provide the Company with unique insight and guidance.
60
Honourable
Arthur T. Porter, P.C., MD, MBA
Dr.
Porter has served as a director of Adherex since February 2004. Dr. Porter
has served as the Director General and Chief Executive Officer of the McGill
University Health Centre since January 2004, is a Councilor of the Privy Council
for Canada and a member of the Security Intelligence Review Committee for
Canada. Dr. Porter was the President and Chief Executive Officer of the
Detroit Medical Center from May 1999 to June 2003. From July 1991 to
December 1998, Dr. Porter served as the Chief of the Gershenson Radiation
Oncology Center at Harper Hospital, Radiation Oncologist-in-Chief at the Detroit
Medical Center. He has also served as Senior Radiation Oncologist at the
Cross Cancer Institute in Edmonton, Alberta and Associate Professor in the
Faculty of Medicine at the University of Alberta, Chief of the Department of
Radiation Oncology at the London Regional Cancer Centre and Chairman of the
Department of Oncology at Victoria Hospital Corporation. Dr. Porter serves
as a director of Munder Funds and Air Canada. As a result of these and other
professional experiences, Dr. Porter possesses particular healthcare industry
knowledge and experience which strengthens the Board’s collective
qualifications, skills, and experience.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets out certain information respecting the compensation paid to
our Chief Executive Officer, as well as Chief Financial Officer and any
executive officer of the Company whose total compensation for the fiscal years
ended December 31, 2010 and December 31, 2009 exceeded
$100,000.
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)(1)
|
Option Awards
($)(2)
|
Non-Equity
Incentive Plan
Compensation
($)(3)
|
All Other
Compen-
sation
($)(4)
|
Total
($)
|
||||||||||||||||
Rostislav
Raykov, Chief
|
2010
|
101,220
|
-
|
787,227
|
-
|
-
|
888,447
|
||||||||||||||||
Executive
Officer(5)
|
2009
|
11,572
|
-
|
-
|
-
|
-
|
11,572
|
||||||||||||||||
Robert
Andrade, Chief
|
2010
|
101,220
|
-
|
787,227
|
-
|
-
|
888,447
|
||||||||||||||||
Financial
Officer(6)
|
2009
|
11,572
|
-
|
-
|
-
|
-
|
11,572
|
||||||||||||||||
Dr.
Thomas Spector(7)
|
2010
|
130,224
|
-
|
787,227
|
-
|
-
|
917,451
|
||||||||||||||||
Chief
Scientific Officer
|
2009
|
45,831
|
-
|
-
|
-
|
-
|
45,831
|
||||||||||||||||
Dr.
William P. Peters
|
2010
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Former
Chief Executive
|
2009
|
298,623
|
115,000
|
-
|
-
|
-
|
413,623
|
||||||||||||||||
Officer
and Chairman(8)
|
|||||||||||||||||||||||
James
A. Klein, Jr.
|
2010
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Previously
Chief Financial
|
2009
|
180,934
|
35,000
|
-
|
-
|
-
|
215,934
|
||||||||||||||||
Officer(9)
|
|||||||||||||||||||||||
Dr.
Robin J. Norris
|
2010
|
-
|
-
|
-
|
-
|
|
-
|
||||||||||||||||
Previously
President and
|
2009
|
208,000
|
35,000
|
9,000
|
-
|
-
|
252,000
|
||||||||||||||||
Chief
Operating Officer(10)
|
|||||||||||||||||||||||
D.
Scott Murray,
|
2010
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
Previously
Senior Vice
|
2009
|
123,822
|
65,000
|
-
|
-
|
-
|
188,822
|
||||||||||||||||
President,
General Counsel
|
|||||||||||||||||||||||
and
Secretary(11)
|
(1)
|
Represents
cash incentive awards in respect to fiscal 2008 and disbursed in the first
quarter of 2009 as detailed in the Company’s 2009
proxy.
|
(2)
|
Represents
the aggregate grant date fair value computed in accordance with FASB ASC
Topic 718. Dollar value amounts are based on individual grants of
17,493,938 options on August 18, 2010 at an exercise price of CAD $0.045,
which options expire on August 18, 2017 and vested in full on the date of
grant.
|
61
(3)
|
The
term “incentive plan” means any plan providing compensation intended to
serve as incentive for performance to occur over a specified period,
whether such performance is measured by reference to financial performance
of the Corporation, the Corporation's stock price, or any other
performance measure. An “equity incentive plan” is an incentive plan
or portion of an incentive plan under which awards are granted that fall
within the scope of SFAS 123(R). A “non-equity incentive plan” is an
incentive plan or portion of an incentive plan that is not an equity
incentive plan.
|
(4)
|
Consists
of the taxable benefit for premiums paid for group term life insurance,
long term disability and long term care
insurance.
|
(5)
|
Mr.
Raykov joined the Corporation in July
2009.
|
(6)
|
Mr.
Andrade joined the Corporation in July
2009.
|
(7)
|
Dr.
Spector joined the Corporation in July
2009
|
(8)
|
Dr.
Peters’ employment relationship with the Corporation terminated effective
July 2009.
|
(9)
|
Mr.
Klein resigned from the Corporation in September
2009.
|
(10)
|
Dr.
Norris’ employment with the Corporation ended in December
2009.
|
(11)
|
Mr.
Murray’s employment with the Corporation was terminated in July
2009.
|
Rostislav
Raykov
Mr.
Raykov has been employed by Adherex since July 2009, when he initially agreed to
be compensated at the minimum wage. Pursuant to an employment agreement
dated May 3, 2010 between Rostislav Raykov and Adherex, Mr. Raykov is employed
as Adherex’s Chief Executive Officer. Pursuant to this agreement, Mr.
Raykov (a) receives an initial annual salary in the amount of $140,000, (b) upon
approval by shareholders of the amended Stock Option Plan will be granted
options to purchase up to 5.0% of our common stock outstanding estimated by us
to be outstanding upon completion of the proposed rights offering announced by
us on April 20, 2010, and (c) may receive annual bonuses at the sole discretion
of the Board. If Mr. Raykov’s employment terminates due to a change of
control of Adherex, any then remaining unvested shares under his options shall
immediately vest and be fully exercisable. On August 18, 2010, Mr. Raykov
was granted 17,493,939 options pursuant to his employment agreement. If Mr.
Raykov is dismissed from employment by us for any reason other than “cause,” we
are obligated to pay Mr. Raykov severance compensation equal to twelve months of
salary.
Robert
Andrade
Mr.
Andrade has been employed by Adherex since July 2009, when he initially agreed
to be compensated at the minimum wage. Pursuant to an employment agreement
dated May 3, 2010 between Robert Andrade and Adherex, Mr. Andrade is employed as
Adherex’s Chief Financial Officer. Pursuant to this agreement, Mr. Andrade
(a) receives an initial annual salary in the amount of $140,000, (b) upon
approval by shareholders of the amended Stock Option Plan will be granted
options to purchase up to 5.0% of our common stock outstanding estimated by us
to be outstanding upon completion of the proposed rights offering announced by
us on April 20, 2010, and (c) may receive annual bonuses at the sole discretion
of the Board. If Mr. Andrade’s employment terminates due to a change of
control of Adherex, any then remaining unvested shares under his options shall
immediately vest and be fully exercisable. On August 18, 2010, Mr. Andrade was
granted 17,493,939 options pursuant to his employment agreement. If Mr. Andrade
is dismissed from employment by us for any reason other than “cause,” we are
obligated to pay Mr. Andrade severance compensation equal to twelve months of
salary.
Dr.
Thomas Spector
Dr.
Spector has been employed by Adherex since July 2009, when he was initially paid
a salary of $80,000 per year. Pursuant to an employment agreement dated
May 3, 2010 between Dr. Thomas Spector and Adherex, Dr. Spector is employed as
Adherex’s Chief Scientific Officer. Pursuant to this agreement, Dr.
Spector (a) receives an annual salary in the amount of $150,000, (b) upon
approval by shareholders of the amended Stock Option Plan will be granted
options to purchase up to 5.0% of our common stock outstanding estimated by us
to be outstanding upon completion of the proposed rights offering announced by
us on April 20, 2010, and (c) may receive annual bonuses at the sole discretion
of the Board. If Dr. Spector’s employment terminates due to a change of
control of Adherex, any then remaining unvested shares under his options shall
immediately vest and be fully exercisable. On August 18, 2010, Dr. Spector was
granted 17,493,939 options pursuant to his employment agreement. If Dr. Spector
is dismissed from employment by us for any reason other than “cause,” we are
obligated to pay Dr. Spector’s severance compensation equal to twelve months of
salary.
62
William
Peters
Pursuant
to an employment agreement dated February 19, 2003 between Dr. William P. Peters
and Adherex, Dr. Peters became employed as Chief Executive Officer and Vice
Chairman of Adherex effective March 12, 2003 for a five-year term, and was
appointed Chairman of the Board on February 28, 2004. Pursuant to this
agreement, Dr. Peters received $495,000 in 2008. The agreement also provided
that annual bonuses, if any, will be awarded to Dr. Peters at the sole
discretion of the Board. Pursuant to a separation and mutual release
agreement dated July 2, 2009 between Dr. William P. Peters and Adherex, Dr.
Peters concluded the employment relationship as Chief Executive Officer and
Chairman of Adherex effective July 2, 2009. Pursuant to this agreement,
Dr. Peters (a) received separation pay equal to one month of his regular base
salary, (b) received $5,640 equal to the estimated cost of securing equivalent
health coverage, and (c) was granted three years following the Termination Date
to exercise any vested but unexpired and unexercised stock
options.
James
Klein
Pursuant
to an employment agreement dated April 26, 2004 between James A. Klein, Jr. and
Adherex, Mr. Klein was employed as Adherex’s Chief Financial Officer. Pursuant
to this agreement, Mr. Klein received an initial annual salary in the amount of
$233,000 in 2008. The agreement also provided that Mr. Klein may receive
annual bonuses at the sole discretion of the Board. Mr. Klein
resigned on September 4, 2009.
Robin
Norris
Pursuant
to an employment agreement dated December 12, 2001 between Dr. Robin Norris and
Adherex, Dr. Norris became employed as Adherex’s Chief Operating Officer. He was
also appointed President of Adherex on June 14, 2002. Pursuant to his agreement,
Dr. Norris received an initial annual salary in the amount of $255,000 in
2008. Pursuant to an amended and restated employment agreement dated
August 19, 2009 between Dr. Robin Norris and us, Dr. Norris continued as our
Chief Operating Officer through December 31, 2009. Pursuant to his
agreement, Dr. Norris (a) received an amended annual salary in the amount of
$120,000, (b) was granted options to purchase up to 200,000 shares of common
stock at a price per share of $0.06 under the Stock Option Plan, and (c) was to
be reimbursed for certain business expenses. Dr. Norris’s employment with us was
concluded on December 31, 2009.
D.
Scott Murray
Pursuant
to an employment agreement dated January 27, 2003 between D. Scott Murray and
Adherex, Mr. Murray was employed as Adherex’s General Counsel and Corporate
Secretary. Pursuant to the January 27, 2003 agreement, Mr. Murray salary was
$233,000 for 2008. We terminated the employment of D. Scott Murray on July
10, 2009.
In
addition to such employment agreements, Dr. Spector and Messrs. Andrade and
Raykov, are each a party to a confidentiality and intellectual property
agreement with us.
In the
employment agreements for each of Dr. Spector and Messrs. Andrade and Raykov
“cause” is generally defined as (1) material breach of the terms of the
employment or intellectual property agreements; (2) failure to perform the
duties inherent in Employee’s position in good faith and in a reasonable and
appropriate manner; or (3) acts of fraud or embezzlement or other intentional
misconduct which adversely affects the Company's business.
Equity
Grants, Exercises and Holdings
The
following table sets forth information concerning the number and value of
unexercised options held by each Named Executive Officer as of December 31,
2010.
63
Outstanding
Equity Awards at December 31, 2010
Name
|
Number of Securities
Underlying Unexercised
Options (#) Exercisable
|
Number of Securities
Underlying Unexercised
Options (#)
Unexercisable
|
Option
Exercise Price ($) (1)
|
Option
Expiration Date
|
|||||||||
Rostislav
Raykov
|
17,493,939 |
(36)
|
— | CAD$ | 0.045 |
08/18/2017
|
|||||||
Robert
Andrade
|
17,493,939 |
(36)
|
— | CAD$ | 0.045 |
08/18/2017
|
|||||||
Dr.
William P. Peters
|
750,000 |
(2)
|
— | CAD$ | 1.65 |
07/02/2012
|
|||||||
70,217 |
(3)
|
— | CAD$ | 2.25 |
07/02/2012
|
||||||||
700,000 |
(4)
|
— | CAD$ | 2.25 |
07/02/2012
|
||||||||
|
234,000 |
(5)
|
— | CAD$ | 2.90 |
07/02/2012
|
|||||||
|
32,000 |
(6)
|
— | CAD$ | 1.95 |
07/02/2012
|
|||||||
441,601 |
(7)
|
— | 1.20 |
07/02/2012
|
|||||||||
192,000 |
(8)
|
— | 1.20 |
07/02/2012
|
|||||||||
150,000 |
(9)
|
— | 1.10 |
07/02/2012
|
|||||||||
|
30,000 |
(10)
|
— | 0.88 |
07/02/2012
|
||||||||
400,000 |
(11)
|
— | 0.28 |
07/02/2012
|
|||||||||
3,000,000 |
(12)
|
— | 0.63 |
07/02/2012
|
|||||||||
666,667 |
(13)
|
— | 0.28 |
07/02/2012
|
|||||||||
2,000,000 |
(14)
|
— | 0.38 |
07/02/2012
|
|||||||||
James
A. Klein, Jr.
|
200,000 |
(15)
|
— | CAD$ | 2.65 |
04/26/2011
|
|||||||
15,000 |
(16)
|
— | CAD$ | 2.90 |
05/21/2011
|
||||||||
5,000 |
(17)
|
— | CAD$ | 1.95 |
12/17/2011
|
||||||||
13,500 |
(18)
|
— | 1.20 |
09/4/2012
|
|||||||||
39,000 |
(19)
|
— | 0.88 |
09/4/2012
|
|||||||||
50,000 |
(20)
|
— | 0.28 |
09/4/2012
|
|||||||||
900,000 |
(21)
|
0.63 |
09/4/2012
|
||||||||||
300,000 |
(22)
|
0.28 |
09/4/2012
|
||||||||||
400,000 |
(23)
|
— | 0.38 |
09/4/2012
|
|||||||||
Dr.
Robin J. Norris
|
36,400 |
(26)
|
— | CAD$ | 2.90 |
05/21/2011
|
|||||||
15,000 |
(27)
|
— | 1.20 |
09/21/2012
|
|||||||||
45,000 |
(28)
|
— | 0.88 |
12/14/2012
|
|||||||||
75,000 |
(29)
|
- | 0.28 |
02/28/2014
|
|||||||||
1,000,000 |
(30)
|
- | 0.63 |
04/30/2014
|
|||||||||
300,000 |
(31)
|
0.28 |
12/03/2014
|
||||||||||
400,000 |
(32)
|
— | 0.38 |
02/27/2015
|
|||||||||
200,000 |
(33)
|
— | 0.06 |
08/18/2016
|
|||||||||
|
|||||||||||||
Dr.
Thomas Spector
|
10,000 |
(34)
|
— | CAD$ | 2.20 |
09/24/2011
|
|||||||
60,000 |
(35)
|
20,000 | CAD$ | 1.35 |
07/01/2012
|
||||||||
17,493,939 |
(36)
|
— | CAD$ | 0.045 |
08/18/2017
|
(1)
|
The
current Stock Option Plan provides for grants denominated in US and CAD
dollars.
|
(2)
|
750,000
options were granted on: 2/19/2003 and vest as follows: 250,000 on
2/19/2003; 250,000 on 2/19/2004, and 250,000 on
2/19/2005
|
(3)
|
70,217
options were granted on: 12/30/2003 and vest as follows: 70,217 on
12/30/2003
|
(4)
|
700,000
options were granted on: 12/30/2003 and vest as follows: 233,334 on
12/30/2003, 233,333 on 12/30/2004 and 233,333 on
12/30/2005
|
(5)
|
234,000
options were granted on: 5/21/2004 and vest as follows: 234,000 on
5/21/2004
|
(6)
|
32,000
options were granted on: 12/17/2004 and vest as follows: 32,000 on
12/17/2004
|
(7)
|
441,601
options were granted on: 4/5/2005 and vest as follows: 441,601 on
4/5/2005
|
(8)
|
192,000
options were granted on: 4/5/2005 and vest as follows: 192,000 on
4/5/2005
|
(9)
|
150,000
options were granted on: 10/14/2005 and vest as follows: 50,000 on
10/14/2006; 50,000 on 10/14/2007 and 50,000 on
10/14/2008
|
(10)
|
30,000
options were granted on: 12/14/2005 and vest as follows: 10,000 on
12/14/2006; 10,000 on 12/14/2007 and 10,000 on
12/14/2008
|
(11)
|
400,000
options were granted on: 2/28/2007 and vest as follows: 133,334 on
2/28/2007; 133,333 on 2/29/2008 and 133,333 on
2/28/2009
|
(12)
|
3,000,000
options were granted on: 4/30/2007 and vest as follows: 1,000,000 on
4/30/2007; 1,000,000 on 4/30/2008 and 1,000,000 on
4/30/2009
|
64
(13)
|
1,000,000
options were granted on: 12/03/2007 and vest as follows: 333,334 on
12/03/2007; 333,333 on 12/03/2008. The remaining 333,333 options
scheduled to vest on 12/03/2009 were cancelled on July 2, 2009 in
accordance with Dr. Peter’s separation and mutual release
agreement.
