As filed with the Securities and Exchange Commission on
March 27, 2007
Registration
No. 333-140504
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
BIODEL INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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2834
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90-0136863
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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6 Christopher Columbus Avenue
Danbury, Connecticut 06810
(203) 798-3600
(Address, including zip code,
and telephone number, including area code,
of registrants principal
executive offices)
Solomon S. Steiner, Ph.D.
Chief Executive Officer and Chairman
Biodel Inc.
6 Christopher Columbus Avenue
Danbury, Connecticut 06810
(203) 798-3600
(Name, address, including zip
code, and telephone number,
including area code, of agent
for service)
Copies to:
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William D.
Freedman, Esq.
Michael J. Shef, Esq.
Troutman Sanders LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
(212) 704-6000
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Steven D. Singer, Esq.
Stuart R. Nayman, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
399 Park Avenue
New York, New York 10022
(212) 230-8800
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Approximate date of commencement of proposed sale to the
public:
As soon as practicable after this
Registration Statement becomes effective.
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, as amended (the
Securities Act), please check the following
box.
o
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.
o
_
_
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.
o
_
_
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.
o
_
_
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 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
effective. This prospectus is not an offer to sell these
securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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PROSPECTUS
(Subject to Completion)
Issued
March 27, 2007
Shares
COMMON STOCK
Biodel Inc. is
offering shares
of its common stock. This is our initial public offering, and no
public market currently exists for our shares. We anticipate
that the initial public offering price will be between
$ and
$ per share.
We have applied to list our common stock on the Nasdaq
Global Market under the symbol BIOD.
Investing in our common stock involves risks. See
Risk Factors beginning on page 6.
PRICE
$
A SHARE
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Underwriting
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Price to
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Discounts and
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Proceeds to
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Public
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Commissions
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Biodel
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Per Share
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$
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$
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$
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Total
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$
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$
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$
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We have granted the underwriters the right to purchase up
to additional
shares of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the
shares to purchasers
on ,
2007.
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MORGAN STANLEY
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BANC OF AMERICA SECURITIES
LLC
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LEERINK SWANN & COMPANY
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NATEXIS BLEICHROEDER INC.
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,
2007
TABLE OF
CONTENTS
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with different information. We
are not making an offer of these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that
the information contained in this prospectus is accurate as of
the date on the front of this prospectus only. Our business,
financial condition, results of operations and prospects may
have changed since that date.
Until ,
2007, 25 days after the commencement of this offering, all
dealers that buy, sell or trade shares of our common stock,
whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
i
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary may not contain all of the
information that is important to you. Before investing in our
common stock, you should read this prospectus carefully in its
entirety, especially the risks of investing in our common stock
that we discuss in the Risk Factors section of this
prospectus and our financial statements and the related notes
beginning on
page F-1.
In this prospectus, unless otherwise stated or the context
otherwise requires, references to Biodel,
we, us and our and similar
references refer to Biodel Inc.
Our
Business
Overview
We are a specialty pharmaceutical company focused on the
development and commercialization of innovative treatments for
endocrine disorders such as diabetes and osteoporosis, which may
be safer, more effective and convenient. We develop our product
candidates by applying our proprietary formulation technologies
to existing drugs in order to improve their therapeutic results.
We have two insulin product candidates currently in clinical
trials for the treatment of diabetes:
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VIAject
tm
,
a proprietary injectable formulation of recombinant human
insulin designed to be absorbed into the blood faster than the
currently marketed rapid-acting insulin analogs, for which we
are currently conducting pivotal Phase III clinical trials
in patients with Type 1 and Type 2 diabetes; and
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VIAtab
tm
,
a sublingual, or below the tongue, tablet formulation of
insulin, for which we are currently conducting a Phase I
clinical trial in patients with diabetes.
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Additionally, we have two preclinical product candidates for the
treatment of osteoporosis:
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VIAmass
tm
,
a sublingual, rapid-acting formulation of parathyroid hormone
1-34; and
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VIAcal
tm
,
a sublingual rapid-acting formulation of salmon calcitonin.
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We expect to submit investigational new drug applications for
these two product candidates to the U.S. Food and Drug
Administration, or FDA, in 2008.
Diabetes is a disease characterized by abnormally high levels of
blood glucose and inadequate levels of insulin. There are two
major types of diabetes, Type 1 and Type 2. In Type 1 diabetes,
the body produces no insulin. In the early stages of Type 2
diabetes, although the pancreas does produce insulin, either the
body does not produce the insulin at the right time or the
bodys cells ignore the insulin, a condition known as
insulin resistance. When a healthy individual begins a meal, the
pancreas releases a natural spike of insulin called the
first-phase insulin release, which is critical to the
bodys overall control of glucose. Virtually all patients
with diabetes lack the first-phase insulin release. All patients
with Type 1 diabetes must treat themselves with meal-time
insulin injections. As the disease progresses, patients with
Type 2 diabetes also require meal-time insulin. Advances in
insulin technology in the 1990s led to the development of new
molecules, referred to as rapid-acting insulin analogs, which
are similar to insulin, but are absorbed into the blood more
rapidly. However, these rapid-acting analogs and other currently
marketed meal-time insulin products do not adequately mimic the
first-phase insulin release.
In our clinical trials to date,
VIAject
tm
delivered insulin into the blood faster than currently marketed
insulin products, which may allow
VIAject
tm
to improve the management of blood glucose levels in patients
with diabetes by more closely mimicking the natural first-phase
insulin release. Therefore, we believe that
VIAject
tm
has the potential to become a market leader in the
well-established market for rapid-acting insulin analogs.
The Centers for Disease Control and Prevention estimates that
approximately 20.8 million people in the United States, or
7.0% of the overall population, suffer from diabetes, with
1.5 million new cases diagnosed in 2005. The rapid-acting
insulin analogs have come to dominate the market for meal-time
insulin. These rapid-acting insulin analogs had sales in excess
of $2.3 billion in 2005 according to IMS Health, a leading
provider of pharmaceutical market data.
1
VIAject
tm
VIAject
tm
is our proprietary formulation of injectable human insulin to be
taken immediately prior to a meal or at the end of a meal. We
formulated
VIAject
tm
using our
VIAdel
tm
technology to combine recombinant human insulin with specific
ingredients generally regarded as safe by the FDA.
VIAject
tm
is designed to be absorbed into the blood faster than the
currently marketed rapid-acting insulin analogs. We have
conducted Phase I and Phase II clinical trials
comparing the performance of
VIAject
tm
to
Humalog
®
,
the largest selling rapid-acting insulin analog in the United
States, and
Humulin
®
R, a form of recombinant human insulin. In our clinical trials,
VIAject
tm
delivered insulin into the blood faster than these currently
marketed insulin products. Therefore, we believe
VIAject
tm
can improve the management of blood glucose levels in patients
with diabetes by more closely mimicking the natural first-phase
release of insulin that healthy individuals experience at
meal-time. In September 2006, we initiated two pivotal
Phase III clinical trials for
VIAject
tm
,
which will treat 400 patients with Type 1 diabetes and
400 patients with Type 2 diabetes over a six-month period.
These are non-inferiority trials, which means they are designed
to determine if
VIAject
tm
is no worse than
Humulin
®
R, the comparator drug in the trials. We expect to complete
these two trials and intend to submit a new drug application, or
NDA, under Section 505(b)(2) of the Federal Food, Drug, and
Cosmetic Act to the FDA in 2008. Section 505(b)(2) provides
for a type of NDA that allows expedited development of new
formulations of chemical entities and biological compounds that
have already undergone extensive clinical trials and been
approved by the FDA. Both the time and cost of development of a
new product can be substantially less under a
Section 505(b)(2) NDA than under a full NDA.
VIAtab
tm
VIAtab
tm
is our formulation of recombinant human insulin, designed to be
taken orally via sublingual administration.
VIAtab
tm
tablets dissolve in approximately three minutes, providing the
potential for rapid absorption of insulin into the blood. In
addition, unlike other oral insulin products under development
that must be swallowed, the sublingual delivery of
VIAtab
tm
may avoid the destructive effects on insulin by the stomach and
liver. We are developing
VIAtab
tm
as a potential treatment for patients with Type 2 diabetes in
the early stages of their disease. We believe that
VIAtab
tm
may be a suitable treatment for these patients because of its
potential rapid delivery and because it does not require
injections. We are currently conducting a Phase I clinical
trial of
VIAtab
tm
in patients with Type 1 diabetes. If the trial is successful, we
plan to initiate later stage clinical trials of
VIAtab
tm
in 2008.
Our
VIAdel
tm
Technology
We have developed all of our product candidates utilizing our
proprietary
VIAdel
tm
technology. This technology consists of several models that we
have developed to study the interaction between peptide hormones
and small molecules. We use our
VIAdel
tm
technology to reformulate existing peptide drugs with small
molecule ingredients that are generally regarded as safe by the
FDA. In our formulations, small molecules form weak and
reversible hydrogen bonds with their molecular cargo. By doing
so, we believe that our formulations mask the charge on
peptides. As a consequence, the peptides in our formulations
face less resistance from cell membranes, which would generally
repel them, thus allowing them to pass through cell membranes
into the blood more rapidly and in greater quantities than other
currently approved formulations of the same peptides. Our
VIAdel
tm
technology enables us to develop proprietary formulations
designed to increase the rate of absorption and stability of
these peptide hormones, potentially allowing for improved
efficacy by non-invasive routes, such as sublingual
administration, and by injection.