|
(14)
|
2,000,000
options were granted on: 2/27/2008 and vest as follows: 2,000,000 on
2/27/2008
|
(15)
|
200,000
options were granted on: 4/26/2004 and vest as follows: 50,000 on
7/24/2004 ; 50,000 on 4/26/2005 and 50,000 on 4/26/2006 ; 50,000 on
4/26/2007
|
(16)
|
15,000
options were granted on: 5/21/2004 and vest as follows: 5,000 on
12/17/2004 ; 5,000 on 5/21/2006 and 5,000 on
5/21/2007
|
(17)
|
5,000
options were granted on: 12/17/2004 and vest as follows: 1,667 on
12/17/2005 ; 1,666 on 12/17/2006 and 1,667 on
12/17/2007
|
(18)
|
13,500
options were granted on: 9/21/2005 and vest as follows: 4,500 on 9/21/2006
; 4,500 on 9/21/2007 and 4,500 on
9/21/2008
|
(19)
|
39,000
options were granted on: 12/14/2005 and vest as follows: 13,000 on
12/14/2006 ; 13,000 on 12/14/2007 and 13,000 on
12/14/2008
|
(20)
|
50,000
options were granted on: 2/28/2007 and vest as follows: 16,667 on
2/28/2007; 16,666 on 2/29/2008 and 16,667 on
2/28/2009
|
(21)
|
900,000
options were granted on: 4/30/2007 and vest as follows: 300,000 on
4/30/2007; 300,000 on 4/30/2008 and 300,000 on
4/30/2009
|
(22)
|
300,000
options were granted on: 12/03/2007 and vest as follows: 100,000 on
12/03/2007; 100,000 on 12/03/2008 and 100,000 on
12/03/2009
|
(23)
|
400,000
options were granted on: 2/27/2008 and vest as follows: 400,000 on
2/27/2008
|
(24)
|
40,000
options were granted on: 5/3/2003 and vest as follows: 13,334 on 5/3/2004
; 13,333 on 5/3/2005 and 13,333 on
5/3/2006
|
(25)
|
75,600
options were granted on: 12/30/2003 and vest as follows: 25,200 on
12/30/2004 ; 25,200 on 12/30/2005 and 25,200 on
12/30/2006
|
(26)
|
36,400
options were granted on: 5/21/2004 and vest as follows: 10,000 on
12/17/2004 ; 14,266 on 5/21/2006 and 12,134 on
5/21/2007
|
(27)
|
15,000
options were granted on: 9/21/2005 and vest as follows: 5,000 on 9/21/2006
; 5,000 on 9/21/2007 and 5,000 on
9/21/2008
|
(28)
|
45,000
options were granted on: 12/14/2005 and vest as follows: 15,000 on
12/14/2006 ; 15,000 on 12/14/2007 and 15,000 on
12/14/2008
|
(29)
|
75,000
options were granted on: 2/28/2007 and vest as follows: 25,000 on
2/28/2007; 25,000 on 2/29/2008 and 25,000 on
2/28/2009
|
(30)
|
1,000,000
options were granted on: 4/30/2007 and vest as follows: 333,334 on
4/30/2007; 333,333 on 4/30/2008 and 333,333 on
4/30/2009
|
(31)
|
300,000
options were granted on: 12/03/2007 and vest as follows: 100,000 on
12/03/2007; 100,000 on 12/03/2008 and 100,000 on
12/03/2009
|
(32)
|
400,000
options were granted on: 2/27/2008 and vest as follows: 400,000 on
2/27/2008
|
(33)
|
200,000
options were granted on: 8/18/2009 and vest as follows: 200,000 on
8/18/2009.
|
(34)
|
10,000
options were granted on:
09/24/2004
|
(35)
|
80,000
options were granted on: 07/01/2005 with 20,000 excerisable on July 1,
2012.
|
(36)
|
17,493,939
options were granted on 08/18/2010 with all 17,493,939 immediately
exercisable.
|
No
Named Executive Officers exercised options in the year ended December 31, 2010
and 2009.
Termination
Benefits
In the
event of his termination with us other than for cause, we will pay Rostislav
Raykov $140,000 severance. In the event of his termination with us other
than for cause, we will pay Robert Andrade $140,000 severance. In the
event of his termination with us other than for cause, we will pay Dr. Thomas
Spector $150,000 severance.
Compensation
of Directors
Beginning
in the first quarter of the fiscal year ending December 31, 2009, the members of
the Board of Directors agreed to continue to serve for the benefit of
shareholders without cash compensation.
The
annual compensation considerations for non-executive directors also include the
awarding of stock options. The granting of options to the non-executive
directors under the Stock Option Plan serves three primary purposes: (1) to
recognize the significant time and effort commitments during the past year; (2)
to provide long-term incentives for future efforts since the value of the
options is directly dependent on the market valuation of the Corporation; and
(3) to retain quality individuals as the options typically vest over time.
When determining whether and how many new option grants will be made, the
Compensation Committee takes into account the amount and terms of any
outstanding options. Adherex does not require its non-executive directors
to own a specific amount of common stock.
65
For the
year ended December 31, 2009, the Board did not grant any further options to
purchase shares of common stock to the non-executive directors.
Director
Compensation Table
The
following table summarizes the compensation earned by or paid to the Company's
non-executive directors for the year ended December 31, 2010.
Name
|
Fees
Earned
or Paid
in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)(1)
|
Non-equity
incentive plan
compensation
($)
|
Nonqualified
deferred
compensation
earnings ($)
|
All other
compensation
($)
|
Total ($)
|
|||||||||||||||||||||
Mr.
Breen
|
— | — | 207,165 | — | — | — | 207,165 | |||||||||||||||||||||
Mr.
Bussandri
|
— | — | 207,165 | — | — | — | 207,165 | |||||||||||||||||||||
Mr.
Butts
|
— | — | — | — | — | — | — | |||||||||||||||||||||
Mr.
Lieberman
|
— | — | — | — | — | — | — | |||||||||||||||||||||
Dr.
Porter
|
— | — | 207,165 | — | — | — | 207,165 |
(1)
Represents the aggregate grant date fair value computed in accordance with FASB
ASC Topic 718. Dollar value amounts are based on individual grants of
4,603,668 options on August 18, 2010 at an exercise price of CAD $0.045, which
options expire on August 18, 2017 and vested in full on the date of
grant.
Pursuant
to an Independent Director Agreement dated as of May 3, 2010 between the Company
and each of Dr. Porter and Messrs. Breen and Bussandri, the Board approved as of
the same date: (a) the grant to each of Dr. Porter and Messrs. Breen and
Bassandri fully vested options to purchase 1.33% of Adherex’s common stock
outstanding upon completion of our April 30, 2010 rights offering and
conditioned upon the shareholders’ approval of the amended Stock Option Plan,
and (b) reimbursement for reasonable travel and related expenses incurred for
Dr. Porter and Messrs Breen and Bussandri. On August 18, 2010, following
shareholder approval, each of Dr. Porter and Messrs. Breen and Bussandri were
granted 4,603,668 options.
Mr.
Butts and Mr. Lieberman do not accept cash fees or stock for their participation
on the Board. Mr. Breen, Mr. Bussandri and Dr. Porter do not accept cash
fees for their participation on the Board.
Security
Ownership of Certain Beneficial Owners
The
following table sets forth information regarding shares of our common stock
beneficially owned as of January 31, 2011
by: (i) each of our officers and directors; (ii) all officers and directors as a
group; and (iii) each person known by us to beneficially own five percent or
more of the outstanding shares of our common stock. Except as indicated below,
the security holders listed possess sole voting and investment power with
respect to the shares beneficially owned by that person. Except as otherwise indicated below, the address
for each listed shareholder is c/o Adherex Technologies Inc., 501 Eastowne
Drive, Suite 140, Chapel Hill, North Carolina 27514.
66
Name
|
Common
Stock
|
Common
Stock
Options
Exercisable
Within
60 Days
|
Common
Stock
Purchase
Warrant
Exercisable
Within 60
Days
|
Total Stock
and Stock
Based
Holdings (1)
|
%
Ownership (1)
|
|||||||||||||||
Robert
Andrade
|
780,100
|
17,493,939
|
-
|
18,274,039
|
4.7
|
%
|
||||||||||||||
David
Lieberman (2)
|
200,000,000
|
200,000,000
|
400,000,000
|
70.3
|
%
|
|||||||||||||||
William
G. Breen
|
1,367,781
|
4,853,668
|
-
|
6,221,449
|
1.7
|
%
|
||||||||||||||
Claudio
F. Bussandri
|
-
|
4,853,668
|
-
|
4,853,668
|
1.3
|
%
|
||||||||||||||
Arthur
T. Porter
|
-
|
4,974,410
|
-
|
4,974,410
|
1.3
|
%
|
||||||||||||||
Rostislav
Raykov
|
1,000,000
|
17,493,939
|
-
|
18,493,939
|
4.8
|
%
|
||||||||||||||
Robert
Butts
|
41,504,000
|
41,504,000
|
83,008,000
|
20.2
|
%
|
|||||||||||||||
Thomas
Spector
|
-
|
17,563,939
|
-
|
17,563,939
|
4.6
|
%
|
||||||||||||||
All
officers and directors as a group (7 persons)
|
244,651,881
|
67,253,563
|
241,504,000
|
553,409,444
|
81.7
|
%
|
||||||||||||||
Southpoint
Capital Advisors LP (2)
|
200,000,000
|
-
|
200,000,000
|
400,000,000
|
70.3
|
%
|
*
Percentage of shares beneficially owned does not exceed one
percent.
(1)
|
For
purposes of this table “beneficial ownership” is determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, pursuant to
which a person or group of persons is deemed to have “beneficial
ownership” of any shares of common stock that such person or group has the
right to acquire within 60 days after January 31, 2011. For purposes of computing the
percentage of outstanding shares of common stock held by each person or
group of persons named above, any shares that such person or group has the
right to acquire within 60 days after January 31, 2011 are deemed outstanding but are not
deemed to be outstanding for purposes of computing the percentage
ownership of any other person or group. As of January 31, 2011,
there were 368,293,451 shares of our common stock issued and
outstanding.
|
(2)
|
David
Lieberman an employee of Southpoint Capital Advisors, LP, 623 Fifth
Avenue, Suite 2503, New York, New York 10022. John S. Clark, II
holds dispositive power over the shares owned by Southpoint Capital
Advisors, LP
|
67
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Related
Party Transactions
There
were no related party transactions in the last two years that were required to be reported under Item 404(d) of
Regulation S-K.
Director
Independence
LEGAL
MATTERS
Certain
legal matters in connection with the securities will be passed upon for us by
the law firm of LaBarge Weinstein P.C., Kanata, Ontario. LaBarga Weinstein
P.C. will not receive a direct or indirect interest in the small business issuer
and has never been a promoter, underwriter, voting trustee, director, officer or
employee of our company. Nor does LaBarge Weinstein P.C. have any
contingent based agreement with us or any other interest in or connection to
us.
EXPERTS
The
financial statements as of December 31, 2009 and for the year ended December 31,
2009 included in this Prospectus have been audited by Deloitte & Touche LLP,
Independent Registered Chartered Accountants, as stated in their report
appearing herein (which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the conditions and events that cast
substantial doubt on the Company’s ability to continue as a going
concern). Such financial statements have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The
financial statements as of December 31, 2008 and for the year ended December 31,
2008 included in this prospectus have been audited by PricewaterhouseCoopers
LLP, as stated in their report appearing herein. Such financial
statements have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
68
FINANCIAL
STATEMENTS
Index
to Financial Statements
|
Page
|
|
Reports
of Independent Registered Public Accounting Firm
|
70
|
|
Balance
Sheets at December 31, 2009 and 2008
|
72
|
|
Statements
of Operations for the years ended December 31, 2009 and
2008
|
73
|
|
Statements
of Cash Flows for the years ended December 31, 2009 and
2008
|
74
|
|
Statements
of Stockholders’ Equity (Deficit) for the years ended December 31, 2009
and 2008
|
75
|
|
Notes
to Financial Statements
|
78
|
|
Unaudited
Balance Sheet at September 30, 2010
|
100
|
|
Unaudited
Statements of Operations for the quarters ended September 30, 2010 and
2009
|
101
|
|
Unaudited
Statements of Cash Flows for the quarter ended September 30, 2010 and
2009
|
102
|
|
Notes
to Interim Financial Statements
|
103
|
69
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report
of Independent Registered Chartered Accountants
To the
Shareholders of Adherex Technologies Inc.
We have
audited the accompanying consolidated balance sheet of Adherex Technologies Inc.
and its subsidiaries (a development stage company) (the “Company”) as of
December 31, 2009 and the related consolidated statement of operations, cash
flows, and stockholders’ equity for the year ended December 31, 2009 and
cumulatively for the period from September 3, 1996 (date of inception) to
December 31, 2009. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audit. The Company's consolidated
financial statements as of and for the years ended December 31, 2008 and 2007,
and for the period from September 3, 1996 (date of inception) to December 31,
2008 were audited by other auditors whose report, dated March 30, 2009,
expressed an unqualified opinion on those statements. The financial statements
for the period from September 3, 1996 (date of inception) to December 31, 2008
reflected total revenues of $Nil and a net loss $97,821,000, and are included in
the related total revenues and net loss respectively for the period from
September 3, 1996 to December 31, 2009. Our opinion, insofar as it relates to
the amounts included for the period from September 3, 1996 to December 31, 2008,
is based solely on the report of such other auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and Canadian generally accepted
auditing standards. 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 Adherex Technologies Inc. and its
subsidiaries as of December 31, 2009 and the results of its operations and its
cash flows for the year then ended, and cumulatively for the period from
September 3, 1996 to December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America.
The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and has an accumulated deficit that raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/
Deloitte & Touche LLP
Independent
Registered Chartered Accountants
Licensed
Public Accountants
Ottawa,
Canada
March 30,
2010
70
Independent
Auditors’ Report
To the
Shareholders of Adherex Technologies Inc.
We
have audited the accompanying consolidated balance sheet of Adherex Technologies
Inc. (a development stage company) as of December 31, 2008 and the related
consolidated statements of operations, cash flows and stockholders’ equity for
the year ended December 31, 2008. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit of the Company’s financial statements as of December 31,
2008 and for the year ended December 31, 2008 in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit of financial statements 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 and evaluating the overall financial
statement presentation.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2008 and the results of its operations and its cash flows for the year ended
December 31, 2008 in accordance with accounting principles generally accepted in
the United States of America.
/s/
PricewaterhouseCoopers LLP
Chartered
Accountants, Licensed Public Accountants
Ottawa,
Canada
March 30,
2009
71
Adherex
Technologies Inc.
(a
development stage company)
Consolidated
Balance Sheets
(U.S.
Dollars and shares in thousands, except per share amounts)
December 31,
2009
|
December 31,
2008
|
|||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$
|
685
|
$
|
5,349
|
||||
Cash
pledged as collateral
|
-
|
52
|
||||||
Accounts
receivable
|
69
|
6
|
||||||
Investment
tax credits recoverable
|
-
|
133
|
||||||
Prepaid
expense
|
75
|
71
|
||||||
Other
current assets
|
4
|
28
|
||||||
Total
current assets
|
833
|
5,639
|
||||||
Capital
assets
|
-
|
136
|
||||||
Leasehold
improvements
|
-
|
285
|
||||||
Total
assets
|
$
|
833
|
$
|
6,060
|
||||
Liabilities
and stockholders’ equity
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$
|
318
|
$
|
547
|
||||
Accrued
liabilities
|
70
|
1,883
|
||||||
Other
current liabilities
|
32
|
-
|
||||||
Total
current liabilities
|
420
|
2,430
|
||||||
Deferred
lease inducements
|
-
|
570
|
||||||
Other
long-term liabilities
|
7
|
7
|
||||||
Total
liabilities
|
427
|
3,007
|
||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity
|
||||||||
Common
stock, no par value; unlimited shares authorized; 128,227 shares issued
and outstanding
|
64,929
|
64,929
|
||||||
Additional
paid-in capital
|
35,225
|
34,860
|
||||||
Deficit
accumulated during development stage
|
(100,991
|
)
|
(97,979
|
)
|
||||
Accumulated
other comprehensive income
|
1,243
|
1,243
|
||||||
Total
stockholders’ equity
|
406
|
3,053
|
||||||
Total
liabilities and stockholders’ equity
|
$
|
833
|
$
|
6,060
|
(The
accompanying notes are an integral part of these consolidated financial
statements)
72
Adherex
Technologies Inc.
(a
development stage company)
Consolidated
Statements of Operations
(U.S.
dollars and shares in thousands, except per share information)
Year Ended
December 31,
2009
|
Year Ended
December 31,
2008
|
Cumulative From
September 3, 1996
to
December 31, 2009
|
||||||||||
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Operating
expenses:
|
||||||||||||
Research
and development
|
2,113
|
10,366
|
64,890
|
|||||||||
Impairment
of Capital Assets
|
386
|
386
|
||||||||||
Gain
on Deferred lease inducements
|
(497
|
)
|
(497
|
)
|
||||||||
Acquired
in-process research and development
|
-
|
-
|
13,094
|
|||||||||
General
and administration
|
1,214
|
3,520
|
24,709
|
|||||||||
Loss
from operations
|
(3,216
|
)
|
(13,886
|
)
|
(102,583
|
)
|
||||||
Other
income (expense):
|
||||||||||||
Settlement
of Cadherin Biomedical Inc. litigation
|
-
|
-
|
(1,283
|
)
|
||||||||
Interest
expense
|
-
|
-
|
(19
|
)
|
||||||||
Other
income
|
157
|
-
|
255
|
|||||||||
Interest
income
|
47
|
286
|
2,797
|
|||||||||
Total
other income
|
204
|
286
|
1,750
|
|||||||||
Net
loss and total comprehensive loss
|
$
|
(3,012
|
)
|
$
|
(13,600
|
)
|
$
|
(100,833
|
)
|
|||
Net
loss per share of common stock, basic and diluted
|
$
|
(0.02
|
)
|
$
|
(0.11
|
)
|
||||||
Weighted-average
number of shares of common stock outstanding, basic and
diluted
|
128,227
|
128,227
|
(The
accompanying notes are an integral part of these consolidated financial
statements)
73
Adherex
Technologies Inc.
(a
development stage company)
Consolidated
Statements of Cash Flows
(U.S.
Dollars and shares in thousands, except per share amounts)
Year Ended
December 31,
2009
|
Year Ended
December 31,
2008
|
Cumulative
From
September 3,
1996 to
December 31,
2009
|
||||||||||
Cash
flows from (used in):
|
||||||||||||
Operating
activities:
|
||||||||||||
Net
loss
|
$
|
(3,012
|
)
|
$
|
(13,600
|
)
|
$
|
(100,833
|
)
|
|||
Adjustments
for non-cash items:
|
||||||||||||
Depreciation
and amortization
|
-
|
164
|
1,404
|
|||||||||
Non-cash
Cadherin Biomedical Inc. litigation expense
|
-
|
-
|
1,187
|
|||||||||
Unrealized
foreign exchange loss
|
-
|
-
|
9
|
|||||||||
Loss
on impairment of capital assets
|
386
|
-
|
386
|
|||||||||
Amortization
of and gain on lease inducements
|
(538
|
)
|
(11
|
)
|
(412
|
)
|
||||||
Non-cash
severance expense
|
-
|
-
|
168
|
|||||||||
Stock
options issued to consultants
|
10
|
88
|
722
|
|||||||||
Stock
options issued to employees
|
355
|
2,417
|
7,703
|
|||||||||
Acquired
in-process research and development
|
-
|
-
|
13,094
|
|||||||||
Changes
in operating assets and liabilities
|
(1,889
|
)
|
134
|
(140
|
)
|
|||||||
Net
cash used in operating activities
|
(4,688
|
)
|
(10,808
|
)
|
(76,889
|
)
|
||||||
Investing
activities:
|
||||||||||||
Purchase
of capital assets
|
-
|
(15
|
)
|
(1,440
|
)
|
|||||||
Disposal
of capital assets
|
-
|
-
|
115
|
|||||||||
Proceeds
from sale of assets
|
24
|
24
|
||||||||||
Release
of restricted cash
|
-
|
-
|
190
|
|||||||||
Restricted
cash
|
-
|
-
|
(209
|
)
|
||||||||
Purchase
of short-term investments
|
-
|
-
|
(22,148
|
)
|
||||||||
Redemption
of short-term investments
|
-
|
-
|
22,791
|
|||||||||
Investment
in Cadherin Biomedical Inc.
|
-
|
-
|
(166
|
)
|
||||||||
Acquired
intellectual property rights
|
-
|
-
|
(640
|
)
|
||||||||
Net
cash provided from (used in) investing activities
|
24
|
(15
|
)
|
(1,507
|
)
|
|||||||
Financing
activities:
|
||||||||||||
Conversion
of long-term debt to equity
|
-
|
-
|
68
|
|||||||||
Long-term
debt repayments
|
-
|
-
|
(65
|
)
|
||||||||
Capital
lease repayments
|
-
|
-
|
(8
|
)
|
||||||||
Issuance
of common stock
|
-
|
-
|
76,687
|
|||||||||
Registration
expense
|
-
|
-
|
(465
|
)
|
||||||||
Financing
expenses
|
-
|
-
|
(544
|
)
|
||||||||
Proceeds
from convertible note
|
-
|
-
|
3,017
|
|||||||||
Other
liability repayments
|
-
|
-
|
(87
|
)
|
||||||||
Security
deposits received
|
-
|
7
|
35
|
|||||||||
Proceeds
from exercise of stock options
|
-
|
-
|
51
|
|||||||||
Net
cash provided from financing activities
|
-
|
7
|
78,713
|
|||||||||
Effect
of exchange rate changes on cash and cash equivalents
|
-
|
3
|
368
|
|||||||||
Net
change in cash and cash equivalents
|
(4,664
|
)
|
(10,813
|
)
|
685
|
|||||||
Cash
and cash equivalents - Beginning of period
|
5,349
|
16,162
|
-
|
|||||||||
Cash
and cash equivalents - End of period
|
$
|
685
|
$
|
5,349
|
685
|
(The
accompanying notes are an integral part of these consolidated financial
statements)
74
Adherex
Technologies Inc.
(a
development stage company)
Consolidated
Statements of Stockholders' Equity
(U.S.
dollars and shares in thousands, except per share information)
Common Stock
|
Non-redeemable
Preferred
Stock
of
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Deficit
Accumulated
During
Development
|
Total
Shareholders’
|
|||||||||||||||||||||||
Number
|
Amount
|
Subsidiary
|
Capital
|
Income
|
Stage
|
Equity
|
||||||||||||||||||||||
Balance
at June 30, 1996
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||||||||
Issuance
of common stock
|
1,600
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(37
|
)
|
(37
|
)
|
|||||||||||||||||||
Balance
at June 30, 1997
|
1,600
|
-
|
-
|
-
|
-
|
(37
|
)
|
(37
|
)
|
|||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(398
|
)
|
(398
|
)
|
|||||||||||||||||||
Balance
at June 30, 1998
|
1,600
|
-
|
-
|
-
|
-
|
(435
|
)
|
(435
|
)
|
|||||||||||||||||||
Exchange
of Adherex Inc. shares for Adherex Technologies Inc.
shares
|
(1,600
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Issuance
of common stock
|
4,311
|
1,615
|
-
|
-
|
-
|
-
|
1,615
|
|||||||||||||||||||||
Cumulative
translation adjustment
|
-
|
-
|
-
|
-
|
20
|
-
|
20
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(958
|
)
|
(958
|
)
|
|||||||||||||||||||
Balance
at June 30, 1999
|
4,311
|
1,615
|
-
|
-
|
20
|
(1,393
|
)
|
242
|
||||||||||||||||||||
Issuance
of common stock
|
283
|
793
|
-
|
-
|
-
|
-
|
793
|
|||||||||||||||||||||
Issuance
of equity rights
|
-
|
-
|
-
|
171
|
-
|
-
|
171
|
|||||||||||||||||||||
Issuance
of special warrants
|
-
|
-
|
-
|
255
|
-
|
-
|
255
|
|||||||||||||||||||||
Settlement
of advances:
|
||||||||||||||||||||||||||||
Issuance
of common stock
|
280
|
175
|
-
|
-
|
-
|
-
|
175
|
|||||||||||||||||||||
Cancellation
of common stock
|
(120
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Cumulative
translation adjustment
|
-
|
-
|
-
|
-
|
16
|
-
|
16
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(1,605
|
)
|
(1,605
|
)
|
|||||||||||||||||||
Balance
at June 30, 2000
|
4,754
|
2,583
|
-
|
426
|
36
|
(2,998
|
)
|
47
|
||||||||||||||||||||
Issuance
of common stock:
|
||||||||||||||||||||||||||||
Initial
Public Offering (“IPO”)
|
1,333
|
5,727
|
-
|
-
|
-
|
(38
|
)
|
5,689
|
||||||||||||||||||||
Other
|
88
|
341
|
-
|
-
|
-
|
-
|
341
|
|||||||||||||||||||||
Issuance
of special warrants
|
-
|
-
|
-
|
1,722
|
-
|
-
|
1,722
|
|||||||||||||||||||||
Conversion
of special warrants
|
547
|
1,977
|
-
|
(1,977
|
)
|
-
|
-
|
-
|
||||||||||||||||||||
Issuance
of Series A special warrants
|
-
|
-
|
-
|
4,335
|
-
|
-
|
4,335
|
|||||||||||||||||||||
Conversion
of Series A special warrants
|
1,248
|
4,335
|
-
|
(4,335
|
)
|
-
|
-
|
-
|
||||||||||||||||||||
Conversion
of equity rights
|
62
|
171
|
-
|
(171
|
)
|
-
|
-
|
-
|
||||||||||||||||||||
Cumulative
translation adjustment
|
-
|
-
|
-
|
-
|
182
|
-
|
182
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(2,524
|
)
|
(2,524
|
)
|
|||||||||||||||||||
Balance
at June 30, 2001
|
8,032
|
15,134
|
-
|
-
|
218
|
(5,560
|
)
|
9,792
|
||||||||||||||||||||
Cumulative
translation adjustment
|
-
|
-
|
-
|
-
|
11
|
-
|
11
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
(3,732
|
)
|
(3,732
|
)
|
||||||||||||||||||||
Balance
at June 30, 2002
|
8,032
|
15,134
|
-
|
-
|
229
|
(9,292
|
)
|
6,071
|
(The
accompanying notes are an integral part of these consolidated financial
statements)
(continued
on next page)
75
Common Stock
|
Non-redeemable
Preferred
Stock
of
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Deficit
Accumulated
During
Development
|
Total
Shareholders’
|
|||||||||||||||||||||||
Number
|
Amount
|
Subsidiary
|
Capital
|
Income
|
Stage
|
Equity
|
||||||||||||||||||||||
Balance
at June 30, 2002
|
8,032
|
15,134
|
-
|
-
|
229
|
(9,292
|
)
|
6,071
|
||||||||||||||||||||
Common
stock issued for Oxiquant acquisition
|
8,032
|
11,077
|
-
|
543
|
-
|
-
|
11,620
|
|||||||||||||||||||||
Exercise
of stock options
|
5
|
4
|
-
|
-
|
-
|
-
|
4
|
|||||||||||||||||||||
Distribution
to shareholders
|
-
|
-
|
-
|
-
|
-
|
(158
|
)
|
(158
|
)
|
|||||||||||||||||||
Stated
capital reduction
|
-
|
(9,489
|
)
|
-
|
9,489
|
-
|
-
|
-
|
||||||||||||||||||||
Stock
options issued to consultants
|
-
|
-
|
-
|
4
|
-
|
-
|
4
|
|||||||||||||||||||||
Equity
component of June convertible notes
|
-
|
-
|
-
|
1,058
|
-
|
-
|
1,058
|
|||||||||||||||||||||
Financing
warrants
|
-
|
-
|
-
|
53
|
-
|
-
|
53
|
|||||||||||||||||||||
Cumulative
translation adjustment
|
-
|
-
|
-
|
-
|
(159
|
)
|
-
|
(159
|
)
|
|||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(17,795
|
)
|
(17,795
|
)
|
|||||||||||||||||||
Balance
at June 30, 2003
|
16,069
|
16,726
|
-
|
11,147
|
70
|
(27,245
|
)
|
698
|
||||||||||||||||||||
Stock
options issued to consultants
|
-
|
-
|
-
|
148
|
-
|
-
|
148
|
|||||||||||||||||||||
Repricing
of warrants related to financing
|
-
|
-
|
-
|
18
|
-
|
-
|
18
|
|||||||||||||||||||||
Equity
component of December convertible notes
|
-
|
-
|
-
|
1,983
|
-
|
-
|
1,983
|
|||||||||||||||||||||
Financing
warrants
|
-
|
-
|
-
|
54
|
-
|
-
|
54
|
|||||||||||||||||||||
Conversion
of June convertible notes
|
1,728
|
1,216
|
-
|
(93
|
)
|
-
|
-
|
1,123
|
||||||||||||||||||||
Conversion
of December convertible notes
|
1,085
|
569
|
-
|
(398
|
)
|
-
|
-
|
171
|
||||||||||||||||||||
Non-redeemable
preferred stock
|
-
|
-
|
1,045
|
-
|
-
|
-
|
1,045
|
|||||||||||||||||||||
December
private placement
|
11,522
|
8,053
|
-
|
5,777
|
-
|
-
|
13,830
|
|||||||||||||||||||||
May
private placement
|
4,669
|
6,356
|
-
|
2,118
|
-
|
-
|
8,474
|
|||||||||||||||||||||
Exercise
of stock options
|
18
|
23
|
-
|
-
|
-
|
-
|
23
|
|||||||||||||||||||||
Amalgamation
of 2037357 Ontario Inc.
|
800
|
660
|
(1,045
|
)
|
363
|
-
|
-
|
(22
|
)
|
|||||||||||||||||||
Cumulative
translation adjustment
|
-
|
-
|
-
|
-
|
(219
|
)
|
-
|
(219
|
)
|
|||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(6,872
|
)
|
(6,872
|
)
|
|||||||||||||||||||
Balance
at June 30, 2004
|
35,891
|
33,603
|
-
|
21,117
|
(149
|
)
|
(34,117
|
)
|
20,454
|
|||||||||||||||||||
Stock
options issued to consultants
|
-
|
-
|
-
|
39
|
-
|
-
|
39
|
|||||||||||||||||||||
Stock
options issued to employees
|
-
|
-
|
-
|
604
|
-
|
-
|
604
|
|||||||||||||||||||||
Cost
related to SEC registration
|
-
|
(493
|
)
|
-
|
-
|
-
|
-
|
(493
|
)
|
|||||||||||||||||||
Acquisition
of Cadherin Biomedical Inc.
|
644
|
1,252
|
-
|
-
|
-
|
-
|
1,252
|
|||||||||||||||||||||
Cumulative
translation adjustment
|
-
|
-
|
-
|
-
|
1,392
|
-
|
1,392
|
|||||||||||||||||||||
Net
loss – six months ended December 31, 2004
|
-
|
-
|
-
|
-
|
-
|
(6,594
|
)
|
(6,594
|
)
|
|||||||||||||||||||
Balance
at December 31, 2004
|
36,535
|
34,362
|
-
|
21,760
|
1,243
|
(40,711
|
)
|
16,654
|
(The
accompanying notes are an integral part of these consolidated financial
statements)
(continued
on next page)
76
Adherex
Technologies Inc.
(a
development stage company)
Consolidated
Statements of Stockholders' Equity (continued)
(U.S.
dollars and shares in thousands, except per share information)
Common Stock
|
Non-redeemable
Preferred
Stock
of
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Deficit
Accumulated
During
Development
|
Total
Shareholders’
|
|||||||||||||||||||||||
Number
|
Amount
|
Subsidiary
|
Capital
|
Income
|
Stage
|
Equity
|
||||||||||||||||||||||
Balance
at December 31, 2004
|
36,535
|
34,362
|
-
|
21,760
|
1,243
|
(40,711
|
)
|
16,654
|
||||||||||||||||||||
Financing
costs
|
-
|
(141
|
)
|
-
|
-
|
-
|
-
|
(141
|
)
|
|||||||||||||||||||
Exercise
of stock options
|
15
|
25
|
-
|
-
|
-
|
-
|
25
|
|||||||||||||||||||||
Stock
options issued to consultants
|
-
|
-
|
-
|
276
|
-
|
-
|
276
|
|||||||||||||||||||||
July
private placement
|
6,079
|
7,060
|
-
|
1,074
|
-
|
-
|
8,134
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(13,871
|
)
|
(13,871
|
)
|
|||||||||||||||||||
Balance
at December 31, 2005
|
42,629
|
41,306
|
-
|
23,110
|
1,243
|
(54,582
|
)
|
11,077
|
||||||||||||||||||||
Stock
options issued to consultants
|
-
|
-
|
-
|
100
|
-
|
-
|
100
|
|||||||||||||||||||||
Stock
options issued to employees
|
-
|
-
|
-
|
491
|
-
|
-
|
491
|
|||||||||||||||||||||
May
private placement
|
7,753
|
5,218
|
-
|
822
|
-
|
-
|
6,040
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(16,440
|
)
|
(16,440
|
)
|
|||||||||||||||||||
Balance
at December 31, 2006
|
50,382
|
46,524
|
-
|
24,523
|
1,243
|
(71,022
|
)
|
1,268
|
||||||||||||||||||||
Stock
options issued to consultants
|
-
|
-
|
-
|
59
|
-
|
-
|
59
|
|||||||||||||||||||||
Stock
options issued to employees
|
-
|
-
|
-
|
2,263
|
-
|
-
|
2,263
|
|||||||||||||||||||||
February
financing
|
75,759
|
17,842
|
-
|
5,379
|
-
|
-
|
23,221
|
|||||||||||||||||||||
Exercise
of warrants
|
2,086
|
563
|
-
|
131
|
-
|
-
|
694
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(13,357
|
)
|
(13,357
|
)
|
|||||||||||||||||||
Balance
at December 31, 2007
|
128,227
|
64,929
|
-
|
32,355
|
1,243
|
(84,379
|
)
|
14,148
|
||||||||||||||||||||
Stock
options issued to consultants
|
-
|
-
|
-
|
88
|
-
|
-
|
88
|
|||||||||||||||||||||
Stock
options issued to employees
|
-
|
-
|
-
|
2,417
|
-
|
-
|
2,417
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(13,600
|
)
|
(13,600
|
)
|
|||||||||||||||||||
Balance
at December 31, 2008
|
128,227
|
$
|
64,929
|
$
|
-
|
$
|
34,860
|
$
|
1,243
|
$
|
(97,979
|
)
|
$
|
3,053
|
||||||||||||||
Stock
options issued to consultants
|
-
|
-
|
-
|
10
|
-
|
-
|
10
|
|||||||||||||||||||||
Stock
options issued to employees
|
-
|
-
|
-
|
355
|
-
|
-
|
355
|
|||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(3,012
|
)
|
(3,012
|
)
|
|||||||||||||||||||
Balance
at December 31, 2009
|
128,227
|
$
|
64,929
|
$
|
-
|
$
|
35,225
|
$
|
1,243
|
$
|
(100,991
|
)
|
$
|
407
|
(The
accompanying notes are an integral part of these consolidated financial
statements)
77
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Consolidated Statements
1.
Going Concern
Adherex
Technologies Inc. (“Adherex”), a Canadian Corporation together with its wholly
owned subsidiaries Oxiquant, Inc. (“Oxiquant”) and Adherex, Inc., both Delaware
corporations, and Cadherin Biomedical Inc. (“CBI”), a Canadian corporation,
collectively referred to herein as the “Company,” is a development stage
biopharmaceutical company with a portfolio of product candidates under
development for use in the treatment of cancer. With the exception of
Adherex Technologies Inc., all subsidiaries are inactive.
These
consolidated financial statements have been prepared using generally accepted
accounting principles (“GAAP”) in the United States (“U.S.”) of America that are
applicable to a going concern which contemplates that the Company will continue
in operation for the foreseeable future and will be able to realize its assets
and discharge its liabilities in the normal course of business.