Our
Strategy
Our goal is to build a leading specialty pharmaceutical company
focused on the development and commercialization of innovative
treatments for endocrine disorders, which may be safer, more
effective and convenient. To achieve our goal, our strategy is
to:
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obtain regulatory approval for
VIAject
tm
;
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commercialize our product candidates by self-funding clinical
trials and partnering late-stage programs through strategic
commercial collaborations, while seeking to retain
co-commercialization rights;
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employ our proprietary
VIAdel
tm
technology to reformulate approved peptide hormone drugs that
address large markets;
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focus on the Section 505(b)(2) regulatory approval pathway,
which may facilitate more rapid and less costly product
development; and
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aggressively continue the development of our pipeline of product
candidates.
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Risks
Associated with Our Business
Our business is subject to a number of risks of which you should
be aware before making an investment decision. These risks are
discussed more fully in the Risk Factors section of
this prospectus immediately following this prospectus summary.
We have a limited operating history and have not yet
commercialized any products. We have incurred substantial
operating losses in each year since inception. Our net loss was
$3.6 million for the three months ended December 31,
2006 and $7.9 million for the year ended September 30,
2006. As of December 31, 2006, we had a deficit accumulated
during the development stage of $15.4 million. We expect to
incur significant and increasing net losses for at least the
next several years. It is uncertain whether any of our product
candidates under development will receive regulatory approval or
become effective treatments. All of our product candidates are
undergoing clinical trials or are in earlier stages of
development, and failure is common and can occur at any stage of
development. None of our product candidates has received
regulatory approval for commercialization, and we do not expect
that any drugs resulting from our research and development
efforts will be commercially available for a number of years, if
at all. We may never receive any product sales revenues or
achieve profitability.
Corporate
Information
We were incorporated in the State of Delaware in December 2003.
Our principal executive offices are located at 6 Christopher
Columbus Avenue, Danbury, Connecticut 06810, and our telephone
number is
(203) 798-3600.
Our website address is http://www.biodel.com. The information
contained on, or that can be accessed through, our website is
not a part of this prospectus. We have included our website
address in this prospectus solely as an inactive textual
reference.
3
THE
OFFERING
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Common stock we are offering
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shares
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Common stock to be outstanding after this offering
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shares
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Over-allotment option
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shares
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Net proceeds
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We estimate that the net proceeds from this offering will be
approximately $ million,
assuming an initial public offering price of
$ per share and after
deducting estimated underwriting discounts and commissions and
offering expenses payable by us.
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Use of proceeds
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We expect to use the net proceeds from this offering to fund
clinical development, preclinical testing and other research and
development activities and for working capital and other general
corporate purposes. See Use of Proceeds.
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Risk factors
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You should read the Risk Factors section of this
prospectus for a discussion of the factors to consider carefully
before deciding to purchase any shares of our common stock.
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Proposed Nasdaq Global Market symbol
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BIOD
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The number of shares of our common stock to be outstanding after
this offering is based on 7,575,063 shares of common stock
outstanding as of March 15, 2007 and an additional
9,043,179 shares of common stock issuable upon the
conversion of all outstanding shares of our preferred stock upon
the closing of this offering. The number of shares of common
stock to be outstanding after this offering excludes:
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1,652,697 shares of common stock issuable upon the exercise
of stock options outstanding as of March 15, 2007, at a
weighted average exercise price of $4.13 per share;
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5,251,849 shares of common stock issuable upon the exercise
of warrants outstanding as of March 15, 2007, at a weighted
average exercise price of $3.78 per share;
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3,047,303 shares of common stock reserved for future
issuance upon exercise of stock options granted after
March 15, 2007 under our 2004 Stock Incentive Plan, as
amended and restated upon the closing of this offering;
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1,300,000 shares of common stock reserved for future
issuance under our 2005 Employee Stock Purchase Plan upon the
closing of this offering; and
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500,000 shares of common stock reserved for future issuance
under our 2005 Non-Employee Directors Stock Option Plan
upon the closing of this offering.
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Unless otherwise indicated, all of the information in this
prospectus assumes:
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no exercise of the outstanding options or warrants described
above;
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the conversion of all outstanding shares of our preferred stock
into an aggregate of 9,043,179 shares of our common stock
upon the closing of this offering; and
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no exercise by the underwriters of their option to purchase up
to shares
of our common stock to cover over-allotments.
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4
SUMMARY
FINANCIAL DATA
The following is a summary of our financial information. You
should read this information together with our financial
statements and the related notes appearing at the end of this
prospectus and the Managements Discussion and
Analysis of Financial Condition and Results of Operations
section of this prospectus.
The pro forma as adjusted balance sheet data set forth below
gives effect to the conversion of all outstanding shares of our
preferred stock into an aggregate of 9,043,179 shares of
common stock upon the closing of this offering and to our
issuance and sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per
share, which is the midpoint of the price range listed on the
cover page of this prospectus, after deducting estimated
underwriting discounts and commissions and offering expenses
payable by us.
See our financial statements and related notes for a description
of the calculation of the historical and pro forma net loss per
common share and the weighted average number of shares used in
computing the historical and pro forma per share data.
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December 3,
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December 3,
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2003
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2003
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(inception) to
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Three months ended
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(inception) to
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September 30,
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Year ended September 30,
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December 31
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December 31,
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2004
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2005
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2006
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2005
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2006
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2006
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(restated)
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(in thousands except share and per share data)
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Statement of operations
data:
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Revenue
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$
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$
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$
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$
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$
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$
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Operating expenses:
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Research and development
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580
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2,573
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5,960
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923
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2,493
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11,606
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General and administrative
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|
193
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|
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|
517
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1,450
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|
395
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|
|
1,264
|
|
|
|
3,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total operating expenses
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|
773
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3,090
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7,410
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1,318
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3,757
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15,030
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Other (income) and expense:
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Interest and other income
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|
(9
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)
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(182
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)
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(1
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)
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(190
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)
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(381
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)
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Interest expense
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|
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|
78
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|
3
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|
78
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Loss on settlement of debt
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|
|
|
|
|
|
|
|
|
|
627
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|
|
|
|
|
|
|
|
|
|
|
627
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|
|
|
|
|
|
|
|
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|
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|
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|
|
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Operating loss before tax provision
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|
(773
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)
|
|
|
(3,081
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)
|
|
|
(7,933
|
)
|
|
|
(1,320
|
)
|
|
|
(3,567
|
)
|
|
|
(15,354
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)
|
Tax provision
|
|
|
1
|
|
|
|
2
|
|
|
|
10
|
|
|
|
3
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
|
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|
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Net loss
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|
$
|
(774
|
)
|
|
$
|
(3,083
|
)
|
|
$
|
(7,943
|
)
|
|
$
|
(1,323
|
)
|
|
$
|
(3,567
|
)
|
|
$
|
(15,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Net loss per share
basic and diluted
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|
$
|
(0.10
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(1.05
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average shares
outstanding basic and diluted
|
|
|
7,500,000
|
|
|
|
7,512,442
|
|
|
|
7,562,779
|
|
|
|
7,560,408
|
|
|
|
7,564,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per
share basic and diluted (unaudited)
|
|
|
|
|
|
|
|
|
|
$
|
(0.68
|
)
|
|
|
|
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares
outstanding basic and diluted (unaudited)
|
|
|
|
|
|
|
|
|
|
|
11,647,415
|
|
|
|
|
|
|
|
13,211,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2006
|
|
|
|
|
|
|
Pro Forma
|
|
Balance sheet data:
|
|
Actual
|
|
|
as Adjusted
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
14,563
|
|
|
|
|
|
Working capital
|
|
|
11,902
|
|
|
|
|
|
Total assets
|
|
|
15,843
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Deficit accumulated during the
development stage
|
|
|
(15,367
|
)
|
|
|
|
|
Total stockholders equity
|
|
|
13,160
|
|
|
|
|
|
5
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
You should carefully consider the risks and uncertainties
described below together with all of the other information
included in this prospectus, including the financial statements
and related notes appearing at the end of this prospectus,
before deciding to invest in our common stock. If any of the
following risks actually occur, they may materially harm our
business, prospects, financial condition and results of
operations. In this event, the market price of our common stock
could decline and you could lose part or all of your
investment.
Risks
Related to Our Financial Position and Need for Additional
Capital
We
have incurred significant losses since our inception. We expect
to incur losses for the foreseeable future and may never achieve
or maintain profitability.
Since our inception in December 2003, we have incurred
significant operating losses. Our net loss was $3.6 million
for the three months ended December 31, 2006 and
$7.9 million for the year ended September 30, 2006. As
of December 31, 2006, we had a deficit accumulated during
the development stage of $15.4 million. To date, we have
financed our operations primarily through private placements of
our preferred stock. We have devoted substantially all of our
time, money and efforts to the research and development of
VIAject
tm
,
VIAtab
tm
and our preclinical product candidates. We have not completed
development of any drugs. We expect to continue to incur
significant and increasing operating losses for at least the
next several years. We anticipate that our expenses will
increase substantially as we:
|
|
|
|
|
continue our ongoing Phase III clinical trials of
VIAject
tm
in which we plan to treat 400 patients with Type 1 diabetes
and 400 patients with Type 2 diabetes over a six-month
period;
|
|
|
|
continue our ongoing Phase I clinical trial of
VIAtab
tm
and subsequently initiate Phase II and Phase III
clinical trials;
|
|
|
|
continue the research and development of our preclinical product
candidates,
VIAmass
tm
and
VIAcal
tm
,
and advance those product candidates into clinical development;
|
|
|
|
seek regulatory approvals for our product candidates that
successfully complete clinical trials;
|
|
|
|
establish a sales and marketing infrastructure to commercialize
products for which we may obtain regulatory approval; and
|
|
|
|
add operational, financial and management information systems
and personnel, including personnel to support our product
development efforts and our obligations as a public company.
|
To become and remain profitable, we must succeed in developing
and eventually commercializing drugs with significant market
potential. This will require us to be successful in a range of
challenging activities, including successfully completing
preclinical testing and clinical trials of our product
candidates, obtaining regulatory approval for these product
candidates and manufacturing, marketing and selling those
products for which we may obtain regulatory approval. We are
only in the preliminary stages of these activities. We may never
succeed in these activities and may never generate revenues that
are significant or large enough to achieve profitability. Even
if we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis. Our
failure to become and remain profitable would depress the market
price of our common stock and could impair our ability to raise
capital, expand our business or continue our operations. A
decline in the market price of our common stock could also cause
you to lose all or a part of your investment.