The
Company is a development stage company and during the year ended December 31,
2009, incurred a net loss of $3,012. At December 31, 2009, it had an
accumulated deficit of $100,991, and had experienced negative cash flows from
operations since inception in the amount of $77,048. Also, at December 31,
2009, the Company has cash and cash equivalents of $685,000, which based on
management’s current plans, will only be able to fund operations into the second
quarter of 2010. The Company continues to pursue various strategic
alternatives, including, collaborations with other pharmaceutical and
biotechnology companies; however, if a strategic transaction is not completed or
the Company does not otherwise obtain additional financial resources in the very
near term, it might cease operations sooner than first quarter of 2010.
The Company has also not been successful in obtaining additional financing
since February 2007. These circumstances lend substantial doubt as to the
ability of the Company to meet its obligations as they come due and,
accordingly, the use of accounting principles applicable to a going concern may
not be appropriate.
The
Company’s ability to continue as a going concern is dependent on the raising of
additional financial resources in the very near term. The Company does not
anticipate any revenues in the foreseeable future. If the Company is
unable to obtain adequate financial resources, it could be forced to cease
operations. The Company’s management is considering all financial
alternatives and seeking to raise additional funds for operations from current
stockholders, other potential investors, corporate partners, or other sources.
This disclosure is not an offer to sell, nor a solicitation of an offer to
buy the Company’s securities. While the Company is striving to achieve
these plans, there is no assurance that such funding will be obtainable on
favorable terms or at all.
These
financial statements do not reflect the potentially material adjustments in the
carrying values of assets and liabilities, the reported expenses, and the
balance sheet classifications used, that would be necessary if the going concern
assumption were not appropriate.
2.
Significant Accounting Policies
Basis
of presentation
Effective
January 1, 2007, the Company changed its primary basis of accounting to United
States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”). It
made this change to comply with U.S. securities law as a result of the loss of
the Company’s foreign private issuer status with the Securities and Exchange
Commission (“SEC”). The consolidated financial statements have been
prepared in U.S. dollars. The consolidated financial statements include
the accounts of Adherex and of all its wholly-owned subsidiaries and all
material inter-company transactions and balances have been eliminated upon
consolidation.
78
These
consolidated financial statements also conform in all material respects with
generally accepted accounting principles in Canada ("Canadian GAAP") except as
described in Note 10 in the consolidated financial statements.
Use
of estimates
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that impact the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as at
the date of the financial statements and the reported amounts of revenue and
expense during the reporting period. Significant estimates include certain
accruals and the value of stock based compensation. Actual results could
differ from those estimates.
Cash
and Cash Equivalents
Cash
equivalents consist of highly liquid investments with original maturities at the
date of purchase of three months or less.
The
Company places its cash and cash equivalents in investments held by financial
institutions in accordance with its investment policy designed to protect the
principal investment. At December 31, 2009, the Company had $685 in cash
accounts. Money market investments typically have minimal risk; however,
in recent months the financial markets have been volatile resulting in concerns
regarding money market investments. The Company did not experience any
loss or write down of its money market investments for the years ended December
31, 2009 and 2008.
79
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Consolidated Statements (continued)
Capital
assets
Capital
assets are initially recorded at cost and are then amortized using the declining
balance method at the following annual rates:
Furniture,
fixtures and office equipment
|
20
|
%
|
||
Computer
equipment
|
30
|
%
|
||
Computer
software
|
100
|
%
|
||
Laboratory
equipment
|
20
|
%
|
Leasehold
improvements are amortized on a straight-line basis over the lease
term.
Financial
instruments
Financial
instruments recognized on the balance sheets at December 31, 2009 and December
31, 2008 consist of cash and cash equivalents, cash pledged as collateral,
accounts receivable, accounts payable and other current liabilities, the
carrying value of which approximates fair value due to their relatively short
time to maturity. The Company does not hold or issue financial instruments
for trading purposes and does not hold any derivative financial
instruments.
The
Company’s investment policy is to manage investments to achieve, in the order of
importance, the financial objectives of preservation of principal, liquidity and
return on investment. Investments are made in U.S. or Canadian bank
securities, commercial paper of U.S. or Canadian industrial companies,
utilities, financial institutions and consumer loan companies, and securities of
foreign banks provided the obligations are guaranteed or carry ratings
appropriate to the policy. Securities must have a minimum Dun &
Bradstreet rating of A for bonds or R1 low for commercial paper.
The
policy risks are primarily the opportunity cost of the conservative nature of
the allowable investments. As the main purpose of the Company is research
and development, the Company has chosen to avoid investments of a trade or
speculative nature.
Deferred
leasehold inducements
Leasehold
inducements consist of periods of reduced rent and other capital inducements
provided by the lessor. The leasehold inducements relating to the reduced
rent periods are deferred and allocated over the term of the lease. The
Company has received lease inducements in the form of leasehold improvements and
rent-free periods.
Impairment
of long-lived assets
The
Company tests the recoverability of long-lived assets whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable.
The Company records an impairment loss in the period when it is determined that
the carrying amount of the asset may not be recoverable. The impairment
loss is calculated as the amount by which the carrying amount of the assets
exceeds the discounted cash flows from the asset.
Convertible
notes
The
Company splits convertible notes into their debt and detachable warrant
components based on the relative fair value of each component.
80
Common
stock and warrants
At
December 31, 2007, the Company had warrants outstanding to purchase common stock
that were denominated in both U.S. and Canadian dollars, which resulted in the
Company having warrants outstanding that were denominated outside the Company’s
U.S. dollar functional currency.
81
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Consolidated Statements (continued)
In
November 2007, the Emerging Issues Task Force (“EITF”) of the FASB issued EITF
No. 07-5, Issue Summary No.1 “Determining Whether an Instrument (or an Embedded
Feature) is Indexed to an Entity's Own Stock” (“EITF 07-5”), codified as ASC
815-40. In June 2008, one of the conclusions reached under EITF 07-05 was a
consensus that an equity-linked financial instrument would not be considered
indexed to the entity's own stock if the strike price is denominated in a
currency other than the issuer's functional currency. The issues brought to the
EITF for discussion related to how an entity should determine whether certain
instruments or embedded features are indexed to its own stock. This discussion
included equity-linked financial instruments where the exercise price is
denominated in a currency other than the issuer's functional currency; such as
the Company’s outstanding warrants to purchase common stock that were
denominated in Canadian dollars. This conclusion reached under EITF 07-05
clarified the accounting treatment for these and certain other financial
instruments as it related to FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS 133”), codified as ASC 815-10. SFAS
133 specifies that a contract that would otherwise meet the definition of a
derivative under SFAS 133, issued or held by the reporting entity that is both
(a) indexed to its own stock and (b) classified in stockholders' equity in its
statement of financial position should not be considered a derivative financial
instrument for purposes of applying SFAS 133. As a result, the Company’s
outstanding warrants denominated in Canadian dollars were not considered to be
indexed to its own stock and should therefore be treated as derivative financial
instruments and recorded at their fair value as a liability. EITF 07-05 is
effective for financial statements for fiscal years beginning after December 15,
2008 and earlier adoption is not permitted. Since the warrants to purchase
common stock that are denominated in Canadian dollars expired on December 19,
2008, EITF 07-5 did not have a material impact on the Company’s financial
statements as the Company did not issue further equity instruments denominated
outside its functional currency.
Revenue
recognition
The
Company recognizes revenue from multiple element arrangements under development
and license agreement, which include license payments, milestones and
royalties. Revenue arrangements with multiple deliverables are accounted
for in accordance with EITF No. 00-21, codified as ASC 605-25, “Revenue
Arrangements with Multiple Deliverables” and Staff Accounting Bulletin No. 101
“Revenue Recognition in Financial Statements” and are divided into separate
units of accounting if certain criteria are met. The consideration the
Company receives is allocated among the separate units of accounting based on
their respective fair values, and the applicable revenue recognition criteria
are considered separately for each of the separate units.
Non-refundable
up-front payments received in conjunction with the development and license
agreement, including license fees and milestones, are deferred and recognized on
a straight-line basis over the relevant periods.
The
Company records royalty revenue in accordance with the contract terms once it
can be reliably measured and the collection is reasonably assured.
Research
and development costs and investment tax credits
Research
costs, including employee compensation, laboratory fees, lab supplies, and
research and testing performed under contract by third parties, are expensed as
incurred. Development costs, including drug substance costs, clinical
study expenses and regulatory expenses are expensed as incurred.
Investment
tax credits, which are earned as a result of qualifying research and development
expenditures, are recognized when the expenditures are made and their
realization is reasonably assured. They are applied to reduce related
capital costs and research and development expenses in the year
recognized.
82
Income
taxes
The
Company accounts for income taxes under the asset and liability method that
requires the recognition of deferred tax assets or liabilities for the expected
future tax consequences of temporary differences between the financial statement
carrying amounts and tax basis of assets and liabilities. The Company
provides a valuation allowance to reduce its deferred tax assets when it is more
likely than not that such assets will not be realized.
The
Company accounts for uncertainty in income taxes by following the Financial
Accounting Standards Board issued Interpretation No. 48 (‘‘FIN 48’’), codified
as ASC 740-10-25, ‘‘Accounting for Uncertainty in Income Taxes – an
Interpretation of SFAS No. 109.’’ FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with Statement of Financial Accounting Standards No. 109,
‘‘Accounting for Income Taxes.’, codified as ASC 740-10. FIN 48
provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48
requires the evaluation of tax positions taken or expected to be taken in the
course of preparing tax returns to determine whether the tax positions have met
a “more-likely-than-not” threshold of being sustained by the applicable tax
authority. Tax benefits related to tax positions not deemed to meet the
“more-likely-than-not” threshold are not permitted to be recognized in the
financial statements. Upon adoption of FIN 48, the Company has
elected an accounting policy that continues to classify accrued interest and
penalties related to liabilities for income taxes in income tax
expense.
83
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Consolidated Statements (continued)
Foreign
currency translation
The U.S.
dollar is the functional currency for substantially all of the Company’s
consolidated operations. For those entities, all gains and losses from currency
translations are included in results of operations. For CBI which is using a
functional currency other than the U.S. dollar, the cumulative translation
effects are included in “accumulated other comprehensive income” in the
consolidated balance sheets.
Stock-Based
compensation plan
Effective
January 1, 2006, the Company adopted the fair value recognition requirements of
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
"Share-based Payment" ("SFAS No. 123(R)"), codified as ASC 718-10, using the
modified prospective transition method and therefore has not restated results
for prior periods. The Company recognizes these compensation costs net of
an estimated forfeiture rate on a straight-line basis over the requisite service
period of the award, which is generally three years.
Loss
per share
Basic net
loss per share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the year. Diluted net loss
per share is computed using the same method, except the weighted average number
shares of common stock outstanding include, convertible debentures, stock
options and warrants, if dilutive.
New
accounting pronouncements
In May
2009, the FASB issued authoritative guidance relating to subsequent events,
which is effective June 15, 2009. It provides guidance for disclosing events
that occur after the balance sheet date, but prior to the issuance of the
financial statements. We adopted this authoritative guidance on June 30, 2009.
The adoption of this authoritative guidance did not have any impact upon the
Company’s financial position or operating results.
In
December 2007, the Emerging Issue Task Force, or EITF, issued EITF No. 07-01,
“Accounting for Collaborative Arrangements Related to the Development and
Commercialization of Intellectual Property”, or EITF 07-01, codified as ASC
808-10. EITF 07-01 defines the accounting for collaborations between
participants. EITF 07-01 requires certain transactions between
collaborators to be recorded in the statement of operations on either a gross or
net basis within expense when certain characteristics exist in the collaborative
agreement. EITF 07-01 did not have a material impact on the Company’s
financial statements.
In
December 2007, the FASB issued ASC No. 805, Business Combinations” (“ASC 805”),
which, requires an acquiring company to measure all assets acquired and
liabilities assumed, including contingent considerations and all contractual
contingencies, at the fair value at the acquisition date. ASC 805
establishes principles and requirements for how the acquirer: i) recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed and any non-controlling interest in the acquiree;
ii) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and iii) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. The adoption
of ASC 805 did not have a material impact on the Company’s financial
statements.
84
In April
2008, the FASB issued pronouncements under ASC 350-30, General Intangibles Other
Than Goodwill (formerly FSP No. 142-3, Determination of the Useful Life of
Intangible Assets). ASC 350-30 amends the factors considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under ASC 350 (formerly SFAS No. 142, Goodwill and
Other Intangible Assets). ASC 350-30 requires a consistent approach between the
useful life of a recognized intangible asset under ASC 350 and the period of
expected cash flows used to measure the fair value of an asset under ASC 805-10.
ASC 350-30 also requires enhanced disclosures when an intangible asset’s
expected future cash flows are affected by an entity’s intent and/or ability to
renew or extend the arrangement. ASC 350-30 is effective for financial
statements issued for fiscal years beginning after December 15, 2008 and is
applied prospectively. The Company has adopted ASC 350-30 and applied its
various provisions as required as of January 1, 2009. The adoption of ASC 350-30
did not have a material impact on the Company’s financial position, results of
operations, or cash flows.
In April
2009, an update was made to the Financial Instruments topic of the FASB
codification Fair Value Measurements and
Disclosures that requires disclosures about the fair value of financial
instruments in interim financial statements as well as in annual financial
statements. The new guidance also amends the existing requirements on the fair
value disclosures in all interim financial statements. This guidance is
effective for interim periods ending after June 15, 2009, but early adoption was
permitted for interim periods ending after March 15, 2009. The adoption of this
standard did not have a material impact on the Company’s consolidated financial
position and results of operations.
85
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Consolidated Statements (continued)
In April
2009, an update was made to the Fair Value Measurements and Disclosures topic of
the FASB codification that provides additional guidance in determining fair
value when there is no active market or where price inputs being used represent
distressed sales. This guidance is effective for interim periods ending after
June 15, 2009, but early adoption was permitted for interim periods ending after
March 15, 2009. The adoption of this standard did not have an impact on the
Company’s consolidated financial position and results of
operations.
In April
2009, an update was made to the Debt and Equity topic of the FASB codification
that provides guidance in determining whether impairments of debt securities are
other than temporary, and modifies the presentation and disclosures surrounding
such instruments. This guidance is effective for interim periods ending after
June 15, 2009, but early adoption was permitted for interim periods ending after
March 15, 2009. The adoption of this standard did not have an impact on the
Company’s consolidated financial position and results of
operations.
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles, a replacement of
FASB Statement No. 162” (“SFAS 168”), which establishes the FASB Accounting
Standards Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied in the preparation of
financial statements in conformity with U.S. GAAP. SFAS 168 explicitly
recognizes rules and interpretative release of the SEC under federal securities
laws as authoritative U.S. GAAP. SFAS 168 if effective for interim and annual
periods ending after September 15, 2009. Accordingly, we are required to adopt
SFAS 168 on October 1, 2009. As the issuance of SFAS 168 and the Codification
does not change U.S. GAAP, the adoption of this standard is not expected to have
any impact on the Company’s financial statements.
Recent
accounting pronouncements
In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the
guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that begin
after November 15, 2009. This will not have an impact on the Company’s financial
position, results of operations or cash flows.
In
January 2010, an update was made to the Fair Value Measurements and Disclosures
topic of the FASB codification that requires new disclosures for fair value
measurements and provides clarification for existing disclosure requirements.
More specifically, this update will require (a) an entity to disclose separately
the amounts of significant transfers into and out of Level 1 and 2 fair value
measurements and to describe the reasons for the transfers; and (b) information
about purchases, sales, issuances, and settlements to be presented separately on
a gross basis in the reconciliation of Level 3 fair value measurements. This
update is effective for fiscal years beginning after December 15, 2009 except
for Level 3 reconciliation disclosures which are effective for fiscal years
beginning after December 15, 2010. The Company does not expect the adoption of
the guidance to have an impact on the Company’s consolidated financial position
and results of operations.
86
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Consolidated Statements (continued)
3.
Capital Assets
The
components of capital assets are presented below:
December 31, 2009
|
December 31, 2008
|
|||||||||||||||
Cost
|
Accumulated
Amortization
|
Cost
|
Accumulated
Amortization
|
|||||||||||||
Furniture,
fixtures and office equipment
|
$
|
-
|
$
|
-
|
$
|
92
|
$
|
78
|
||||||||
Computer
equipment
|
-
|
-
|
149
|
115
|
||||||||||||
Computer
software
|
-
|
-
|
162
|
162
|
||||||||||||
Laboratory
equipment
|
-
|
-
|
623
|
537
|
||||||||||||
Leasehold
improvements
|
-
|
-
|
4
|
2
|
||||||||||||
-
|
$
|
-
|
1,030
|
$
|
894
|
|||||||||||
Accumulated
amortization
|
-
|
(894
|
)
|
|||||||||||||
Net
book value
|
$
|
-
|
$
|
136
|
Amortization
expense for capital assets was $0 and $164 for the years ended December 31, 2009
and 2008, respectively.
At
December 31, 2009, the Company determined the carrying values of its capital
assets to be nil. In connection with the 75% reduction in the Company’s
employee headcount and limited financial resources, the Company had decided to
list idle laboratory equipment for sale as they are no longer required by the
business. During the second quarter ended June 30, 2009, the Company
received $24 from the sale of a portion of these assets. Management
determined the carrying values to be nil after not recording any other sale of
these assets during 2009. Accordingly, the Company recorded a $101 loss on
impairment of assets for the year ended December 31, 2009.
4.
Leasehold Improvements
On August
31, 2005, the Company entered into agreements to lease a new office and
laboratory facility (“Maplewood Facility”) and sublease the Company’s existing
facility (“Englert Facility”) on similar terms as in the original lease.
As an incentive to enter into the Maplewood Facility lease, the Company received
free rent and capital inducements. The Company only paid half rent for the
Maplewood Facility over the first 24 months of the 84-month lease term and
received additional inducements in the form of furniture, equipment and
leasehold improvements. In September 2009, the Company terminated the
Maplewood lease relating to the Company’s primary office facility in Research
Triangle Park for approximately $175,000.
Management has performed
an impairment analysis ASC Topic 360, ―Property, Plant and Equipment (previously
SFAS No. 144) and has determined that the leasehold improvements, consisting
primarily of equipment and leasehold improvements, were impaired at
December 31, 2009. At December 31, 2009, the Company determined the
fair value of these leasehold improvements to be nil. Accordingly, the
Company recorded a $285 loss on impairment in Consolidated Statement of
Operations for the year ended December 31, 2009.
The
Company had recorded rent expense by charging the total rental payments plus the
value of the capital inducements received against earnings on a straight-line
basis over the 84-month term of the lease, which expires on August 31,
2012.
87
5.
Shareholders’ Equity
Authorized
capital stock
The
Company’s authorized capital stock consists of an unlimited number of shares of
no par common stock.
Equity
financings
On
June 5, 2001, the Company completed an IPO issuing 1,333 shares of common stock
at a price of CAD$7.50 per share. Net proceeds of this offering credited
to common stock amounted to $5,727 after deducting the underwriting fee of $501
and expenses of $354. As additional compensation in connection with the
offering, the Company granted the underwriters non-assignable support options
representing ten percent of the offered shares. Each support option
entitled the holder to purchase one share of common stock on or before June 5,
2003 at CAD$7.50. The Company also granted the underwriters an option
(“Over-allotment Option”) to purchase up to 200 shares of common stock at the
offering price for a period ending 30 days from the close of the offering.
On July 5, 2001, the Over-allotment Option expired
unexercised.
88
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Consolidated Statements (continued)
On
December 19, 2003, the Company completed a private placement of equity
securities totaling $16,095, comprised of (i) $15,050 for 11,522 units, at a
price of CAD$1.75 per unit, comprised of an aggregate of 11,522 shares of common
stock and warrants to acquire 5,761 shares of common stock of Adherex with an
exercise price of CAD$2.15 per share which expired unexercised on December 19,
2008, and (ii) $1,045 for 800 Series 1 Preferred Shares and warrants to
purchase 400 Series 1 Preferred Shares of 2037357 Ontario Inc. The $5,777
estimated fair value of the warrants has been allocated to additional paid-in
capital and the balance of $8,053 has been credited to common stock. The
non-redeemable Series 1 Preferred Shares of 2037357 Ontario Inc. (“Preferred
Shares”) were exchangeable into 800 shares of common stock of Adherex.
Upon such an exchange, all of the then outstanding warrants to purchase the
Preferred Shares would be exchanged for an equal number of warrants to purchase
Adherex common stock, which would have an exercise price of CAD$2.15 per share
and expire on December 19, 2008. The $1,045 was to be spent on specific
research and development projects in Ontario, Canada as designated by
Adherex. Adherex could compel the exchange of the Preferred Shares into
common stock and warrants for common stock of Adherex at any time after January
3, 2005. The Company also issued broker warrants to purchase 1,226 shares
of common stock exercisable at a price of CAD$2.15 per share.
2037357
Ontario Inc. has been accounted for in accordance with the substance of the
transaction. The $1,045 has been recorded as non-redeemable Preferred
Shares and the amounts expended were recorded as expenses in the relevant
periods. On June 14, 2004, the preferred shares and warrants were
exchanged for 800 shares of Adherex common stock and warrants to purchase 400
shares of Adherex common stock, all of which expired on December 19, 2008.
In June 2004, 2037357 Ontario Inc. became a wholly owned subsidiary of the
Company and was amalgamated with Adherex Technologies Inc. The investment
has been split between the estimated fair value of the warrants of $363, which
has been included in additional paid-in capital, and the remainder of $660,
which has been recorded in common stock.
On May
20, 2004, the Company completed equity financings with total gross proceeds of
$9,029 less $555 of issuance costs. The Company issued 4,669 units at a
purchase price of CAD$2.65 per unit with each unit consisting of one share of
common stock and one-half of a common stock purchase warrant. Each whole
warrant entitled the holder to acquire one additional share of common stock at
an exercise price of CAD$3.50, all of which expired unexercised on May 19,
2007. The $2,118 value of the warrants has been allocated to additional
paid-in capital and the balance of $6,356 has been credited to common
stock.
On July
20, 2005, the Company completed a private placement of equity securities for
gross proceeds of $8,510 for 6,079 units at a price of $1.40 per unit, providing
net proceeds of $8,134 after deducting broker fees and other expenses of
$376. Each unit consisted of one common share and 0.30 of a common share
purchase warrant. The private placement comprised an aggregate of 6,079
shares of common stock, along with 1,824 investor warrants and 57 broker
warrants to acquire additional shares of Adherex common stock. Each whole
investor warrant entitled the holder to acquire one additional share of common
stock of Adherex at an exercise price of $1.75 per share for a period of three
years and each whole broker warrant entitled the holder to acquire one share of
Adherex common stock at an exercise price of $1.75 for a period of two years,
all of which expired unexercised on July 20, 2007 and 2008, respectively.
The warrants, with a value of $1,074 based on the Black-Scholes option pricing
model, have been allocated to additional paid-in capital and the remaining
balance of $7,060 has been credited to common stock.
89
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Consolidated Statements (continued)
On May 8,
2006, the Company completed a private placement of equity securities for gross
proceeds of $6,512 for 7,753 units at a price of $0.84 per unit providing net
proceeds of $6,040 after deducting broker fees and certain other expenses.
Each unit consisted of one common share and 0.30 of a common share purchase
warrant. The private placement comprised an aggregate of 7,753 shares of
common stock, along with 2,326 investor warrants and 465 broker warrants to
acquire additional shares of Adherex common stock. Each whole investor
warrant entitled the holder to acquire one additional share of Adherex common
stock at an exercise price of $0.97 per share for a period of four years.
Each whole broker warrant entitles the holder to acquire one share of Adherex
common stock at an exercise price of $0.97 per share for a period of two years,
all of which expired unexercised on May 7, 2008. The warrants, with a
value of $822 based on the Black-Scholes option pricing model, have been
allocated to additional paid-in capital and the remaining balance of $5,218 has
been credited to common stock.
On
February 21, 2007, the Company completed the sale of equity securities providing
gross proceeds of $25,000 for 75,759 units at a price of $0.33 per unit
providing net proceeds of $23,221 after deducting broker fees and other
expenses. Each unit consisted of one common share and one-half of a common
share purchase warrant. The offering comprised an aggregate of 75,759
shares of common stock, 37,879 investor warrants and 6,618 broker warrants to
acquire additional shares of Adherex common stock. Each whole investor
warrant entitled the holder to acquire one additional share of Adherex common
stock at an exercise price of $0.40 per share for a period of three years.
Each whole broker warrant entitles the holder to acquire one additional unit at
an exercise price of $0.33 per unit for a period of two years, the unexercised
portion of which expired on February 21, 2009. The warrants, with a value
of $5,379 based on the Black-Scholes option pricing model, have been allocated
to additional paid-in-capital and the remaining balance of $17,842 has been
included in common stock.
During
the second quarter of fiscal 2007, the Company received gross proceeds of $694
related to the exercise of warrants and issued 2,086 shares of common stock and
1,000 additional investor warrants, which entitle the holder to acquire one
additional share of Adherex common stock at an exercise price of $0.40 per share
and which expire on February 21, 2010. The warrants exercised during the
period included 86 investor warrants with an exercise price of $0.40 per share
and 2,000 broker warrants with an exercise price of $0.33 per unit. The
warrants, with a value of $131 based on the Black-Scholes option pricing model,
have been allocated to additional paid-in capital and the remaining balance of
$563 has been included in common stock.
Special
warrants
From May
2000 through November 2000, the Company issued special warrants. Each
special warrant was sold for CAD$25.00 and entitled the holder thereof to
acquire, for no additional consideration, four shares of common stock of the
Company. The special warrants also included a price protection adjustment
determined by dividing CAD$32.50 by the initial public offering (“IPO”) price of
CAD$7.50.
During
the year ended June 30, 2000, 16 of 126 special warrants were issued, with the
balance of 110 issued in the year ended June 30, 2001. Upon completion of
the IPO, on June 5, 2001, these special warrants were converted to 547 shares of
common stock, which included 42 shares of common stock issued under the price
protection adjustment.
Special
A warrants
During
October 2000, the Company issued Series A special warrants. Each Series A
special warrant was sold at CAD$6.25 and entitled the holder to acquire, for no
additional consideration, one share of common stock of the Company. The
Series A special warrants also included a price protection adjustment determined
by dividing CAD$8.125 by the IPO price.
90
Upon
completion of the IPO on June 5, 2001, these Series A special warrants were
converted to 1,248 shares of common stock, which included 96 shares of common
stock issued under the price protection adjustment.
In
addition, each Series A special warrant included a share purchase warrant
entitling the holder to purchase an additional share of common stock at the IPO
price, which was also subject to the price protection adjustment, so that 1,248
additional common stock could have been sold at the IPO price. These share
purchase warrants expired unexercised on September 3, 2001.
Equity
rights
On
September 28, 1999, University Medical Discoveries Inc. (“UMDI”) invested $171
for equity of the Company. The form of this equity was to be the same as
the first class of securities to raise greater than $683 subsequent to the date
of the investment. The date of conversion was dependent on certain
milestones being met under a specific research project. On August 24,
2000, the Company and UMDI agreed to convert UMDI’s $171 investment into 62
shares of common stock of the Company.
91
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Consolidated Statements (continued)
Triathlon
settlement
During
fiscal 2000, other advances totaling $175 were settled by the issuance to
Triathlon Limited of 280 shares of common stock of the Company. The number
of shares issued was determined with reference to the fair value at the time the
advances were made.
Shire
BioChem Inc. agreement
On August
17, 2000, the Company entered into a subscription agreement and a license
agreement with Shire BioChem Inc. (“BioChem”). Under the
subscription agreement, BioChem purchased 88 shares of common stock of the
Company for $341. Pursuant to a price protection clause in the agreement,
an additional eight shares of common stock were issued on completion of the
Company’s IPO on June 5, 2001.
Acquisitions
On
November 20, 2002, the Company issued 8,032 shares of commons stock to acquire
all of the issued and outstanding securities of Oxiquant, a holding company
which held certain intellectual property rights, including rights to sodium
thiosulfate.
In
connection with the acquisition of the intellectual property of Oxiquant in
November 2002, the Company issued 461 warrants with an exercise price of
CAD$3.585 that expired unexercised on May 20, 2007 and 170 introduction warrants
with an exercise price of CAD$2.05 that expired unexercised on November 20,
2007.
As a
prerequisite of the Oxiquant transaction, Adherex licensed all of its
Cadherin-related intellectual property for non-cancer applications and
transferred $158 in cash to Cadherin Biomedical Inc. or CBI, a wholly-owned
subsidiary of Adherex at the time, in return for Class A Preferred Shares of
CBI. These CBI Class A Preferred Shares were then distributed to all of
the Adherex shareholders of record by way of special dividend, effecting a “spin
out” of CBI and the non-cancer assets from Adherex.
In order
to effect such a distribution under Section 42 of the Canada Business
Corporations Act (“CBCA”), the Company was legally required to reduce its stated
capital so that the aggregate amount of its liabilities and stated capital did
not exceed the realizable value of Adherex’s assets. Management determined
that the stated capital needed to be reduced by $9,489, in order to comply with
the requirements of Section 42 of the CBCA. The Company decreased common stock
and increased additional paid-in capital by $9,489.
In
February 2004, the Company and CBI became involved in litigation. On
December 3, 2004, the Company and CBI settled the litigation and the Company
agreed to acquire all of the issued and outstanding shares of CBI and reacquire
the non-cancer rights to the cadherin-based intellectual property. As part
of the agreement, the Company issued 644 common shares valued at $1,252, net of
transaction costs.
Convertible
note warrants
On
June 23, 2003, the Company issued senior secured convertible notes with a face
value totaling $2,219. These notes were convertible into common stock and
warrants to acquire common stock of the Company upon completion of an equity
fund raising round. Investors also received warrants to purchase an
aggregate of 345 shares of common stock of the Company with an exercise price of
CAD$2.75 per share that expired unexercised on June 23, 2007. The notes
bore interest at an annual rate of eight percent compounded semi-annually,
and matured one year from issue but were renewable for one additional year at
the option of the Company. In connection with this issuance, the Company
issued broker warrants to purchase 101 shares of common stock exercisable at a
price of CAD$2.35 per share which expired unexercised on June 23, 2005. As
an inducement to consent to the issuance of the December 2003 convertible notes,
the exercise price of these warrants was changed from CAD$2.75 per share to
CAD$2.05 per share on December 3, 2003.
92
On
December 3, 2003, the Company issued additional senior secured convertible notes
with a face value totaling CAD$1,458. These notes were convertible into
common stock and warrants to acquire common stock of the Company upon completion
of an equity fund raising round. Also, investors received warrants for 271
shares of common stock exercisable at a price of CAD$2.15 per share which
expired unexercised on December 3, 2007. The notes bore interest at
an annual rate of eight percent compounded semi-annually, and matured one
year from issue but were renewable for one additional year at the option of the
Company. The Company also issued broker warrants to purchase 94 shares of
common stock exercisable at a price of CAD$2.15 per share which expired
unexercised on December 3, 2005.
On
December 19, 2003, the Company completed an equity financing resulting in the
conversion of the June and the December notes into 2,813 shares of common stock
with a carrying value of $1,785 credited to common stock. In
addition, the Company issued 1,407 warrants to purchase common stock with an
exercise price of CAD$2.15 per share which expired unexercised on December 19,
2008.
93
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Consolidated Statements (continued)
Warrants
to Purchase Common Stock
At
December 31, 2009, the Company had the following warrants to purchase common
stock outstanding priced in U.S. dollars with a weighted average exercise price
of $0.43 and a weighted average remaining life of 0.16 years:
Warrant Description
|
Number
Outstanding at
December 31,
2009
|
Exercise Price
In U.S. Dollars
|
Expiration Date
|
||||||
Investor
warrants
|
38,793
|
$
|
0.40
|
|
February
20, 2010
|
||||
Investor
warrants
|
2,326
|
$
|
0.97
|
May
7, 2010
|
|||||
41,119
|
The
38,793 warrants with an exercise price of $0.40 expired on February 20,
2010.
Stock
options
The
Compensation Committee of the Board of Directors administers the Company’s stock
option plan. The Compensation Committee designates eligible participants
to be included under the plan and approves the number of options to be granted
from time to time under the plan. A maximum of 20,000 options, not
including the 700 options issued to the Chief Executive Officer and specifically
approved by the shareholders, are authorized for issuance under the plan.
The option exercise price for all options issued under the plan is based on the
fair value of the underlying shares on the date of grant. All options vest
within three years or less and are exercisable for a period of seven years from
the date of grant. The stock option plan, as amended, allows the issuance
of Canadian and U.S. dollar grants. A summary of the stock option
transactions, for both the Canadian and U.S. dollar grants, through the year
ended December 31, 2009 is below.
The
following options granted under the stock option plan are exercisable in
Canadian dollars:
Exercise Price in Canadian
Dollars
|
||||||||||||
Number of
Options
|
Range
|
Weighted-
average
|
||||||||||
Outstanding
at December 31, 2007
|
2,939
|
$
|
1.65
- 3.25
|
$
|
2.18
|
|||||||
Granted
|
-
|
-
|
-
|
|||||||||
Exercised
|
-
|
-
|
-
|
|||||||||
Cancelled
|
(166
|
)
|
1.65 - 3.25
|
1.99
|
||||||||
Outstanding
at December 31, 2008
|
2,773
|
1.65
- 3.25
|
2.19
|
|||||||||
Granted
|
-
|
-
|
-
|
|||||||||
Exercised
|
-
|
-
|
-
|
|||||||||
Cancelled
|
(150
|
)
|
1.65 - 3.25
|
1.99
|
||||||||
Outstanding
at December 31, 2009
|
2,623
|
$
|
1.65 - 3.25
|
$
|
2.19
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||||
Range of
Exercise Price in
Canadian Dollars
|
Number Outstanding
at December 31, 2009
|
Weighted-
average
Exercise Price in
Canadian Dollars
|
Weighted-average
Remaining
Contractual Life
(years)
|
Number
Outstanding at
December 31,
2009
|
Weighted-average
Exercise Price
|
Weighted-
average Remaining
Contractual Life
(years)
|
||||||||||||||||||
$
1.63
-
$1.75
|
848
|
$
|
1.66
|
0.19
|
848
|
$
|
1.66
|
0.19
|
||||||||||||||||
$
1.76
-
$2.00
|
191
|
1.98
|
1.92
|
191
|
1.98
|
1.92
|
||||||||||||||||||
$
2.01
-
$2.25
|
956
|
2.25
|
1.01
|
956
|
2.25
|
1.01
|
||||||||||||||||||
$
2.26
-
$3.00
|
526
|
2.80
|
1.36
|
526
|
2.80
|
1.36
|
||||||||||||||||||
$ 3.01
- $3.25
|
101
|
3.25
|
1.16
|
101
|
3.25
|
1.16
|
||||||||||||||||||
2,623
|
$
|
2.19
|
1.15
|
2,623
|
$
|
2.19
|
1.15
|
94
The
following options granted under the stock option plan are exercisable in U.S.
dollars:
Exercise Price in U.S. Dollars
|
||||||||||||
Number of
Options
|
Range
|
Weighted-
average
|
||||||||||
Outstanding
at December 31, 2007
|
12,724
|
$
|
0.28
- 1.35
|
$
|
0.58
|
|||||||
Granted
|
3,318
|
0.10
- 0.38
|
0.37
|
|||||||||
Exercised
|
-
|
-
|
-
|
|||||||||
Cancelled
|
(409
|
)
|
0.28 - 1.20
|
0.50
|
||||||||
Outstanding
at December 31, 2008
|
15,633
|
0.10
- 1.35
|
0.54
|
|||||||||
Granted
|
200
|
0.06
|
0.06
|
|||||||||
Exercised
|
-
|
-
|
-
|
|||||||||
Cancelled
|
(2,632
|
)
|
0.28 - 1.20
|
0.50
|
||||||||
Outstanding
at December 31, 2009
|
13,201
|
$
|
0.10 - 1.35
|
$
|
0.55
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||||
Range of
Exercise Price in
U.S. Dollars
|
Number Outstanding at
December 31,
2009
|
Weighted-
average
Exercise Price
|
Weighted-average
Remaining
Contractual Life
(years)
|
Number
Outstanding at
December 31,
2009
|
Weighted-
average
Exercise Price
|
Weighted-
average
Remaining
Contractual
Life
(years)
|
||||||||||||||||||
$
0.05
- $0.30
|
2,705
|
$
|
0.26
|
4.02
|
2,683
|
$
|
0.26
|
4.00
|
||||||||||||||||
$
0.31
- $0.50
|
2,873
|
0.38
|
3.22
|
2,862
|
0.38
|
3.21
|
||||||||||||||||||
$
0.51
- $0.75
|
6,368
|
0.63
|
3.21
|
6,235
|
0.63
|
3.18
|
||||||||||||||||||
$ 0.76
- $1.35
|
1,255
|
1.17
|
2.41
|
1,235
|
1.16
|
2.41
|
||||||||||||||||||
13,201
|
$
|
0.55
|
3.35
|
13,014
|
$
|
0.55
|
3.32
|
Stock
compensation expense for the fiscal years ended December 31, 2009, 2008 and 2007
was $365, $2,505 and $2,322, respectively. The weighted average fair value
per share of options granted during the fiscal years ended December 31, 2009,
2008 and 2007 was $0.06, $0.29 and $0.43, respectively. There was no
intrinsic value in stock options outstanding at December 31, 2009.