We
will need substantial additional funding and may be unable to
raise capital when needed, which would force us to delay, reduce
or eliminate our product development programs or
commercialization efforts.
We are a development stage company with no commercial products.
All of our product candidates are still being developed, and all
but
VIAject
tm
are in early stages of development. Our product candidates will
require significant additional development, clinical
development, regulatory approvals and additional investment
before
6
they can be commercialized. We anticipate that
VIAject
tm
will not be commercially available for several years, if at all.
We expect our research and development expenses to increase in
connection with our ongoing activities, particularly as we
continue our Phase III clinical trials of
VIAject
tm
,
commence additional clinical trials of
VIAtab
tm
if our ongoing Phase I clinical trial is successful and
conduct preclinical testing of
VIAmass
tm
and
VIAcal
tm
.
In addition, subject to obtaining regulatory approval of any of
our product candidates, we expect to incur significant
commercialization expenses for product sales, marketing,
securing commercial quantities of product from our manufacturers
and distribution. We will need substantial additional funding
and may be unable to raise capital when needed or on attractive
terms, which would force us to delay, reduce or eliminate our
research and development programs or commercialization efforts.
Based upon our current plans we believe that the net proceeds of
this offering together with our existing cash and cash
equivalents will enable us to fund our anticipated operating
expenses and capital expenditures
until .
However, we cannot assure you that our plans will not change or
that changed circumstances will not result in the depletion of
our capital resources more rapidly than we currently anticipate.
Our future capital requirements will depend on many factors,
including:
|
|
|
|
|
the progress and results of our clinical trials of
VIAject
tm
and
VIAtab
tm
;
|
|
|
|
the scope, progress, results and costs of preclinical
development, laboratory testing and clinical trials for
VIAmass
tm
,
VIAcal
tm
and other potential product candidates;
|
|
|
|
the costs, timing and outcome of regulatory review of our
product candidates;
|
|
|
|
the costs of commercialization activities, including product
marketing, sales and distribution;
|
|
|
|
the costs of preparing, filing and prosecuting patent
applications and maintaining, enforcing and defending
intellectual property-related claims;
|
|
|
|
the emergence of competing technologies and products and other
adverse market developments;
|
|
|
|
the effect on our product development activities of actions
taken by the FDA or other regulatory authorities;
|
|
|
|
our degree of success in commercializing
VIAject
tm
and our other product candidates; and
|
|
|
|
our ability to establish and maintain collaborations and the
terms and success of the collaborations, including the timing
and amount of payments that we might receive from potential
strategic collaborators.
|
Until such time, if ever, as we can generate substantial product
revenues, we expect to finance our cash needs through public or
private equity offerings and debt financings, strategic
collaborations and licensing arrangements. If we raise
additional funds by issuing equity securities, our stockholders
will experience dilution. Debt financing, if available, may
involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as
incurring additional debt, making capital expenditures or
declaring dividends. Any debt financing or additional equity
that we raise may contain terms, such as liquidation and other
preferences, that are not favorable to us or our stockholders.
If we raise additional funds through collaboration, strategic
alliance and licensing arrangements with third parties, it may
be necessary to relinquish valuable rights to our technologies
or product candidates, future revenue streams, research programs
or product candidates or to grant licenses on terms that may not
be favorable to us.
Our
short operating history may make it difficult for you to
evaluate the success of our business to date and to assess our
future viability.
We commenced active operations in January 2004. Our operations
to date have been limited to organizing and staffing our
company, developing and securing our technology and undertaking
preclinical studies and clinical trials of our most advanced
product candidates,
VIAject
tm
and
VIAtab
tm
.
We have not yet demonstrated our ability to successfully
complete large-scale, pivotal clinical trials, obtain regulatory
approvals, manufacture a commercial scale product, or arrange
for a third party to do so on our behalf, or conduct sales and
marketing activities necessary
7
for successful product commercialization. Consequently, any
predictions you make about our future success or viability may
not be as accurate as they could be if we had a longer operating
history.
In addition, as a new business, we may encounter unforeseen
expenses, difficulties, complications, delays and other known
and unknown factors. We will need to transition from a company
with a research focus to a company capable of supporting
commercial activities. We may not be successful in such a
transition.
Risks
Related to the Development and Commercialization of Our Product
Candidates
We
depend heavily on the success of our most advanced product
candidate,
VIAject
tm
.
VIAtab
tm
is our only other product candidate currently in clinical
development. We do not expect to advance any other product
candidates into clinical trials until 2008. Clinical trials of
our product candidates may not be successful. If we are unable
to commercialize
VIAject
tm
and
VIAtab
tm
,
or experience significant delays in doing so, our business will
be materially harmed.
We have invested a significant portion of our efforts and
financial resources in the development of our most advanced
product candidates,
VIAject
tm
and
VIAtab
tm
.
Our ability to generate product revenues, which we do not expect
will occur for at least the next several years, if ever, will
depend heavily on the successful development and eventual
commercialization of these product candidates. The commercial
success of our product candidates will depend on several
factors, including the following:
|
|
|
|
|
successful completion of preclinical development and clinical
trials;
|
|
|
|
our ability to identify and enroll patients who meet clinical
trial eligibility criteria;
|
|
|
|
receipt of marketing approvals from the FDA and similar
regulatory authorities outside the United States;
|
|
|
|
establishing commercial manufacturing arrangements with
third-party manufacturers;
|
|
|
|
launching commercial sales of the products, whether alone or in
collaboration with others;
|
|
|
|
acceptance of the products by patients, the medical community
and third-party payors in the medical community;
|
|
|
|
competition from other products; and
|
|
|
|
a continued acceptable safety profile of the products following
approval.
|
If we are not successful in completing the development and
commercialization of our product candidates, or if we are
significantly delayed in doing so, our business will be
materially harmed.
The
results of early stage clinical trials do not ensure success in
later stage clinical trials.
To date we have not completed the development of any products
through commercialization.
VIAject
tm
is currently being tested in two Phase III clinical trials
in patients with Type 1 and Type 2 diabetes. We expect to
complete these two trials and, if these trials are successful,
we intend to submit a new drug application, or NDA, under
Section 505(b)(2) of the Federal Food, Drug, and Cosmetic
Act, or the FFDCA, to the FDA in 2008. We are currently
conducting our Phase I clinical trial of
VIAtab
tm
.
If this Phase I clinical trial of
VIAtab
tm
is successful, we plan to initiate a Phase II clinical
trial in 2008. The outcome of preclinical testing and early
clinical trials may not be predictive of the success of later
clinical trials. Furthermore, interim results of a clinical
trial do not necessarily predict final results. For example, the
interim results to date in our Phase II meal study of
VIAject
tm
are based on data from only 10 patients. The study is still
ongoing and we expect to enroll an additional 8-10 patients
in the trial. The final results of this trial may be different
from those suggested by our interim analysis. Similarly, the
final safety results from our Phase III clinical trials of
VIAject
tm
may be different than those suggested by the hypoglycemic events
observed to date. In addition, efficacy data from our
Phase III clinical trials of
VIAject
tm
,
which will be based on 400 Type 1 and 400 Type 2 diabetes
patients, may be less favorable than the data observed to date
in our Phase I and Phase II clinical trials. We cannot
assure you that our clinical trials of
VIAject
tm
or
VIAtab
tm
will ultimately be successful. New information regarding the
safety and efficacy of
VIAject
tm
or
VIAtab
tm
may arise from our continuing analysis of the data that may be
less favorable than the data observed to date. In our clinical
trials to date,
8
patients took
VIAject
tm
for a relatively small number of treatment days.
VIAject
tm
may not be found to be effective or safe when taken for longer
periods, such as the six-month period of our Phase III
clinical trials.
Even if our early phase clinical trials are successful, we will
need to complete our Phase III clinical trials of
VIAject
tm
and conduct Phase II and Phase III clinical trials of
VIAtab
tm
in larger numbers of patients taking the drug for longer periods
before we are able to seek approvals to market and sell these
product candidates from the FDA and similar regulatory
authorities outside the United States. If we are not successful
in commercializing any of our product candidates, or are
significantly delayed in doing so, our business will be
materially harmed.
If our
clinical trials are delayed or do not produce positive results,
we may incur additional costs and
ultimately be unable to commercialize our product
candidates.
Before obtaining regulatory approval for the sale of our product
candidates, we must conduct, at our own expense, extensive
preclinical tests to demonstrate the safety of our product
candidates in animals and clinical trials to demonstrate the
safety and efficacy of our product candidates in humans.
Preclinical and clinical testing is expensive, difficult to
design and implement, can take many years to complete and is
uncertain as to outcome. A failure of one or more of our
clinical trials of
VIAject
tm
and
VIAtab
tm
can occur at any stage of testing. We may experience numerous
unforeseen events during, or as a result of, preclinical testing
of
VIAmass
tm
and
VIAcal
tm
and clinical trials of
VIAject
tm
and
VIAtab
tm
that could delay or prevent our ability to receive regulatory
approval or commercialize our product candidates, including:
|
|
|
|
|
our preclinical tests or clinical trials may produce negative or
inconclusive results, and we may decide, or regulators may
require us, to conduct additional preclinical testing or
clinical trials or we may abandon projects that we had expected
to be promising;
|
|
|
|
the number of patients required for our clinical trials may be
larger than we anticipate, enrollment in our clinical trials may
be slower than we currently anticipate, or participants may drop
out of our clinical trials at a higher rate than we anticipate,
any of which would result in significant delays;
|
|
|
|
our third-party contractors may fail to comply with regulatory
requirements or meet their contractual obligations to us in a
timely manner;
|
|
|
|
we might have to suspend or terminate our clinical trials if the
participants are being exposed to unacceptable health risks;
|
|
|
|
regulators or institutional review boards may require that we
hold, suspend or terminate clinical research for various
reasons, including noncompliance with regulatory requirements;
|
|
|
|
the cost of our clinical trials may be greater than we
anticipate;
|
|
|
|
the supply or quality of our product candidates or other
materials necessary to conduct our clinical trials may be
insufficient or inadequate; and
|
|
|
|
the effects of our product candidates may not be the desired
effects or may include undesirable side effects or the product
candidates may have other unexpected characteristics.
|
In particular, the enrollment of patients with Type 1
diabetes in our Phase III clinical trials of
VIAject
tm
has been somewhat slower than we expected, in part because
participation in this trial would require some patients to stop
their use of an insulin analog product. Accordingly, we recently
initiated trial sites in Germany where the use of insulin
analogs is not fully reimbursed by the government. If we
continue to experience slower than anticipated enrollment of
patients in our clinical trials, our development of
VIAject
tm
could be delayed.
If we are required to conduct additional clinical trials or
other testing of our product candidates beyond those that we
currently contemplate, if we are unable to successfully complete
our clinical trials or other testing, if the results of these
trials or tests are not positive or are only modestly positive
or if there are safety concerns, we may:
|
|
|
|
|
be delayed in obtaining marketing approval for our product
candidates;
|
|
|
|
not be able to obtain marketing approval;
|
9
|
|
|
|
|
obtain approval for indications that are not as broad as
intended; or
|
|
|
|
have the product removed from the market after obtaining
marketing approval.
|
Our product development costs will also increase if we
experience delays in testing or approvals. We do not know
whether any preclinical tests or clinical trials will begin as
planned, will need to be restructured or will be completed on
schedule, if at all. Significant preclinical or clinical trial
delays also could shorten any periods during which we may have
the exclusive right to commercialize our product candidates or
allow our competitors to bring products to market before we do
and impair our ability to commercialize our products or product
candidates and may harm our business and results of operations.
If our
product candidates are found to cause undesirable side effects
we may need to delay or abandon our development and
commercialization efforts.
Any undesirable side effects that might be caused by our product
candidates could interrupt, delay or halt clinical trials and
could result in the denial of regulatory approval by the FDA or
other regulatory authorities for any or all targeted
indications. In addition, if any of our product candidates
receive marketing approval and we or others later identify
undesirable side effects caused by the product, we could face
one or more of the following:
|
|
|
|
|
a change in the labeling statements or withdrawal of FDA or
other regulatory approval of the product;
|
|
|
|
a change in the way the product is administered; or
|
|
|
|
the need to conduct additional clinical trials.
|
Any of these events could prevent us from achieving or
maintaining market acceptance of the affected product or could
substantially increase the costs and expenses of commercializing
the product, which in turn could delay or prevent us from
generating significant revenues from its sale.
The major safety concern with patients taking insulin is the
occurrence of hypoglycemic events, which we monitor on a daily
basis in our clinical trials. As of March 12, 2007, we have
had a total of 113 mild and moderate hypoglycemic events in our
Phase III clinical trials, 73 in patients receiving
Humulin
®
R and 40 in patients receiving
VIAject
tm
.
As of that date, we have also had a total of four severe
hypoglycemic events, three in patients receiving
Humulin
®
R and one in a patient receiving
VIAject
tm
.
The
commercial success of any product candidates that we may
develop, including
VIAject
tm
,
VIAtab
tm
,
VIAmass
tm
and
VIAcal
tm
will depend upon the degree of market acceptance by physicians,
patients,
healthcare payors and others in the medical
community.
Any products that we bring to the market, including
VIAject
tm
,
VIAtab
tm
,
VIAmass
tm
and
VIAcal
tm
,
if they receive marketing approval, may not gain market
acceptance by physicians, patients, healthcare payors and others
in the medical community. If these products do not achieve an
adequate level of acceptance, we may not generate significant
product revenues and we may not become profitable. Physicians
will not recommend our product candidates until clinical data or
other factors demonstrate the safety and efficacy of our product
candidates as compared to other treatments. Even if the clinical
safety and efficacy of our product candidates is established,
physicians may elect not to recommend these product candidates
for a variety of factors, including the reimbursement policies
of government and third-party payors and the effectiveness of
our competitors in marketing their products.
The degree of market acceptance of our product candidates, if
approved for commercial sale, will depend on a number of
factors, including:
|
|
|
|
|
the willingness and ability of patients and the healthcare
community to adopt our technology;
|
|
|
|
the ability to manufacture our product candidates in sufficient
quantities with acceptable quality and to offer our product
candidates for sale at competitive prices;
|
|
|
|
the perception of patients and the healthcare community,
including third-party payors, regarding the safety, efficacy and
benefits of our product candidates compared to those of
competing products or therapies;
|
10
|
|
|
|
|
the convenience and ease of administration of our product
candidates relative to existing treatment methods;
|
|
|
|
the pricing and reimbursement of our product candidates relative
to existing treatments; and
|
|
|
|
marketing and distribution support for our product candidates.
|
If we
fail to enter into strategic collaborations for the
commercialization of our product candidates or if our
collaborations are unsuccessful, we may be required to establish
our own sales, marketing, manufacturing and distribution
capabilities which will be expensive and could delay the
commercialization of our product candidates and have a material
and adverse affect on our business.
A broad base of physicians, including primary care physicians,
internists and endocrinologists, treat patients with diabetes. A
large sales force is required to educate and support these
physicians. Therefore, our current strategy for developing,
manufacturing and commercializing our product candidates
includes securing collaborations with leading pharmaceutical and
biotechnology companies for the commercialization of our product
candidates. To date, we have not entered into any collaborations
with pharmaceutical or biotechnology companies. We face
significant competition in seeking appropriate collaborators. In
addition, collaboration agreements are complex and
time-consuming to negotiate, document and implement. For all
these reasons, it may be difficult for us to find third parties
that are willing to enter into collaborations on economic terms
that are favorable to us, or at all. If we do enter into any
such collaboration, the collaboration may not be successful. The
success of our collaboration arrangements will depend heavily on
the efforts and activities of our collaborators. It is likely
that our collaborators will have significant discretion in
determining the efforts and resources that they will apply to
these collaborations.
If we fail to enter into collaborations, or if our
collaborations are unsuccessful, we may be required to establish
our own direct sales, marketing, manufacturing and distribution
capabilities. Establishing these capabilities can be
time-consuming and expensive and we have little experience in
doing so. Because of our size, we would be at a disadvantage to
our potential competitors to the extent they collaborate with
large pharmaceutical companies that have substantially more
resources than we do. As a result, we would not initially be
able to field a sales force as large as our competitors or
provide the same degree of market research or marketing support.
In addition, our competitors would have a greater ability to
devote research resources toward expansion of the indications
for their products. We cannot assure prospective investors that
we will succeed in entering into acceptable collaborations, that
any such collaboration will be successful or, if not, that we
will successfully develop our own sales, marketing and
distribution capabilities.
If we
are unable to obtain adequate reimbursement from governments or
third-party payors for any products that we may develop or if we
are unable to obtain acceptable prices for those products, they
may not be
purchased or used and our revenues and prospects for
profitability will suffer.
Our future revenues and profits will depend heavily upon the
availability of adequate reimbursement for the use of our
approved product candidates from governmental and other
third-party payors, both in the United States and in other
markets. Reimbursement by a third-party payor may depend upon a
number of factors, including the third-party payors
determination that use of a product is:
|
|
|
|
|
a covered benefit under its health plan;
|
|
|
|
safe, effective and medically necessary;
|
|
|
|
appropriate for the specific patient;
|
|
|
|
cost-effective; and
|
|
|
|
neither experimental nor investigational.
|
Obtaining reimbursement approval for a product from each
government or other third-party payor is a time-consuming and
costly process that could require us to provide supporting
scientific, clinical and cost-effectiveness data for the use of
our products to each payor. We may not be able to provide data
sufficient to gain acceptance with respect to reimbursement.
Even when a payor determines that a product is eligible for
reimbursement, the payor may impose coverage limitations that
preclude payment for some uses that are approved by the FDA or
comparable
11
authorities. In addition, eligibility for coverage does not
imply that any product will be reimbursed in all cases or at a
rate that allows us to make a profit or even cover our costs.
Interim payments for new products, if applicable, may also not
be sufficient to cover our costs and may not be made permanent.
We are
subject to pricing pressures and uncertainties regarding
Medicare reimbursement and reform.