The
fair values of options granted in fiscal years ended December 31, 2008, 2007 and
2006 were estimated on the date the options were granted based on the
Black-Scholes option-pricing model, using the following weighted average
assumptions:
Year Ended
December 31,
2009
|
Year Ended
December 31,
2008
|
Year Ended
December 31,
2007
|
||||||||||
Expected
dividend
|
0
|
%
|
0
|
%
|
0
|
%
|
||||||
Risk-free
interest rate
|
3.00
|
%
|
3.16
|
%
|
4.58
|
%
|
||||||
Expected
volatility
|
85.6
|
%
|
85.6
|
%
|
77.7
|
%
|
||||||
Expected
life
|
7
years
|
7
years
|
7
years
|
The
Company uses the historical volatility and adjusts for available relevant market
information pertaining to the Company’s share price.
95
6.
Research and Development
Investment
tax credits earned as a result of qualifying research and development
expenditures and government grants have been applied to reduce research and
development expenses as follows:
Year Ended
December 31,
|
Year Ended
December 31,
|
Year Ended
December 31,
|
Cumulative
From
September 3,
1996 to
December 31,
|
|||||||||||||
2009
|
2007
|
2006
|
2009
|
|||||||||||||
Research
and development
|
$
|
2,113
|
$
|
10,366
|
$
|
10,912
|
$
|
66,182
|
||||||||
Investment
tax credits
|
-
|
-
|
-
|
(1,632
|
)
|
|||||||||||
National
Research Council grants
|
-
|
-
|
-
|
(197
|
)
|
|||||||||||
$
|
2,113
|
$
|
10,366
|
$
|
10,912
|
$
|
64,353
|
7.
Capital and Operating Lease
Commitments
The
Company has entered into operating lease agreements for the office and
laboratory facilities located in the United States. As of December 31,
2009, the minimum cash payments per the lease agreements are as
follows:
Year Ending
|
Amount
|
|||
December
31, 2010
|
$
|
100
|
||
December
31, 2011
|
-
|
|||
December
31, 2012
|
-
|
|||
December
31, 2013 and thereafter
|
-
|
|||
Total
minimum rent payments
|
$
|
100
|
The table
above includes a lease agreement for the Englert Facility which has been
subleased to a third party until September 30, 2010. Under the terms of
the operating lease for the facilities, the Company financed $80 of leasehold
improvements through the building’s owner. The amount is being financed
over the term of the lease which expires in September 2010 and bears an annual
interest rate of six percent. This obligation was assumed by the sublessee
when the Company subleased the facility to a third party; however, should the
sublessee default, the Company would become liable and assume all obligations
included in the Englert Facility lease agreement. The Company has recorded $7 as
a long term liability on the balance sheet related to the security deposit
recoverable by sublessee from the Company.
Rental
payments on operating leases are summarized in the table below:
Year Ending
|
Rent
Amount
|
Interest
|
||||||
December
31, 2009
|
$
|
477
|
$
|
-
|
||||
December
21, 2008
|
464
|
-
|
||||||
December
31, 2007
|
327
|
-
|
8.
Commitments and
Contingencies
Oregon
Health & Science University agreement
The
Company has an exclusive license agreement with Oregon Health & Science
University (“OHSU”) for exclusive worldwide license rights to intellectual
property directed to thiol-based compounds, including STS and their use in
oncology. OHSU will receive certain milestone payments, a 2.5 percent
royalty on net sales for licensed products and a 15 percent royalty on any
consideration received from sublicensing of the licensed technology.
Milestone payment fees payable to OHSU include: $50 upon completion of Phase I
clinical trials; $200 upon completion of Phase II clinical trials; $500 upon
completion of Phase III clinical trials; and $250 upon first commercial sale for
any licensed product. To date, no milestone payments have been accrued or
paid.
96
GlaxoSmithKline
On July
14, 2005, the Company entered into a development and license agreement with
GlaxoSmithKline (“GSK”). The agreement included the in-license by Adherex
of GSK’s oncology product, eniluracil, and an option for GSK to license
ADH-1. As part of the transaction, GSK invested $3,000 in the Company's
common stock. On October 11, 2006, the GSK option to license ADH-1 expired
unexercised. Under the terms of the agreement relating to eniluracil,
Adherex received an exclusive license to develop eniluracil for all indications
and GSK retained options to buy-back and assume development of the compound at
various points in time. On March 1, 2007, the GSK agreement was amended
and the Company purchased all of GSK’s remaining buy-back options for a fee of
$1,000. The Company is now required to pay GSK development and sales
milestones and double-digit royalties. Specifically, if the Company files
a New Drug Application (“NDA”) with the Food and Drug Administration (“FDA”),
the Company may be required to pay development milestones of $5,000 to
GSK. Depending upon whether the NDA is approved by the FDA and whether
eniluracil becomes a commercial success, the Company may be required to pay up
to an additional $70,000 in development and sales milestones for the initially
approved indication, plus 14-16% royalties based on annual net sales. If
the Company pursues other indications, it may be required to pay up to an
additional $15,000 to GSK per FDA-approved indication.
McGill
Agreement
On
February 26, 2001, the Company entered into a general collaboration agreement
with McGill that grants the Company a 27-year exclusive, worldwide license to
develop, use and market certain cell adhesion technology and compounds.
The license agreement provides for the Company to pay future royalties of
two percent of gross revenues from the use of the technology and
compounds. The agreement also provided for the Company to make payments as
follows:
·
|
CAD$100
if the Company has not filed an investigational new drug (“IND”)
application, or similar application with Canadian, US, European or a
recognized agency, relating to the licensed product prior to September 23,
2002. On August 1, 2002, McGill acknowledged that work completed on
the clinical development of ADH-1 was sufficient to meet the requirements
of the September 23, 2002 milestone and thus no payment was
required.
|
·
|
CAD$100
if the Company has not commenced Phase II clinical trials in a recognized
jurisdiction on any licensed product prior to September 23, 2004. On
September 20, 2004, McGill acknowledged that the Company had met
obligations with respect to the September 23, 2004 milestone and thus no
payment was required.
|
·
|
CAD$200
if the Company has not commenced Phase III clinical trials in a recognized
jurisdiction on any licensed product prior to September 23, 2006, which
was paid in fiscal year 2007.
|
In
addition, the Company is required to fund mutually agreed upon research at
McGill over a period of ten years totaling CAD$3,300. Annual funding
commenced in 2001 with a total payment of CAD$200 and increases annually by
10 percent through to the tenth year of the agreement when annual funding
reaches CAD$500. The additional research commitment can be deferred in any
year if it exceeds five percent of the Company’s cash and cash equivalents
and at December 31, 2009, there have been no deferrals with respect to this
provision. The Company receives certain intellectual property rights
resulting from this research.
The
agreement with McGill was terminated on November 19, 2009.
9.
Income Taxes
The
Company operates in several tax jurisdictions. Its income is subject to
varying rates of tax and losses incurred in one jurisdiction cannot be used to
offset income taxes payable in another. A reconciliation of the combined
Canadian federal and provincial income tax rate with the Company’s effective tax
rate is as follows:
97
Year Ended
December 31,
|
Year Ended
December 31,
|
Year Ended
December 31,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
Domestic
loss
|
(1,804
|
)
|
$
|
(9,432
|
)
|
$
|
(9,104
|
)
|
||||
Foreign
loss
|
(1,208
|
)
|
(4,168
|
)
|
(4,253
|
)
|
||||||
Loss
before income taxes
|
(3,012
|
)
|
(13,600
|
)
|
(13,357
|
)
|
||||||
Expected
statutory rate (recovery)
|
30.9
|
%
|
30.90
|
%
|
32.02
|
%
|
||||||
Expected
provision for (recovery of) income tax
|
(931
|
)
|
(4,203
|
)
|
(4,277
|
)
|
||||||
Permanent
differences
|
113
|
779
|
746
|
|||||||||
Change
in valuation allowance
|
(3,290
|
)
|
3,171
|
3,813
|
||||||||
Non-refundable
investment tax credits
|
(573
|
)
|
(22
|
)
|
(22
|
)
|
||||||
Share
issue costs and effect of change of carryforwards
|
-
|
(90
|
)
|
(352
|
)
|
|||||||
Effect
of foreign exchange rate differences
|
(876
|
)
|
(143
|
)
|
(637
|
)
|
||||||
Expiry
of loss
|
1,111
|
-
|
-
|
|||||||||
Effect
of change in future enacted tax rates
|
-
|
886
|
916
|
|||||||||
Effect
of tax rate changes and other
|
4,446
|
(378
|
)
|
(187
|
)
|
|||||||
Provision
for income taxes
|
$
|
-
|
$
|
-
|
$
|
-
|
The
Canadian statutory come tax rate of 30.9 percent is comprised of federal
income tax at approximately 19 percent and provincial income tax at
approximately 11.8 percent.
The
primary temporary differences which gave rise to future income taxes (recovery)
at December 31, 2009, December 31, 2008 and December 31, 2007 are as
follows:
December 31,
2009
|
December 31,
2008
|
December 31,
2007
|
||||||||||
Future
tax assets:
|
||||||||||||
SR&ED
expenditures
|
2,117
|
$
|
2,062
|
$
|
1,931
|
|||||||
Income
tax loss carryforwards
|
17,651
|
21,307
|
19,243
|
|||||||||
Non-refundable
investment tax credits
|
1,633
|
1,116
|
1,090
|
|||||||||
Share
issue costs
|
187
|
298
|
425
|
|||||||||
Accrued
expenses
|
27
|
137
|
153
|
|||||||||
Fixed
and intangible assets
|
832
|
818
|
1,058
|
|||||||||
Harmonization
credit
|
287
|
-
|
-
|
|||||||||
22,448
|
25,738
|
23,900
|
||||||||||
Less:
valuation allowance
|
(22,448
|
)
|
(25,738
|
)
|
(23,900
|
)
|
||||||
Net
future tax assets
|
$
|
-
|
$
|
-
|
$
|
-
|
There are
no current income taxes owed, nor are any income taxes expected to be owed in
the near term.
98
At
December 31, 2009 the Company has unclaimed Scientific Research and Experimental
Development ("SR&ED") expenditures, income tax loss carry forwards and
non-refundable investment tax credits. The unclaimed amounts and
their expiry dates are as listed below:
Federal
|
Province/
State
|
|||||||
SR&ED
expenditures (no expiry)
|
$
|
7,872
|
$
|
1,580
|
||||
Income
tax loss carryforwards (expiry date):
|
||||||||
2014
|
5,786
|
6,537
|
||||||
2015
|
10,928
|
11,680
|
||||||
2021
|
26
|
-
|
||||||
2022
|
233
|
-
|
||||||
2023
|
133
|
-
|
||||||
2024
|
1,536
|
1,455
|
||||||
2025
|
4,795
|
4,768
|
||||||
2026
|
19,982
|
19,970
|
||||||
2027
|
8,136
|
8,128
|
||||||
2028
|
10,509
|
10,492
|
||||||
2029
|
3,553
|
3,552
|
||||||
Investment
tax credits (expiry date):
|
||||||||
2018
|
9
|
-
|
||||||
2019
|
7
|
-
|
||||||
2020
|
91
|
-
|
||||||
2021
|
52
|
-
|
||||||
2022
|
521
|
-
|
||||||
2023
|
379
|
-
|
||||||
2024
|
169
|
-
|
||||||
2025
|
189
|
-
|
||||||
2026
|
82
|
-
|
||||||
2027
|
86
|
-
|
||||||
2028
|
47
|
-
|
||||||
2029
|
-
|
-
|
99
Adherex
Technologies Inc.
(a
development stage company)
Unaudited
Interim Condensed Consolidated Balance Sheets
(U.S.
Dollars and shares in thousands, except per share amounts)
September 30,
2010
|
December 31,
2009
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 6,602 | $ | 685 | ||||
Accounts
receivable
|
1 | 69 | ||||||
Prepaid
expense
|
- | 75 | ||||||
Other
current assets
|
- | 4 | ||||||
Total
current assets
|
6,603 | 833 | ||||||
Total
assets
|
$ | 6,603 | $ | 833 | ||||
Liabilities
and Stockholders' Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 156 | $ | 318 | ||||
Accrued
liabilities
|
150 | 70 | ||||||
Other
current liabilities
|
- | 32 | ||||||
Total
current liabilities
|
306 | 420 | ||||||
Other
long-term liabilities
|
- | 7 | ||||||
Derivative
warrant liability
|
4,692 | - | ||||||
Total
liabilities
|
4,998 | 427 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity:
|
||||||||
Common
stock, no par value; unlimited shares authorized; 368,293 and 128,227
shares issued and outstanding at September 30, 2010 and December 31, 2009,
respectively
|
64,929 | 64,929 | ||||||
Additional
paid-in capital
|
37,664 | 35,225 | ||||||
Deficit
accumulated during development stage
|
(102,231 | ) | (100,991 | ) | ||||
Accumulated
other comprehensive income
|
1,243 | 1,243 | ||||||
Total
stockholders’ equity
|
1,605 | 406 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 6,603 | $ | 833 |
(The
accompanying notes are an integral part of these interim consolidated financial
statements)
100
Adherex
Technologies Inc.
(a
development stage company)
Unaudited
Interim Condensed Consolidated Statements of Operations
(U.S.
Dollars and shares in thousands, except per share amounts)
Three Months Ended
|
Nine Months Ended
|
Cumulative
From
September 3,
1996 to
|
||||||||||||||||||
September
30,
2010
|
September
30,
2009
|
September 30,
2010
|
September 30,
2009
|
September
30,
2010
|
||||||||||||||||
Revenue
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Operating
expenses:
|
||||||||||||||||||||
Research
and development
|
110 | 47 | 419 | 1,976 | 65,309 | |||||||||||||||
Impairment
of Capital Assets
|
- | - | - | - | 386 | |||||||||||||||
(Gain)
on deferred lease inducements
|
- | (323 | ) | - | (323 | ) | (497 | ) | ||||||||||||
Acquired
in-process research and development
|
- | - | - | - | 13,094 | |||||||||||||||
Loss
(gain) on impairment of asset held for sale
|
- | 57 | 386 | (204 | ) | |||||||||||||||
General
and administrative
|
807 | 293 | 3,369 | 1,276 | 28,078 | |||||||||||||||
Total
operating expenses
|
917 | 74 | 3,788 | 3,315 | 106,166 | |||||||||||||||
Loss
from operations
|
(917 | ) | (74 | ) | (3,788 | ) | (3,315 | ) | (106,166 | ) | ||||||||||
Other
income (expense):
|
||||||||||||||||||||
Settlement
of Cadherin litigation
|
- | - | - | - | (1,283 | ) | ||||||||||||||
Interest
expense
|
- | - | - | - | (19 | ) | ||||||||||||||
Unrealized
gain on derivative
|
2,570 | - | 2,498 | - | 2,498 | |||||||||||||||
Other
Income
|
28 | 39 | 29 | 50 | 79 | |||||||||||||||
Interest
income
|
13 | - | 21 | 46 | 2,818 | |||||||||||||||
Total
other income (expense), net
|
2,611 | 39 | 2,548 | 96 | 4,093 | |||||||||||||||
Net
Income/(loss) and total comprehensive income/(loss)
|
$ | 1,694 | $ | (35 | ) | $ | (1,240 | ) | $ | (3,219 | ) | $ | (102,073 | ) | ||||||
Basic
and diluted net income (loss) per common share
|
$ | 0.01 | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | |||||||||
Weighted-average
common shares used in computing basic and diluted net loss per common
share
|
368,293 | 128,227 | 261,597 | 128,227 |
(The
accompanying notes are an integral part of these interim condensed consolidated
financial statements)
101
Adherex
Technologies Inc.
(a
development stage company)
Unaudited
Interim Condensed Consolidated Statements of Cash Flows
(U.S.