Recent reforms in Medicare added a prescription drug
reimbursement benefit beginning in 2006 for all Medicare
beneficiaries. Although we cannot predict the full effects on
our business of the implementation of this legislation, it is
possible that the new benefit, which will be managed by private
health insurers, pharmacy benefit managers, and other managed
care organizations, will result in decreased reimbursement for
prescription drugs, which may further exacerbate industry-wide
pressure to reduce the prices charged for prescription drugs.
This could harm our ability to generate revenues.
Governments
outside the United States tend to impose strict price controls,
which may adversely affect our revenues, if any.
In some countries, particularly the countries of the European
Union, the pricing of prescription pharmaceuticals is subject to
governmental control. In these countries, pricing negotiations
with governmental authorities can take considerable time after
the receipt of marketing approval for a product. To obtain
reimbursement or pricing approval in some countries, we may be
required to conduct a clinical trial that compares the
cost-effectiveness of our product candidate to other available
therapies. If reimbursement of our products is unavailable or
limited in scope or amount, or if pricing is set at
unsatisfactory levels, our business could be adversely affected.
Legislation has been introduced into Congress that, if enacted,
would permit more widespread re-importation of drugs from
foreign countries into the United States, which may include
re-importation from foreign countries where the drugs are sold
at lower prices than in the United States. Such legislation, or
similar regulatory changes, could decrease the price we receive
for any approved products which, in turn, could adversely affect
our operating results and our overall financial condition.
Product
liability lawsuits against us could cause us to incur
substantial liabilities and to limit
commercialization of any products that we may
develop.
We face an inherent risk of product liability exposure related
to the testing of our product candidates in human clinical
trials and will face an even greater risk if we commercially
sell any products that we may develop. If we cannot successfully
defend ourselves against claims that our product candidates or
products caused injuries, we will incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may
result in:
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decreased demand for any product candidates or products that we
may develop;
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injury to our reputation;
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withdrawal of clinical trial participants;
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costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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loss of revenue; and
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the inability to commercialize any products that we may develop.
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We currently carry global liability insurance in the amount of
$5 million that we believe is reasonable to cover us from
potential damages arising from proposed clinical trials of
VIAject
tm
.
We also carry local policies per clinical trial of our product
candidates. The amount of insurance that we currently hold may
not be adequate to cover all liabilities that we may incur. We
intend to expand our insurance coverage to include the sale of
commercial products if we obtain marketing approval for any
products. Insurance coverage is increasingly expensive. We may
not be able to maintain insurance coverage at a reasonable cost.
If losses from product liability claims exceed our liability
insurance coverage, we may ourselves incur substantial
liabilities. If we are required to pay a product
12
liability claim, we may not have sufficient financial resources
to complete development or commercialization of any of our
product candidates and, if so, our business and results of
operations would be harmed.
We
face substantial competition in the development of our product
candidates which may result in others developing or
commercializing products before or more successfully than we
do.
We are engaged in segments of the pharmaceutical industry that
are characterized by intense competition and rapidly evolving
technology. Many large pharmaceutical and biotechnology
companies, academic institutions, governmental agencies and
other public and private research organizations are pursuing the
development of novel drugs that target endocrine disorders. We
face, and expect to continue to face, intense and increasing
competition as new products enter the market and advanced
technologies become available. There are several approved
injectable rapid-acting meal-time insulin analogs currently on
the market including
Humalog
®
,
marketed by Eli Lilly and Company,
Novolog
®
,
marketed by Novo Nordisk A/S, and
Apidra
®
,
marketed by Sanofi-Aventis. These rapid-acting insulin analogs
provide improvement over regular forms of short-acting insulin,
including faster subcutaneous absorption, an earlier and greater
insulin peak and more rapid post-peak decrease. In addition,
Pfizer Inc.s
Exubera
®
,
an inhalable insulin delivered by a device developed by Nektar
Therapeutics, was recently approved by the FDA and the European
Medicines Agency, or the EMEA. Emisphere Technologies, Inc. is
developing oral insulin in pill form. Emisphere is still in
early-stage preclinical trials of its oral tablet. Generex has
developed an oral spray that is currently in Phase II
development. Several companies are also developing alternative
insulin systems for diabetes, including Novo Nordisk, Eli Lilly
and Company in collaboration with Alkermes, Inc., MannKind
Corporation, Emisphere Technologies, Inc. and Aradigm
Corporation. In addition, a number of established pharmaceutical
companies, including GlaxoSmithKline plc and Bristol-Myers
Squibb Company, are developing proprietary technologies or have
entered into arrangements with, or acquired, companies with
technologies for the treatment of diabetes.
Potential competitors also include academic institutions,
government agencies and other public and private research
organizations that conduct research, seek patent protection and
establish collaborative arrangements for research, development,
manufacturing and commercialization. Our competitors may develop
products that are more effective, safer, more convenient or less
costly than any that we are developing or that would render our
product candidates obsolete or non-competitive. Our competitors
may also obtain FDA or other regulatory approval for their
products more rapidly than we may obtain approval for ours.
Many of our potential competitors have:
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significantly greater financial, technical and human resources
than we have and may be better equipped to discover, develop,
manufacture and commercialize product candidates;
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more extensive experience in preclinical testing and clinical
trials, obtaining regulatory approvals and manufacturing and
marketing pharmaceutical products;
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product candidates that have been approved or are in late-stage
clinical development; or
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collaborative arrangements in our target markets with leading
companies and research institutions.
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Our
product candidates may be rendered obsolete by technological
change.
The rapid rate of scientific discoveries and technological
changes could result in one or more of our product candidates
becoming obsolete or noncompetitive. For several decades,
scientists have attempted to improve the bioavailability of
injected formulations and to devise alternative non-invasive
delivery systems for the delivery of drugs such as insulin. Our
product candidates will compete against many products with
similar indications. In addition to the currently marketed
rapid-acting insulin analogs, our competitors are developing
insulin formulations delivered by oral pills, pulmonary devices
and oral spray devices. Our future success will depend not only
on our ability to develop our product candidates, but to
maintain market acceptance against emerging industry
developments. We cannot assure prospective investors that we
will be able to do so.
13
Our
business activities involve the storage and use of hazardous
materials, which require compliance with environmental and
occupational safety laws regulating the use of such materials.
If we violate these laws, we could be subject to significant
fines, liabilities or other adverse consequences.
Our research and development work and manufacturing processes
involve the controlled storage and use of hazardous materials,
including chemical and biological materials. Our operations also
produce hazardous waste products. We are subject to federal,
state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of these materials.
Although we believe that our safety procedures for handling and
disposing of such materials and waste products comply in all
material respects with the standards prescribed by federal,
state and local laws and regulations, the risk of accidental
contamination or injury from hazardous materials cannot be
completely eliminated. In the event of an accident or failure to
comply with environmental laws, we could be held liable for any
damages that may result, and any such liability could fall
outside the coverage or exceed the limits of our insurance. In
addition, we could be required to incur significant costs to
comply with environmental laws and regulations in the future or
pay substantial fines or penalties if we violate any of these
laws or regulations. Finally, current or future environmental
laws and regulations may impair our research, development or
production efforts.
Risks
Related to Our Dependence on Third Parties
Use of
third parties to manufacture our product candidates may increase
the risk that we will not have
sufficient quantities of our product candidates or such
quantities at an acceptable cost, and clinical development and
commercialization of our product candidates could be delayed,
prevented or impaired.
We do not own or operate manufacturing facilities for commercial
production of our product candidates. We have limited experience
in drug manufacturing and we lack the resources and the
capabilities to manufacture any of our product candidates on a
clinical or commercial scale. Our strategy is to outsource all
manufacturing of our product candidates and products to third
parties. We also expect to rely upon third parties to produce
materials required for the commercial production of our product
candidates if we succeed in obtaining necessary regulatory
approvals. Although we have contracted with a large commercial
manufacturer for
VIAject
tm
,
there can be no assurance that we will be able to do so
successfully with our remaining product candidates. The
manufacture of pharmaceutical products requires significant
expertise and capital investment, including the development of
advanced manufacturing techniques, processes and quality
controls.
Reliance on third-party manufacturers entails risks to which we
would not be subject if we manufactured product candidates or
products ourselves, including:
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reliance on the third party for regulatory compliance and
quality assurance;
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the possible breach of the manufacturing agreement by the third
party because of factors beyond our control; and
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the possible termination or nonrenewal of the agreement by the
third party, based on its own business priorities, at a time
that is costly or inconvenient for us.
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Our manufacturers may not be able to comply with current good
manufacturing practice, or cGMP, regulations or other regulatory
requirements or similar regulatory requirements outside the
United States. Our manufacturers are subject to unannounced
inspections by the FDA, state regulators and similar regulators
outside the United States. Our failure, or the failure of our
third-party manufacturers, to comply with applicable regulations
could result in sanctions being imposed on us, including fines,
injunctions, civil penalties, failure of regulatory authorities
to grant marketing approval of our product candidates, delays,
suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates or products, operating
restrictions and criminal prosecutions, any of which could
significantly and adversely affect supplies of our product
candidates.
Our product candidates and any products that we may develop may
compete with other product candidates and products for access to
manufacturing facilities. There are a limited number of
manufacturers that operate under cGMP regulations and that are
both capable of manufacturing for us and willing to do so. If
the third parties that we engage to manufacture product for our
clinical trials should cease to continue to do so for any
reason, we likely would experience delays in advancing these
trials while we identify and qualify replacement suppliers and
we may
14
be unable to obtain replacement supplies on terms that are
favorable to us. In addition, if we are not able to obtain
adequate supplies of our product candidates or the drug
substances used to manufacture them, it will be more difficult
for us to develop our product candidates and compete effectively.
Our current and anticipated future dependence upon others for
the manufacture of our product candidates may adversely affect
our future profit margins and our ability to develop product
candidates and commercialize any products that receive
regulatory approval on a timely and competitive basis.
We
rely on third parties to conduct our clinical trials and those
third parties may not perform satisfactorily, including failing
to meet established deadlines for the completion of such
trials.
We do not independently conduct clinical trials for our product
candidates. We rely on third parties, such as contract research
organizations, clinical data management organizations, medical
institutions and clinical investigators, to enroll qualified
patients and conduct our clinical trials. Our reliance on these
third parties for clinical development activities reduces our
control over these activities. We are responsible for ensuring
that each of our clinical trials is conducted in accordance with
the general investigational plan and protocols for the trial.
Moreover, the FDA requires us to comply with standards, commonly
referred to as Good Clinical Practices, for conducting,
recording, and reporting the results of clinical trials to
assure that data and reported results are credible and accurate
and that the rights, integrity and confidentiality of trial
participants are protected. Our reliance on third parties that
we do not control does not relieve us of these responsibilities
and requirements. Furthermore, these third parties may also have
relationships with other entities, some of which may be our
competitors. If these third parties do not successfully carry
out their contractual duties, meet expected deadlines or conduct
our clinical trials in accordance with regulatory requirements
or our stated protocols, we will not be able to obtain, or may
be delayed in obtaining, regulatory approvals for our product
candidates and will not be able to, or may be delayed in our
efforts to, successfully commercialize our product candidates.
If our
suppliers, principally our sole insulin supplier, fail to
deliver materials and provide services needed for the production
of
VIAject
tm
and
VIAtab
tm
in a timely and sufficient manner, or if they fail to comply
with applicable regulations, clinical development or regulatory
approval of our product candidates or
commercialization of our products could be delayed, producing
additional losses and depriving us of potential product
revenue.
We need access to sufficient, reliable and affordable supplies
of recombinant human insulin and other materials for which we
rely on various suppliers. We also must rely on those suppliers
to comply with relevant regulatory and other legal requirements,
including the production of insulin in accordance with cGMP. We
can make no assurances that our suppliers, particularly our
insulin supplier, will comply with cGMP. We currently have an
agreement with a single insulin supplier that is responsible for
providing all of the insulin that we use for testing and
manufacturing
VIAject
tm
and
VIAtab
tm
.
If supply of recombinant human insulin and other materials
becomes limited, or if our supplier does not meet relevant
regulatory requirements, and if we were unable to obtain these
materials in sufficient amounts, in a timely manner and at
reasonable prices, we could be delayed in the manufacturing and
future commercialization of
VIAject
tm
and
VIAtab
tm
.
We would incur substantial costs and manufacturing delays if our
suppliers are unable to provide us with products or services
approved by the FDA or other regulatory agencies.
Risks
Related to Our Intellectual Property
If we
are unable to protect our intellectual property rights, our
competitors may develop and market similar or identical products
that may reduce demand for our products, and we may be prevented
from establishing collaborative relationships on favorable
terms.
The following factors are important to our success:
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receiving patent protection for our product candidates;
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maintaining our trade secrets;
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15
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not infringing on the proprietary rights of others; and
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preventing others from infringing our proprietary rights.
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We will be able to protect our proprietary rights from
unauthorized use by third parties only to the extent that our
proprietary rights are covered by valid and enforceable patents
or are effectively maintained as trade secrets. We try to
protect our proprietary position by filing U.S. and foreign
patent applications related to our proprietary technology,
inventions and improvements that are important to the
development of our business. Because the patent position of
pharmaceutical companies involves complex legal and factual
questions, the issuance, scope and enforceability of patents
cannot be predicted with certainty. Patents, if issued, may be
challenged, invalidated or circumvented. Thus, any patents that
we own or license from others may not provide any protection
against competitors.
We currently do not own or in-license any issued patents. We
have three pending United States patent applications relating to
our
VIAdel
tm
,
VIAject
tm
and
VIAtab
tm
technology. These pending patent applications, those we may file
in the future, or those we may license from third parties, may
not result in patents being issued. If patents do not issue with
claims encompassing our products, our competitors may develop
and market similar or identical products that compete with ours.
Even if patents are issued, they may not provide us with
proprietary protection or competitive advantages against
competitors with similar technology. Failure to obtain effective
patent protection for our technology and products may reduce
demand for our products and prevent us from establishing
collaborative relationships on favorable terms.
The active and inactive ingredients in our
VIAject
tm
and
VIAtab
tm
product candidates have been known and used for many years and,
therefore, are no longer subject to patent protection.
Accordingly, our pending patent applications are directed to the
particular formulations of these ingredients in our products,
and their use. Although we believe our formulations and their
use are patentable and provide a competitive advantage, even if
issued, our patents may not prevent others from marketing
formulations using the same active and inactive ingredients in
similar but different formulations.
We also rely on trade secrets, know-how and technology, which
are not protected by patents, to maintain our competitive
position. We try to protect this information by entering into
confidentiality agreements with parties that have access to it,
such as potential corporate partners, collaborators, employees
and consultants. Any of these parties may breach the agreements
and disclose our confidential information or our competitors may
learn of the information in some other way. Furthermore, others
may independently develop similar technologies or duplicate any
technology that we have developed. If any trade secret, know-how
or other technology not protected by a patent were to be
disclosed to or independently developed by a competitor, our
business and financial condition could be materially adversely
affected.
The laws of many foreign countries do not protect intellectual
property rights to the same extent as do the laws of the United
States.
We may
become involved in lawsuits and administrative proceedings to
protect, defend or enforce our
patents that would be expensive and
time-consuming.
In order to protect or enforce our patent rights, we may
initiate patent litigation against third parties in the United
States or in foreign countries. In addition, we may be subject
to certain opposition proceedings conducted in patent and
trademark offices challenging the validity of our patents and
may become involved in future opposition proceedings challenging
the patents of others. The defense of intellectual property
rights, including patent rights, through lawsuits, interference
or opposition proceedings, and other legal and administrative
proceedings can be costly and can divert our technical and
management personnel from their normal responsibilities. Such
costs increase our operating losses and reduce our resources
available for development activities. An adverse determination
of any litigation or defense proceedings could put one or more
of our patents at risk of being invalidated or interpreted
narrowly and could put our patent applications at risk of not
issuing.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation,
there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. For
example, during the course of this kind of litigation and
despite protective orders entered by
16
the court, confidential information may be inadvertently
disclosed in the form of documents or testimony in connection
with discovery requests, depositions or trial testimony. This
disclosure could materially adversely affect our business and
financial results.
Claims
by other parties that we infringe or have misappropriated their
proprietary technology may result in liability for damages,
royalties, or other payments, or stop our development and
commercialization efforts.
Competitors and other third parties may initiate patent
litigation against us in the United States or in foreign
countries based on existing patents or patents that may be
granted in the future. Many of our competitors have obtained
patents covering products and processes generally related to our
products and processes, and they may assert these patents
against us. Moreover, there can be no assurance that these
competitors have not sought or will not seek additional patents
that may cover aspects of our technology. As a result, there is
a greater likelihood of a patent dispute than would be expected
if our competitors were pursuing unrelated technologies.
While we conduct patent searches to determine whether the
technologies used in our products infringe patents held by third
parties, numerous patent applications are currently pending and
may be filed in the future for technologies generally related to
our technologies, including many patent applications that remain
confidential after filing. Due to these factors and the inherent
uncertainty in conducting patent searches, there can be no
guarantee that we will not violate third-party patent rights
that we have not yet identified.
We know of U.S. and foreign patents issued to third parties that
relate to aspects of our product candidates. There may also be
patent applications filed by these or other parties in the
United States and various foreign jurisdictions that relate to
some aspects of our product candidates, which, if issued, could
subject us to infringement actions. The owners or licensees of
these and other patents may file one or more infringement
actions against us. In addition, a competitor may claim
misappropriation of a trade secret by an employee hired from
that competitor. Any such infringement or misappropriation
action could cause us to incur substantial costs defending the
lawsuit and could distract our management from our business,
even if the allegations of infringement or misappropriation are
unwarranted. A need to defend multiple actions or claims could
have a disproportionately greater impact. In addition, either in
response to or in anticipation of any such infringement or
misappropriation claim, we may enter into commercial agreements
with the owners or licensees of these rights. The terms of these
commercial agreements may include substantial payments,
including substantial royalty payments on revenues received by
us in connection with the commercialization of our products.
Payments under such agreements could increase our operating
losses and reduce our resources available for development
activities. Furthermore, a party making this type of claim could
secure a judgment that requires us to pay substantial damages,
which would increase our operating losses and reduce our
resources available for development activities. A judgment could
also include an injunction or other court order that could
prevent us from making, using, selling, offering for sale or
importing our products or prevent our customers from using our
products. If a court determined or if we independently concluded
that any of our products or manufacturing processes violated
third-party proprietary rights, our clinical trials could be
delayed and there can be no assurance that we would be able to
reengineer the product or processes to avoid those rights, or to
obtain a license under those rights on commercially reasonable
terms, if at all.
Risks
Related to Regulatory Approval of Our Product
Candidates
If we
are not able to obtain required regulatory approvals, we will
not be able to commercialize our product candidates, and our
ability to generate revenue will be materially
impaired.