Dollars and shares in thousands, except per share amounts)
Three Months Ended
|
Nine Months Ended
|
Cumulative
From
September 3,
|
||||||||||||||||||
September 30,
2010
|
September 30,
2009
|
September 30,
2010
|
September 30,
2009
|
1996 to
September 30,
2010
|
||||||||||||||||
Cash
flows from (used in):
|
||||||||||||||||||||
Operating
activities:
|
||||||||||||||||||||
Net
income (loss)
|
$ | 1,694 | $ | (35 | ) | $ | (1,240 | ) | $ | (3,219 | ) | $ | (102,073 | ) | ||||||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||||||||||
Depreciation
and amortization
|
- | - | - | - | 1,404 | |||||||||||||||
Non-cash
Cadherin Biomedical Inc. litigation
|
- | - | - | - | 1,187 | |||||||||||||||
Unrealized
gain on warrant derivative
|
(2,570 | ) | - | (2,498 | ) | - | (2,498 | ) | ||||||||||||
Amortization
of deferred lease inducements
|
- | (323 | ) | - | (347 | ) | (412 | ) | ||||||||||||
Unrealized
foreign exchange loss
|
- | - | - | - | 9 | |||||||||||||||
Loss
on impairment of capital assets
|
- | 57 | - | 386 | 386 | |||||||||||||||
Non-cash
severance
|
- | - | - | - | 168 | |||||||||||||||
Stock-based
compensation - consultants
|
- | - | - | 10 | 722 | |||||||||||||||
Stock-based
compensation - employees
|
386 | 9 | 2,439 | 532 | 9,966 | |||||||||||||||
Acquired
in-process research and development
|
- | - | - | - | 13,094 | |||||||||||||||
Changes
in operating assets and liabilities
|
(60 | ) | (382 | ) | 26 | (1,867 | ) | (115 | ) | |||||||||||
Net
cash used in operating activities
|
(550 | ) | (672 | ) | (1,273 | ) | (4,505 | ) | (78,162 | ) | ||||||||||
Investing
activities:
|
||||||||||||||||||||
Purchase
of capital assets
|
- | - | - | - | (1,440 | ) | ||||||||||||||
Disposal
of capital assets
|
- | - | - | - | 115 | |||||||||||||||
Proceeds
from sale of assets
|
- | - | - | 24 | 24 | |||||||||||||||
Release
of restricted cash
|
- | - | - | - | 190 | |||||||||||||||
Restricted
cash
|
- | - | - | - | (209 | ) | ||||||||||||||
Purchase
of short-term investments
|
- | - | - | - | (22,148 | ) | ||||||||||||||
Redemption
of short-term investments
|
- | - | - | - | 22,791 | |||||||||||||||
Investment
in Cadherin Biomedical Inc.
|
- | - | - | - | (166 | ) | ||||||||||||||
Acquired
intellectual property rights
|
- | - | - | - | (640 | ) | ||||||||||||||
Net
cash provided by (used in) investing activities
|
- | - | - | 24 | (1,483 | ) | ||||||||||||||
Financing
activities:
|
||||||||||||||||||||
Conversion
of long-term debt to equity
|
- | - | - | - | 68 | |||||||||||||||
Long-term
debt repayment
|
- | - | - | - | (65 | ) | ||||||||||||||
Capital
lease repayments
|
- | - | - | - | (8 | ) | ||||||||||||||
Issuance
of units, net of issue costs
|
- | - | 7,190 | - | 83,877 | |||||||||||||||
Registration
expense
|
- | - | - | - | (465 | ) | ||||||||||||||
Proceeds
from convertible note
|
- | - | - | - | 3,017 | |||||||||||||||
Other
liability repayments
|
- | - | - | - | (87 | ) | ||||||||||||||
Financing
expenses
|
- | - | - | - | (544 | ) | ||||||||||||||
Security
deposits received
|
- | - | - | - | 35 | |||||||||||||||
Proceeds
from exercise of stock options
|
- | - | - | - | 51 | |||||||||||||||
Net
cash provided by financing activities
|
- | - | 7,190 | - | 85,879 | |||||||||||||||
Effect
of exchange rate on cash and cash equivalents
|
- | - | - | - | 368 | |||||||||||||||
Increase
(decrease) in cash and cash equivalents
|
(550 | ) | (672 | ) | 5,917 | (4,481 | ) | 6,602 | ||||||||||||
Cash
and cash equivalents - Beginning of period
|
7,152 | 1,540 | 685 | 5,349 | - | |||||||||||||||
Cash
and cash equivalents - End of period
|
$ | 6,602 | $ | 868 | $ | 6,602 | $ | 868 | $ | 6,602 |
(The
accompanying notes are an integral part of these interim condensed consolidated
financial statements)
102
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Unaudited Interim Condensed Consolidated Statements
1. Going
Concern
Adherex
Technologies Inc. (“Adherex”), together with its wholly owned subsidiaries
Oxiquant, Inc. (“Oxiquant”) and Adherex, Inc., both Delaware corporations, and
Cadherin Biomedical Inc. (“CBI”), a Canadian corporation, collectively referred
to herein as the “Company” is a development stage biopharmaceutical company
focused on cancer therapeutics.
These
unaudited interim consolidated financial statements have been prepared using
generally accepted accounting principles (“GAAP”) in the United
States. The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
During
the three months ended September 30, 2010, the Company earned net income of $1.7
million and during the nine months ended September 30, 2010, the Company
incurred a net loss of $1.2 million. At September 30, 2010, it had an
accumulated deficit of $102.2 million and had experienced negative cash flows
from operations since inception in the amount of $78.2 million. These
circumstances lend substantial doubt as to the ability of the Company to meet
its obligations as they come due and, accordingly, the use of accounting
principles applicable to a going concern may not be appropriate. The Company
will need to obtain additional funding in the future in order to finance our
business strategy, operations and growth through the issuance of equity, debt or
collaboration. If we fail to arrange for sufficient capital on a
timely basis, we may be required to curtail our business activities until we can
obtain adequate financing.
These
financial statements do not reflect the potentially material adjustments in the
carrying values of assets and liabilities, the reported expenses, and the
balance sheet classifications used, that would be necessary if the going concern
assumption were not appropriate.
2.
|
Significant
Accounting Policies
|
Basis
of presentation
The
accompanying unaudited interim consolidated financial statements have been
prepared in accordance with U.S. GAAP and are the responsibility of the
Company’s management. These financial statements do not include all
of the information and notes required by U.S. GAAP for complete financial
statements. Accordingly, these unaudited interim condensed
consolidated financial statements should be read in conjunction with the
Company's audited financial statements and notes filed with the Securities and
Exchange Commission (“SEC”) in the Company's Annual Report on Form 10-K for the
year ended December 31, 2009. Except as set out below, the Company's
accounting policies are consistent with those presented in the audited financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 2009. These unaudited interim condensed consolidated
financial statements have been prepared in U.S. dollars.
Use
of estimates
The
preparation of financial statements in conformity with GAAP requires management
to make judgments, assumptions and estimates that affect the amounts reported in
these interim condensed consolidated financial statements. Actual
results could differ from these estimates. In the opinion of
management, these unaudited interim consolidated financial statements include
all normal and recurring adjustments, considered necessary for the fair
presentation of the Company’s financial position at September 30, 2010, and to
state fairly the results for the periods presented.
Cash
and cash equivalents
Cash and
cash equivalents consist of highly liquid investments with original maturities
at the date of purchase of three months or less.
The
Company places its cash and cash equivalents in investments held by financial
institutions in accordance with its investment policy designed to protect the
principal investment. At September 30, 2010, the Company had $5.9
million in money market investments, which typically have minimal risk, and $0.7
million in cash. The financial markets have been volatile
resulting in concerns regarding the recoverability of money market
investments. The Company did not experience any loss or write down of
its money market investments for the nine-month periods ended September 30, 2010
and 2009, respectively.
3.
|
Accounting
Change
|
The
Company reclassified the unrealized gain on derivative to other income (expense)
in the interim condensed consolidated statements of operations; the amount was
previously reported as an operating expense. This reclassification
has no effect on previously reported net income/loss for the three and six month
period ended June 30, 2010. or on basic and diluted net income/loss per common
share for the previously reported three and six month period ended June 30,
2010.
103
4.
|
Recent
Accounting Pronouncements
|
In
January 2010, an update was made to the Fair Value Measurements and Disclosures
topic of the FASB codification that requires new disclosures for fair value
measurements and provides clarification for existing disclosure requirements.
More specifically, this update will require (a) an entity to disclose separately
the amounts of significant transfers into and out of Level 1 and 2 fair value
measurements and to describe the reasons for the transfers; and (b) information
about purchases, sales, issuances, and settlements to be presented separately on
a gross basis in the reconciliation of Level 3 fair value measurements. This
update is effective for fiscal years beginning after December 15, 2009 except
for Level 3 reconciliation disclosures which are effective for fiscal years
beginning after December 15, 2010. The Company does not expect the adoption of
the guidance to have an impact on the Company’s consolidated financial position
and results of operations.
5.
|
Derivative
Instruments
|
Effective
January 1, 2009, the Company adopted ASC Topic 815-40, "Derivatives and Hedging"
(ASC 815-40). One of the conclusions reached under ASC 815-40 was that an
equity-linked financial instrument would not be considered indexed to the
entity's own stock if the strike price is denominated in a currency other than
the issuer's functional currency. The conclusion reached under ASC
815-40 clarified the accounting treatment for these and certain other financial
instruments. ASC 815-40 specifies that a contract would not be
treated as a derivative if it met the following conditions: (a) indexed to the
Company's own stock; and (b) classified in shareholders' equity in the Company's
statement of financial position. The Company's outstanding warrants
denominated in Canadian dollars are not considered to be indexed to its own
stock because the exercise price is denominated in Canadian dollars and the
Company's functional currency is United States dollars. Therefore, these
warrants have been treated as derivative financial instruments and recorded at
their fair value as a liability. All other outstanding convertible
instruments are considered to be indexed to the Company's stock, because their
exercise price is denominated in the same currency as the Company's functional
currency, and are included in shareholders' equity.
The
Company's only derivative instruments are 240,066,664 warrants, the exercise
price for which are denominated in a currency other than the Company's
functional currency, as follows:
·
|
240,066,664
warrants exercisable at CAD$0.08 that expire on April 30,
2015
|
These
warrants have been recorded at their fair value at issuance and will continue to
be recorded at fair value at each subsequent balance sheet date. Any change in
value between reporting periods will be recorded as other income
(expense). These warrants will continue to be reported as a liability
until such time as they are exercised or expire. The fair value of these
warrants is estimated using the Black-Scholes option-pricing
model.
As of
September 30, 2010, the fair value of these warrants was determined to be $4.7
million. The fair value as at June 30, 2010 was $7.2 million. Accordingly the
Company recorded an unrealized gain of $2.6 million and $2.5 million on the
condensed consolidated statements of operations for both the three and nine
months ended September 30, 2010, respectively, related to the change in the fair
value of those warrants. There is no cash flow impact for these derivatives
until the warrants are exercised. If these warrants are exercised,
the Company will receive the proceeds from the exercise at the current exchange
rate at the time of exercise.
6.
|
Stockholders'
Equity
|
Warrants
to purchase common stock
At
September 30, 2010, the Company had the following warrants outstanding to
purchase common stock priced in Canadian dollars with a weighted average
exercise price of $0.08 and a weighted average remaining life of 4.8
years:
Warrants
in thousands
Warrant Description
|
Warrants
Outstanding at
September 30,
2010
(in thousands)
|
Exercise Price
In CAD Dollars
|
Expiration Date
|
|||||||
Investor
warrants (1)
|
240,066 | $ | 0.08 |
April
30, 2015
|
(1)
On April 30, 2010, the Company announced that it had completed a first closing
of a non-brokered private placement (“Private Placement”) of
240,066,664 units, at a price of $0.03 per unit for net proceeds of $7.2
million. Each unit shall consist of one common share and one common
share purchase warrant (a “Warrant”). Each Warrant will entitle the
holder thereof to purchase one common share of the Company at a purchase price
of CAD$0.08 per share for a period of five years from the issue
date.
104
Stock
option plan
The
Compensation Committee of the Board of Directors administers the Company's stock
option plan. The Compensation Committee designates eligible
participants to be included under the plan and approves the number of options to
be granted from time to time under the plan.
On June
24, 2010, at the Company’s annual meeting, shareholders approved an amendment to
the Company’s Stock Option Plan (the “Plan Maximum Amendment”). The Plan Maximum
Amendment relates to changing the maximum number of shares of common stock
issuable under the Stock Option Plan from a fixed number of 20,000,000 to the
number of shares that represent twenty five percent (25%) of the total number of
all issued and outstanding shares of common stock from time to
time. Under the current shares outstanding a maximum of 92,073,363
options are authorized for issuance under the plan. The option
exercise price for all options issued under the plan is based on the fair value
of the underlying shares on the date of grant. The stock option plan,
as amended, allows the issuance of U.S. and Canadian dollar denominated
grants.
Pursuant
to employment agreements dated May 3, 2010 between the Company and each of
Robert Andrade, Rosty Raykov and Thomas Spector (collectively Messrs. Andrade,
Raykov and Spector) and conditioned upon the approval of the amended Stock
Option Plan, the Board approved the grant to each, Messrs. Andrade, Raykov and
Spector an option to purchase up to 5.0% of Adherex’s common stock estimated by
the Company to be outstanding upon completion of the proposed rights offering
announced by the Company on April 20, 2010.
Pursuant
to Independent Director Agreements dated May 3, 2010 for each of Dr. Porter and
Messrs. Breen and Bussandri and conditioned upon the approval of the amended
Stock Option Plan, the Board approved the grant to each Dr. Porter and Messrs.
Breen and Bussandri an option to purchase up to 1.33% of Adherex’s common stock
estimated by the Company to be outstanding upon completion of the proposed
rights offering announced by the Company on April 20, 2010.
During
the three months ended September 30, 2010 and 2009, the Company recognized total
stock-based compensation expense of $0.4 million and $0.01
million respectively. During the nine-months ended
September 30, 2010 and 2009, the Company recognized total stock-based
compensation expense of $2.4 million and $0.5 million,
respectively. These amounts have been included in the general
and administrative expenses for the respective periods.
Valuation
assumptions
The
value of options granted in the nine-month periods ended September 30, 2010 and
September 30, 2009, were estimated using the Black-Scholes option-pricing model,
using the following weighted average assumptions: expected dividend 0% and 0%
respectively; risk-free interest rate of 2.06% and 3.00%, respectively, expected
volatility of 99% and 85% respectively and a 7 year expected
life.
Stock
option activity
The
following is a summary of option activity for the nine months ended September
30, 2010 for stock options denominated in Canadian dollars:
Options in thousands
|
Number of
Options
(thousands)
|
Weighted-
average
Exercise
Price
|
||||||
Outstanding
at December 31, 2009
|
2,623 | CAD$ |
2.19
|
|||||
Granted
|
67,692 | CAD$ |
0.045
|
|||||
Exercised
|
- | - | ||||||
Forfeited/cancelled/expired
|
- | - | ||||||
Outstanding
at September 30, 2010
|
70,315 | CAD$ |
.13
|
The
following is a summary of option activity for the nine months ended September
30, 2010 for stock options denominated in U.S. dollars:
Options in thousands
|
Number of
Options
(thousands)
|
Weighted-
average
Exercise
Price
|
||||||
Outstanding
at December 31, 2009
|
13,201 | $ | 0.55 | |||||
Granted
|
- | - | ||||||
Exercised
|
- | - | ||||||
Forfeited/cancelled/expired
|
- | - | ||||||
Outstanding
at September 30, 2010
|
13,201 | $ | 0.55 |
105
7.
|
Fair
Value Measurements
|
The
Company has adopted Fair Value Measurements and Disclosure Topic of the
FASB. This Topic applies to certain assets and liabilities that are
being measured and reported on a fair value basis. The Fair Value
Measurements Topic defines fair value, establishes a framework for measuring
fair value in accordance with GAAP, and expands disclosure about fair value
measurements. This Topic enables the reader of the financial
statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. The Topic requires that financial
assets and liabilities carried at fair value be classified and disclosed in one
of the following three categories:
Level 1:
Quoted market prices in active markets for identical assets or
liabilities.
Level 2:
Observable market based inputs or unobservable inputs that are corroborated by
market data.
Level 3:
Unobservable inputs that are not corroborated by market data.
Assets/Liabilities
Measured at Fair Value on a Recurring Basis
Fair Value Measurement at September 30, 2010
|
||||||||||||||||
Quoted Price
|
Significant
|
|||||||||||||||
in Active Markets
|
Other
|
Significant
|
||||||||||||||
for Identical
|
Observable
|
Unobservable
|
||||||||||||||
Instruments
|
Inputs
|
Inputs
|
||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Assets
|
||||||||||||||||
Cash
equivalents
|
$ | 5,936,000 | - | - | $ | 5,936,000 | ||||||||||
Liabilities
|
||||||||||||||||
Derivative
warrant liability
|
- | $ | 4,692,000 | - | $ | 4,692,000 |
The
Company's financial instruments include cash equivalents, accounts receivable,
accounts payable and derivative warrant instruments. Due to the short-term
maturity of accounts receivable and accounts payable, the carrying
value of these instruments is a reasonable estimate of their fair
value. Derivative warrant liability instrument is carried at fair
value and calculated using Black-Scholes option pricing model using the
following weighted average assumptions; expected dividend 0%; risk-free interest
rate of 1.27%; expected volatility of 115% and a 4.6 year expected
life.
8.
|
Commitments
|
We
had no material commitments for capital expenses as of September 30,
2010. The following table represents our contractual obligations and
commitments at September 30, 2010 (in thousands of U.S.
dollars):
Less than 1 year
|
1-3
years
|
3-5
years
|
More than 5
years
|
Total
|
||||||||||||||||
Eastowne
Lease (1)
|
6 | - | - | - | 6 | |||||||||||||||
OCT
Clinical Service Agreement(2)
|
171 | 342 | - | - | 513 | |||||||||||||||
Drug
purchase commitments (3)
|
60 | 25 | - | - | 85 | |||||||||||||||
Total
|
$ | 237 | $ | 367 | $ | - | $ | - | $ | 604 |
(1)
|
In
December 2009, we entered into a lease for new office facilities in Chapel
Hill, North Carolina. Amounts shown assume the maximum amounts
due under the lease.
|
(2)
|
Under
the service agreement with OCT Group LLC entered in August 2010, we are
required to make several payments over the course of our planned Phase II
clinical trial in Russia. The payments will be made upon the
fulfillment of several milestones during the planned clinical trial
including: regulatory approval of trial, enrollment of patients and the
completion of therapy of
patients.
|
(3)
|
Commitments
to our third party manufacturing vendors that supply drug substance
primarily for our clinical
studies.
|
106
9.
|
Subsequent
Events
|
On
November 12, 2010, Adherex filed a registration statement with the Securities
and Exchange Commission (the "SEC") in connection with a proposed
rights offering to existing shareholders. As announced in April 2010,
the Company intends to offer existing shareholders the opportunity to subscribe
for up to 425,000,000 rights at CAD$0.03 per unit, with gross proceeds of up to
CAD$12.75 million upon the issuance of all of the common stock underlying such
rights (and additional gross proceeds of up to CAD$34.0 million upon the
exercise of all of the warrants underlying such rights at an exercise price of
CAD$0.08 per warrant). The Company intends to use the proceeds of the rights
offering to further develop eniluracil (including to conduct and monitor the
Phase II clinical trial of eniluracil in combination with 5-FU and leucovorin),
and for other general corporate purposes. A registration statement relating to
these securities has been filed with the SEC but has not yet been declared
effective. Accordingly, the rights (and underlying common stock and
warrants) may not be sold nor may offers be accepted prior to the time the
registration statement becomes effective. The rights will be issued to all
shareholders as of a record date which has yet to be determined. We will provide
notice of the record date at such time as it is determined
107
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
We have
been advised that, in the opinion of the Securities and Exchange Commission,
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or controlling
persons in connection with the securities being registered, we will, unless in
the opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to a court of appropriate jurisdiction. We will then be governed by the
court’s decision.