Our product candidates, and the activities associated with their
development and commercialization, including their testing,
manufacture, safety, efficacy, recordkeeping, labeling, storage,
approval, advertising, promotion, sale and distribution, are
subject to comprehensive regulation by the FDA and other
regulatory agencies in the United States and by comparable
authorities in other countries. Failure to obtain regulatory
approval for a product candidate will prevent us from
commercializing the product candidate. We have not received
regulatory approval to market any of our product candidates in
any jurisdiction. Securing FDA approval may require the
submission of extensive preclinical and clinical data and
supporting information to the FDA for each therapeutic
indication to establish the product candidates safety and
efficacy. Securing FDA approval requires the submission of
information about the
17
product manufacturing process to, and inspection of
manufacturing facilities by, the FDA. Our future products may
not be demonstrated effective, may be demonstrated only
moderately effective or may prove to have undesirable or
unintended side effects, toxicities or other characteristics
that may preclude our obtaining regulatory approval or may
prevent or limit commercial use.
The process of obtaining FDA and other regulatory approvals is
expensive, often takes many years, if approval is obtained at
all, and can vary substantially based upon a variety of factors,
including the type, complexity and novelty of the product
candidates involved and challenges by competitors. Changes in
regulatory approval policies during the development period,
changes in or the enactment of additional statutes or
regulations, or changes in regulatory review for each submitted
product application, may cause delays in the approval or
rejection of an application. The FDA has substantial discretion
in the approval process and may refuse to accept any application
or may decide that our data is insufficient for approval and
require additional preclinical, clinical or other studies. In
addition, varying agency interpretations of the data obtained
from preclinical and clinical testing could delay, limit or
prevent regulatory approval of a product candidate. Any
regulatory approval we ultimately obtain may be limited or
subject to restrictions or post-approval commitments that render
the approved product not commercially viable.
If the
FDA does not believe that our product candidates satisfy the
requirements for the Section 505(b)(2) approval procedure,
the approval pathway will take longer and cost more than
anticipated.
We believe that
VIAject
tm
and
VIAtab
tm
qualify for approval under Section 505(b)(2) of the FFDCA.
Because we are developing improved formulations of previously
approved chemical entities, such as insulin, this may enable us
to avoid having to submit certain types of data and studies that
are required in full NDAs and instead submit a
Section 505(b)(2) NDA. The FDA may not agree that our
products are approvable under Section 505(b)(2). Insulin is
a unique and complex drug in that it is a complex hormone
molecule that is more difficult to replicate than many small
molecule drugs. The availability of the Section 505(b)(2)
pathway for insulin is even more controversial than for small
molecule drugs, and the FDA may not accept this pathway for our
insulin product candidates. The FDA has not published any
guidance that specifically addresses insulin
Section 505(b)(2) NDAs. No other insulin product has yet
been approved under a Section 505(b)(2) NDA. If the FDA
determines that Section 505(b)(2) NDAs are not appropriate
and that full NDAs are required for our product candidates, the
time and financial resources required to obtain FDA approval for
our product candidates could substantially and materially
increase. This would require us to obtain substantially more
funding than previously anticipated which could significantly
dilute the ownership interests of our stockholders. Even with
this investment, the prospect for FDA approval may be
significantly lower. If the FDA requires full NDAs for our
product candidates or requires more extensive testing and
development for some other reason, our ability to compete with
alternative products that arrive on the market more quickly than
our product candidates would be adversely impacted.
Notwithstanding the approval of many products by the FDA under
Section 505(b)(2) over the last few years, certain
brand-name pharmaceutical companies and others have objected to
the FDAs interpretation of Section 505(b)(2). If the
FDAs interpretation of Section 505(b)(2) is
successfully challenged, the FDA may be required to change its
interpretation of Section 505(b)(2) which could delay or
even prevent the FDA from approving any Section 505(b)(2)
NDA that we submit. The pharmaceutical industry is highly
competitive, and it is not uncommon for a manufacturer of an
approved product to file a citizen petition with the FDA seeking
to delay approval of, or impose additional approval requirements
for, pending competing products. If successful, such petitions
can significantly delay, or even prevent, the approval of the
new product. However, even if the FDA ultimately denies such a
petition, the FDA may substantially delay approval while it
considers and responds to the petition.
Moreover, even if
VIAject
tm
and
VIAtab
tm
are approved under Section 505(b)(2), the approval may be
subject to limitations on the indicated uses for which the
product may be marketed or to other conditions of approval, or
may contain requirements for costly post-marketing testing and
surveillance to monitor the safety or efficacy of the product.
18
Any
product for which we obtain marketing approval could be subject
to restrictions or withdrawal from the market and we may be
subject to penalties if we fail to comply with regulatory
requirements or if we
experience unanticipated problems with our products, when and if
any of them are approved.
Any product for which we obtain marketing approval, along with
the manufacturing processes, post-approval clinical data,
labeling, advertising and promotional activities for such
product, will be subject to continual requirements of and review
by the FDA and comparable regulatory authorities. These
requirements include submissions of safety and other
post-marketing information and reports, registration
requirements, cGMP requirements relating to quality control,
quality assurance and corresponding maintenance of records and
documents, requirements regarding the distribution of samples to
physicians and recordkeeping. Even if regulatory approval of a
product is granted, the approval may be subject to limitations
on the indicated uses for which the product may be marketed or
to other conditions of approval, or may contain requirements for
costly post-marketing testing and surveillance to monitor the
safety or efficacy of the product. Discovery after approval of
previously unknown problems with our products, manufacturers or
manufacturing processes, or failure to comply with regulatory
requirements, may result in actions such as:
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restrictions on such products manufacturers or
manufacturing processes;
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restrictions on the marketing of a product;
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warning letters;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to
approved applications that we submit;
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recall of products;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of regulatory approvals;
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refusal to permit the import or export of our products;
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product seizure;
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injunctions; or
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imposition of civil or criminal penalties.
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Failure
to obtain regulatory approval in international jurisdictions
would prevent us from marketing our products
abroad.
We intend to have our products marketed outside the United
States. In order to market our products in the European Union
and many other jurisdictions, we must obtain separate regulatory
approvals and comply with numerous and varying regulatory
requirements. The approval procedure varies among countries and
can involve additional testing. The time required to obtain
approval may differ from that required to obtain FDA approval.
The regulatory approval process outside the United States may
include all of the risks associated with obtaining FDA approval.
In addition, in many countries outside the United States, it is
required that the product be approved for reimbursement before
the product can be approved for sale in that country. We may not
obtain approvals from regulatory authorities outside the United
States on a timely basis, if at all. Approval by the FDA does
not ensure approval by regulatory authorities in other countries
or jurisdictions, and approval by one regulatory authority
outside the United States does not ensure approval by regulatory
authorities in other countries or jurisdictions or by the FDA.
We may not be able to file for regulatory approvals and may not
receive necessary approvals to commercialize our products in any
market.
19
Reports
of side effects or safety concerns in related technology fields
or in other companies clinical trials could delay or
prevent us from obtaining regulatory approval or negatively
impact public perception of our product
candidates.
At present, there are a number of clinical trials being
conducted by us and by other pharmaceutical companies involving
insulin or insulin delivery systems. The major safety concern
with patients taking insulin is the occurrence of hypoglycemic
events, which we monitor on a daily basis in our clinical
trials. As of March 12, 2007, we have had a total of 113
mild and moderate hypoglycemic events in our Phase III clinical
trials, 73 in patients receiving
Humulin
®
R
and 40 in patients receiving
VIAject
tm
.
As of that date, we have also had a total of four severe
hypoglycemic events, three in patients receiving
Humulin
®
R
and one in a patient receiving
VIAject
tm
.
If we discover that our product is associated with a
significantly increased frequency of hypoglycemic or other
adverse events, or if other pharmaceutical companies announce
that they observed frequent or significant adverse events in
their trials involving insulin or insulin delivery systems, we
could encounter delays in the commencement or completion of our
clinical trials or difficulties in obtaining the approval of our
product candidates. In addition, the public perception of our
products might be adversely affected, which could harm our
business and results of operations, even if the concern relates
to another companys product.
Risks
Related to Employee Matters and Managing Growth
Our
future success depends on our ability to retain our chief
executive officer and other key executives and to attract,
retain and motivate qualified personnel.
We are highly dependent on Dr. Solomon S. Steiner, our
Chairman, President and Chief Executive Officer,
Dr. Roderike Pohl, our Vice President, Research, and F.
Scott Reding, our Chief Financial Officer. Dr. Steiner and
Dr. Pohl are the inventors of our
VIAdel
tm
technology. The loss of the services of any of these persons
might impede the achievement of our research, development and
commercialization objectives. With the exception of
Dr. Steiner, Dr. Pohl and Mr. Reding, who each
have employment agreements, all of our employees are at
will and we currently do not have employment agreements
with any of the other members of our management or scientific
staff. Replacing key employees may be difficult and
time-consuming because of the limited number of individuals in
our industry with the skills and experience required to develop,
gain regulatory approval of and commercialize our product
candidates successfully. Other than a $1 million key person
insurance policy on Dr. Steiner, we do not have key person
life insurance to cover the loss of any of our other employees.
Recruiting and retaining qualified scientific personnel,
clinical personnel and sales and marketing personnel will also
be critical to our success. We may not be able to attract and
retain these personnel on acceptable terms, if at all, given the
competition among numerous pharmaceutical and biotechnology
companies for similar personnel. We also experience competition
for the hiring of scientific and clinical personnel from other
companies, universities and research institutions. In addition,
we rely on consultants and advisors, including scientific and
clinical advisors, to assist us in formulating our research and
development and commercialization strategy. Our consultants and
advisors may be employed by employers other than us and may have
commitments under consulting or advisory contracts with other
entities that may limit their availability to us.