ADDITIONAL
INFORMATION
This
prospectus, which is a part of the Registration Statement, does not contain all
of the information in the Registration Statement and the exhibits filed with it,
portions of which have been omitted as permitted by the SEC rules and
regulations. For further information concerning us and the securities offered by
this prospectus, please refer to the Registration Statement and to the exhibits
filed therewith.
The
Registration Statement, including all exhibits, may be inspected without charge
at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. You may obtain information on the operation of this public reference room
by calling 1-800-SEC-0330. The Registration Statement, including all exhibits
and schedules and amendments, has been filed with the SEC and is available to
the public from the SEC’s web site at http://www.sec.gov
.
108
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth the various costs and expenses in connection with the
sale and distribution of the common stock being registered. All
amounts shown are estimates except the Securities and Exchange Commission
registration fee.
Amount to
be paid
|
||||
SEC Registration Fee
|
$
|
3,332
|
||
Blue
Sky filing fees
|
$
|
2,800
|
||
Printing and Edgarizing expenses
|
$
|
75,000
|
||
Legal fees and expenses
|
$
|
50,000
|
||
Accounting fees and expenses
|
$
|
100,000
|
||
Transfer agent
|
$
|
7,500
|
||
Stock certificates
|
$
|
5,000
|
||
Miscellaneous
|
$
|
50,000
|
||
Total
|
$
|
$293,632
|
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Under the
Canada Business Corporations Act (the “CBCA”), a corporation may indemnify a
director or officer of the corporation, a former director of the corporation, or
another individual who acts or acted at the corporation’s request as a director
or officer, or an individual acting in a similar capacity, of another entity,
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a judgment, reasonably incurred by the individual in respect
of any civil, criminal, administrative, investigative or other proceeding in
which the individual is involved because of that association with the
corporation or other entity, if (a) the individual acted honestly and in
good faith with a view to the best interests of the corporation, or as the case
may be, to the best interests of the other entity for which the individual acted
as director or officer or in a similar capacity at the corporation’s request,
and (b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, the individual had reasonable grounds
for believing that the individual’s conduct was lawful. Where the action is a
derivative action by or on behalf of the corporation or such other entity, the
approval of the court is also required.
Our
bylaws provide that we shall indemnify a director or officer, a former director
or officer, or a person who acts or acted at our request as a director or
officer of a body corporate of which we are or were a shareholder or creditor,
and his heirs and legal representatives, against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
reasonably incurred by him in respect of any civil, criminal or administrative
action or proceeding to which he is made a party by reason of being or having
been a director or officer ours or such body corporate, if (a) he acted
honestly and in good faith with a view to the best interests of us; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for believing that
his conduct was lawful. We shall also indemnify such person in such other
circumstances as the CBCA or law permits or requires.
We
maintain liability insurance policies insuring our directors and officers
against certain liabilities that they may incur in such capacities.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
RECENT
SALES OF UNREGISTERED SECURITIES
On
April 30, 2010, we closed a private placement of units with certain accredited
investors. Each Unit consists of one share of our common stock, and
one Warrant to purchase one share of our common stock for
CAD$0.08. The Warrants become exercisable six months after the date
of issuance and will terminate five years from the date of issuance. Pursuant to
the private placement, we sold 240,066,664 Units, at a price of CAD$0.03 per
unit for gross proceeds of CAD$7,202,000.
II-1
With
respect to the issuance of our securities as described above, we relied on
the Section 4(2) exemption from securities registration under the federal
securities laws for transactions not involving any public offering. No
advertising or general solicitation was employed in offering the securities. The
securities were sold to accredited investors. The securities were offered for
investment purposes only and not for the purpose of resale or distribution, and
the transfer thereof was appropriately restricted by us.
UNDERTAKINGS
(a) The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i)
|
To
include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) of this chapter) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement;
and
|
(iii)
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
|
(2) That,
for the purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purposes of determining liability under the Securities Act of 1933 to
any purchaser
(A)
|
Each
prospectus filed by the registrant pursuant to
Rule 424(b)(3) (§230.424(b)(3) of this chapter) shall be
deemed to be part of this registration as of the date the filed prospectus
was deemed part of and included in the registration statement;
and
|
(B)
|
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5),
(b)(7) §230.424(b)(2), (b)(5), or (b)(7) of this chapter) as
part of a registration statement in reliance on Rule 430B relating to
an offering made pursuant to Rule 415(a)(1)(i), (vii), or
(x) §230.415(a) (1)(i), (vii), or (x) of this chapter) for
the purpose of providing the information required by section 10(a) of
the Securities Act of 1933 shall be deemed to be a part of and included in
the registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in this
prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date shall
be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof. Provided, however;
that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration
statement or prospectus that that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such
effective date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective
date.
|
(5) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
EXHIBITS.
Exhibit
No.
|
Description
|
Location
|
||
1.1
|
Underwriting
and Agency Agreement dated January 19, 2007 between Adherex Technologies
Inc. and Versant Partners Inc.
|
Exhibit
1.1 to Form 8-K of Adherex, filed February 22, 2007
|
||
3.1
|
Articles
of Amalgamation dated June 29, 2004
|
Exhibit
1.7 to the Form 20-F Registration Statement (No. 001-32295) of Adherex,
filed September 17, 2004
|
||
3.2
|
By-law
No. 2 of the Company, as amended on November 2, 2004
|
Exhibit
1.9 to the Form 20-F/A Registration Statement (No. 001-32295) of Adherex,
filed November 5, 2004
|
||
4.1
|
Registration
Rights Agreement, dated as of December 19, 2003, by and between Adherex
Technologies Inc. and HBM BioVentures (Cayman) Ltd.
|
Exhibit
4.9 to the Form 20-F Registration Statement (No. 001-32295) of Adherex,
filed September 17, 2004
|
||
4.2
|
Warrant
Indenture dated February 21, 2007 between Adherex Technologies Inc. and
Computershare Trust Company of Canada
|
Exhibit
4.45 to Form 8-K of Adherex, filed February 22, 2007
|
||
4.3
|
Form
of common stock Warrant dated February 21, 2007
|
Exhibit
4.43 to Form 8-K of Adherex, filed February 22, 2007
|
||
4.4
|
Form
of Underwriter’s Warrant dated February 21, 2007
|
Exhibit
4.44 to Form 8-K of Adherex, filed February 22, 2007
|
||
4.5
|
Form
of Subscription Rights Certificate
|
Filed
herewith.
|
||
4.6
|
Form
of Warrant
|
Filed
herewith.
|
||
5.1
|
Legal
Opinion of LaBarge Weinstein P.C.
|
Filed
herewith.
|
||
10.1
|
General
Collaboration Agreement, dated as of February 26, 2001, by and between
Adherex Technologies Inc. and McGill University
|
Exhibit
4.2 to the Form 20-F Registration Statement (No. 001-32295) of Adherex,
filed September 17, 2004
|
||
10.2
|
Exclusive
License Agreement, dated as of September 26, 2002, by and between Oregon
Health & Science University and Oxiquant, Inc.
|
Exhibit
4.5 to the Form 20-F Registration Statement (No. 001-32295) of Adherex,
filed September 17, 2004
|
||
10.3
|
Lease
Agreement, dated as of March 8, 2004, by and between Realmark-Commercial,
LLC and Adherex, Inc.
|
Exhibit
4.8 to the Form 20-F Registration Statement (No. 001-32295) of Adherex,
filed September 17, 2004
|
||
*10.4
|
Executive
Employment Agreement, dated as of December 12, 2001, by and between
Adherex Technologies Inc. and Robin J. Norris
|
Exhibit
4.10 to the Form 20-F Registration Statement (No. 001-32295) of Adherex,
filed September 17, 2004
|
||
*10.5
|
Executive
Employment Agreement, dated as of February 19, 2003, by and between
Adherex Technologies Inc. and William P. Peters
|
Exhibit
4.12 to the Form 20-F Registration Statement (No. 001-32295) of Adherex,
filed September 17, 2004
|
||
*10.6
|
Executive
Employment Agreement, dated April 21, 2004, by and between Adherex, Inc.
and James A. Klein, Jr.
|
Exhibit
4.13 to the Form 20-F Registration Statement (No. 001-32295) of Adherex,
filed September 17, 2004
|
||
10.7
|
Second
Amendment to Lease Agreement dated September 14, 2004 between Realmark
Commercial LLC and Adherex, Inc.
|
Exhibit
4.29 to the Form 20-F/A Registration Statement (No. 001-32295) of Adherex,
filed November 5, 2004
|
II-3
10.8
|
Development
and License Agreement dated July 14, 2005 between Adherex Technologies
Inc. and Glaxo Group Limited**
|
Exhibit
4.30 to Form 6-K of Adherex, filed July 22, 2005
|
||
10.9
|
Sublease
Agreement, dated as of August 31, 2005, by and between Biostratum, Inc.
and Adherex, Inc. (Englert)
|
Exhibit
4.32 to the Form 20-F Annual Report (No. 001-32295) of Adherex for the
fiscal year ended December 31, 2005, filed on March 31,
2006
|
||
10.10
|
Sublease
Agreement, dated as of August 31, 2005, by and between Biostratum, Inc.
and Adherex, Inc. (Creekstone)
|
Exhibit
4.33 to the Form 20-F Annual Report (No. 001-32295) of Adherex for the
fiscal year ended December 31, 2005, filed on March 31,
2006
|
||
10.11
|
Amendment
No. 1 to Development and License Agreement dated December 20, 2005 between
Glaxo Group Limited and Adherex Technologies Inc.**
|
Exhibit
4.36 to the Form 20-F Annual Report (No. 001-32295) of Adherex for the
fiscal year ended December 31, 2005, filed on March 31,
2006
|
||
10.12
|
Partial
Assignment of Lease and Lease Amendment Number Two dated August 31,
2005
|
Exhibit
4.38 to the Form 20-F Annual Report (No. 001-32295) of Adherex for the
fiscal year ended December 31, 2005, filed on March 31,
2006
|
||
10.13
|
Highwoods
Realty Limited Partnership Office Master Lease
(Creekstone)
|
Exhibit
4.39 to the Form 20-F Annual Report (No. 001-32295) of Adherex for the
fiscal year ended December 31, 2005, filed on March 31,
2006
|
||
10.14
|
Consent
to Sublease dated August 31, 2005 among Highwoods Realty Limited
Partnership, BioStratum, Inc. and Adherex, Inc.
|
Exhibit
4.40 to the Form 20-F Annual Report (No. 001-32295) of Adherex for the
fiscal year ended December 31, 2005, filed on March 31,
2006
|
||
10.15
|
Amendment
No. 2 to Development and License Agreement dated June 23, 2006 between
Glaxo Group Limited and Adherex Technologies Inc.**
|
Exhibit
4.41 to Form 6-K of Adherex, filed August 9, 2006
|
||
10.16
|
Sub-SubLease
Agreement dated December 22, 2006 between Biostratum, Inc and NephroGenex,
Inc
|
Exhibit
4.46 to the Form 20-F Annual Report (No. 001-32295) of Adherex for the
fiscal year ended December 31, 2006, filed on April 2,
2007
|
||
*10.17
|
Executive
Employment Agreement, dated as of February 28, 2007, by and between
Adherex, Inc. and D. Scott Murray
|
Exhibit
4.47 to the Form 20-F Annual Report (No. 001-32295) of Adherex for the
fiscal year ended December 31, 2006, filed on April 2,
2007
|
||
10.18
|
Amendment
No. 3 to Development and License Agreement dated January 17, 2007 between
Adherex Technologies Inc. and Glaxo Group Limited
|
Exhibit
4.42 to Form 6-K of Adherex, filed January 19, 2007
|
||
10.19
|
Amendment
No. 4 to Development and License Agreement dated May 23,
2007 between Adherex Technologies Inc. and Glaxo Group
Limited
|
Exhibit
10.1 to Form 8-K of Adherex, filed June 19, 2007
|
||
10.20
|
Amended
and Restated Stock Option Plan
|
Exhibit
10.19 to Form 10-K of Adherex, filed March 28, 2008
|
||
10.21
|
License
Agreement entered into on May 13, 2008 between Adherex Technologies Inc.
and Stichting Antoni van Leeuwenhoek Ziekenhuis
|
Exhibit
10.21 to Form 10-Q of Adherex, filed August 13, 2008
|
||
10.22
|
Success-Based
Incentive Program
|
Exhibit
10.22 to Form 8-K of Adherex, filed December 11,
2008
|
II-4
10.23
|
Separation
and Mutual Release Agreement – Dr. William Peters
|
Exhibit
10.23 to Form 8-K of Adherex, filed July 13, 2009
|
||
10.24
|
Lease
Termination and Release
|
Exhibit
10.24 to Form 10-Q of Adherex, filed November 16, 2009
|
||
10.25
|
Amended
and Restated Employment Agreement – Dr. Robin J. Norris
|
Exhibit
10.23 to Form 10-Q of Adherex, filed November 16, 2009
|
||
10.26
|
Form
of Subscription Agreement
|
Exhibit
99.2 to the Form 8-K of Adherex, filed on May 4, 2010.
|
||
10.27
|
Form
of Warrant
|
Exhibit
99.3 to the Form 8-K of Adherex, filed on May 4, 2010
|
||
10.28
|
Lease
agreement dated January 1, 2010, between Adherex and Valfern Holdings,
Inc.
|
Exhibit
10.27 to the Form 10-Q of Adherex, filed on May 14,
2010
|
||
10.29
|
Executive
Employment Agreement dated May 3, 2010 by and between Adherex and
Rostislav Raykov
|
Exhibit
10.28 to the Form 10-Q of Adherex, filed on May 14,
2010
|
||
10.30
|
Executive
Employment Agreement dated May 3, 2010 by and between Adherex and Robert
Andrade
|
Exhibit
10.29 to the Form 10-Q of Adherex, filed on May 14,
2010
|
||
10.31
|
Executive
Employment Agreement dated May 3, 2010 by and between Adherex and Dr.
Thomas Spector
|
Exhibit
10.30 to the Form 10-Q of Adherex, filed on May 14,
2010
|
||
10.32
|
Form
of Independent Director Agreement, dated May 3, 2010
|
Exhibit
10.31 to the Form 10-Q of Adherex, filed on May 14,
2010
|
||
10.33
|
Master
Service Agreement with OCT Group LLC
|
Exhibit
10.1 to the Form 10-Q of Adherex filed on November 15,
2010
|
||
16
|
Press
Release regarding change in certifying accountants
|
Exhibit
16 to the Form 10-K of Adherex, filed March 31, 2010
|
||
21
|
Subsidiaries
|
Exhibit
8 to the Form 20-F Registration Statement (No. 001-32295) of Adherex,
filed September 17, 2004
|
||
23.1
|
Consent
of LaBarge Weinstein P.C.
|
Contained
in Exhibit 5.1
|
||
23.2
|
Consent
of Deloitte & Touche LLP
|
Filed
herewith
|
||
23.3
|
Consent
of PricewaterhouseCoopers LLP
|
Filed
herewith
|
||
24.1
|
Powers
of Attorney
|
Included
on the signature
page
|
*
|
Indicates
a management contract or compensatory
plan.
|
**
|
The
Company has received confidential treatment with respect to certain
portions of this exhibit. Those portions have been omitted from this
exhibit and are filed separately with the U.S. Securities and Exchange
Commission.
|
II-5
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Durham, State of North
Carolina, on February 9, 2011.
Adherex
Technologies, Inc.
|
|
By:
|
/s/ Rostislav
Raykov
|
Rostislav
Raykov
|
|
Chief
Executive Officer, Director
|
|
By:
|
/s/ Robert
Andrade
|
Robert
Andrade, Authorized Representative in
the
United States
|
KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Rostislav Raykov and Robert Andrade as his/her
attorney-in-fact and agent, each acting alone, with full power of substitution
and resubstitution, for him/her and in his/her name, place and stead, in any and
all capacities, to sign and file Registration Statement(s) and any and all
post-effective amendments to such Registration Statements(s), with all exhibits
thereto and hereto, and other documents with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he/she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated
Signature
|
Capacity
|
Date
|
||
/s/ Rostislav Raykov
|
||||
Rostislav
Raykov
|
Chief
Executive Officer, Director
|
February
9, 2011
|
||
(Principal
Executive Officer)
|
||||
/s/ Robert Andrade
|
||||
Robert
Andrade
|
Chief
Financial Officer, Director
|
February
9, 2011
|
||
(Principal
Financial and Accounting Officer)
|
||||
/s/ Robert
Andrade
as attorney in fact for Robert
Butts
|
||||
Robert
Butts
|
Chairman
of the Board
|
February
9, 2011
|
||
/s/ Robert
Andrade
as attorney in fact for William G.
Breen
|
||||
William
G. Breen
|
Director
|
February
9, 2011
|
||
/s/ Robert
Andrade
as attorney in fact for Claudio F.
Bussandri
|
||||
Claudio
F. Bussandri
|
Director
|
February
9, 2011
|
||
/s/ Robert
Andrade
as attorney in fact for David
Lieberman
|
||||
David
Lieberman
|
Director
|
February
9, 2011
|
||
/s/ Robert
Andrade
as attorney in fact for Arthur T.
Porter
|
||||
Arthur
T. Porter
|
|
Director
|
|
February
9, 2011
|