We
expect to expand our development, regulatory and sales and
marketing capabilities, and as a result, we may encounter
difficulties in managing our growth, which could disrupt our
operations.
We expect to experience significant growth in the number of our
employees and the scope of our operations, particularly in the
areas of manufacturing, clinical trials management, regulatory
affairs, business development and sales and marketing. To manage
our anticipated future growth, we must continue to implement and
improve our managerial, operational and financial systems and
continue to recruit and train additional qualified personnel.
Due to our limited financial resources we may not be able to
effectively manage the expansion of our operations or recruit
and train additional qualified personnel. The physical expansion
of our operations may lead to significant costs and may divert
our management and business development resources. Any inability
to manage growth could delay the execution of our business plans
or disrupt our operations.
20
Risks
Related to Our Common Stock and This Offering
After
this offering, our executive officers, directors and principal
stockholders will maintain the ability to control all matters
submitted to stockholders for approval.
When this offering is completed, our executive officers,
directors and stockholders who owned more than 5% of our
outstanding common stock before this offering will, in the
aggregate, beneficially own shares representing
approximately % of our capital stock. As a result,
these stockholders, if they act together, will be able to
exercise a controlling influence over matters requiring
stockholder approval, including the election of directors and
approval of significant corporate transactions, such as mergers,
consolidations and sales of all or substantially all of our
assets, and will have significant control over our management
and policies. The interests of this group of stockholders may
not always coincide with our corporate interests or the
interests of other stockholders. This significant concentration
of stock ownership could also result in the entrenchment of our
management and adversely affect the price of our common stock.
Provisions
in our corporate charter documents and under Delaware law could
make an acquisition of us, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our
stockholders to replace or remove our current
management.
Provisions in our corporate charter and bylaws that will become
effective upon the closing of this offering may discourage,
delay or prevent a merger, acquisition or other change in
control of us that stockholders may consider favorable,
including transactions in which you might otherwise receive a
premium for your shares. These provisions could also limit the
price that investors might be willing to pay in the future for
shares of our common stock, thereby depressing the market price
of our common stock. In addition, these provisions may frustrate
or prevent any attempts by our stockholders to replace or remove
our current management by making it more difficult for
stockholders to replace members of our board of directors.
Because our board of directors is responsible for appointing the
members of our management team, these provisions could in turn
affect any attempt by our stockholders to replace current
members of our management team.
Among others, these provisions:
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establish a classified board of directors such that not all
members of the board are elected at one time;
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allow the authorized number of our directors to be changed only
by resolution of our board of directors;
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limit the manner in which stockholders can remove directors from
the board;
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establish advance notice requirements for stockholder proposals
that can be acted on at stockholder meetings and nominations to
our board of directors;
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require that stockholder actions must be effected at a duly
called stockholder meeting and prohibit actions by our
stockholders by written consent;
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limit who may call stockholder meetings;
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authorize our board of directors to issue preferred stock
without stockholder approval, which could be used to institute a
poison pill that would work to dilute the stock
ownership of a potential hostile acquirer, effectively
preventing acquisitions that have not been approved by our board
of directors; and
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require the approval of the holders of at least 75% of the votes
that all our stockholders would be entitled to cast to amend or
repeal certain provisions of our charter or bylaws.
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In addition, because we are incorporated in Delaware, we are
governed by the provisions of Section 203 of the Delaware
General Corporation Law, which generally prohibits a person who
owns in excess of 15% of our outstanding voting stock from
merging or combining with us for a period of three years after
the date of the transaction in which the person acquired in
excess of 15% of our outstanding voting stock, unless the merger
or combination is approved in a prescribed manner.
21
We may
not be able to comply on a timely basis with the requirements of
Section 404 of the Sarbanes-Oxley Act of
2002.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
and the related rules of the Securities and Exchange Commission,
beginning with our fiscal year ending September 30, 2008,
we will be required to include in our annual report an
assessment of the effectiveness of our internal control over
financial reporting. Furthermore, our registered independent
public accounting firm will be required to report on our
assessment of the effectiveness of our internal control over
financial reporting and separately report on the effectiveness
of our internal control over financial reporting. We have not
yet completed our assessment of the effectiveness of our
internal control over financial reporting. We restated our
financial statements for the year ended September 30, 2006
to correct an error in the calculation of non-cash compensation
expense related to options issued to non-employees. In
connection with the restatement it was determined that we have a
material weakness in our internal control over financial
reporting, as defined in the standards established by the Public
Company Accounting Oversight Board. We are in the process of
addressing this material weakness. We are also in the process of
documenting, reviewing and, where appropriate, improving our
internal controls and procedures in anticipation of being a
public company and eventually being subject to the requirements
of Section 404 of the Sarbanes-Oxley Act and the related
rules. Implementing appropriate changes to our internal controls
may entail substantial costs in order to modify our existing
financial and accounting systems, take a significant period of
time to complete, and distract our officers, directors and
employees from the operation of our business. Moreover, these
changes may not be effective in maintaining the adequacy or
effectiveness of our internal controls. If we fail to complete
the assessment on a timely basis, or if our independent
registered public accounting firm cannot attest to our
assessment, we could be subject to regulatory sanctions and a
loss of public confidence. Also, the lack of effective internal
control over financial reporting may adversely impact our
ability to prepare timely and accurate financial statements.
If you
purchase shares of common stock in this offering, you will
suffer immediate dilution of your investment.
We expect the initial public offering price of our common stock
to be substantially higher than the net tangible book value per
share of our common stock. Therefore, if you purchase shares of
our common stock in this offering, you will pay a price per
share that substantially exceeds our net tangible book value per
share after this offering. To the extent outstanding options or
warrants are exercised, you will incur further dilution. Based
on an assumed initial public offering price of
$ per share, which is the
midpoint of the price range listed on the cover page of this
prospectus, you will experience immediate dilution of
$ per share, representing the
difference between our pro forma net tangible book value per
share after giving effect to this offering and the assumed
initial public offering price. In addition, purchasers of common
stock in this offering will have contributed
approximately % of the aggregate price paid by all
purchasers of our stock but will own only
approximately % of our common stock outstanding after
this offering.
An
active trading market for our common stock may not
develop.
Prior to this offering, there has been no public market for our
common stock. The initial public offering price for our common
stock will be determined through negotiations with the
underwriters. Although we have applied to have our common stock
approved for listing on the Nasdaq Global Market, an active
trading market for our shares may never develop or be sustained
following this offering. If an active market for our common
stock does not develop, it may be difficult for you to sell
shares you purchase in this offering without depressing the
market price for the shares or at all.
If our
stock price is volatile, purchasers of our common stock could
incur substantial losses.
Our stock price is likely to be volatile. The stock market in
general and the market for biotechnology companies in particular
have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies.
As a result of this volatility, investors may not be able to
sell their common
22
stock at or above the initial public offering price. The market
price for our common stock may be influenced by many factors,
including:
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results of clinical trials of our product candidates or those of
our competitors;
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regulatory or legal developments in the United States and other
countries;
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variations in our financial results or those of companies that
are perceived to be similar to us;
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developments or disputes concerning patents or other proprietary
rights;
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the recruitment or departure of key personnel;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology
sectors and issuance of new or changed securities analysts
reports or recommendations;
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general economic, industry and market conditions; and
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the other factors described in this Risk Factors
section.
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We
have broad discretion in the use of the net proceeds from this
offering and may not use them effectively.
Our management will have broad discretion in the application of
the net proceeds from this offering and could spend the proceeds
in ways that do not improve our results of operations or enhance
the value of our common stock. We expect to use the net proceeds
from this offering for general corporate purposes, including
working capital and capital expenditures and further clinical
development of our product candidates. The failure by our
management to apply these funds effectively could result in
financial losses that could have a material adverse effect on
our business, cause the price of our common stock to decline and
delay the development of our product candidates. Pending their
use, we may invest the net proceeds from this offering in a
manner that does not produce income or that loses value.
We
have never paid any cash dividends on our capital stock and we
do not anticipate paying any cash
dividends in the foreseeable future.
We have paid no cash dividends on our capital stock to date. We
currently intend to retain our future earnings, if any, to fund
the development and growth of our business. In addition, the
terms of any future debt agreements may preclude us from paying
dividends. As a result, we do not expect to pay any cash
dividends in the foreseeable future, and payment of cash
dividends, if any, will depend on our financial condition,
results of operations, capital requirements and other factors
and will be at the discretion of our board of directors.
Furthermore, we may in the future become subject to contractual
restrictions on, or prohibitions against, the payment of
dividends. Capital appreciation, if any, of our common stock
will be your sole source of gain for the foreseeable future.
A
significant portion of our total outstanding shares are
restricted from immediate resale but may be sold into the market
in the near future. This could cause the market price of our
common stock to drop
significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in
the public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of
our common stock. After this offering, we will have
outstanding shares
of common stock. This includes the shares that we are selling in
this offering, which may be resold in the public market
immediately. Of the remaining
shares,
shares are currently restricted as a result of securities laws
or
lock-up
agreements but will be able to be sold after the offering as
described in the Shares Eligible for Future
Sale section of this prospectus. Moreover, after this
offering, holders of an aggregate
of shares
of our common stock will have rights, subject to some
conditions, to require us to file registration statements
covering their shares or to include their shares in registration
statements that we may file for ourselves or other stockholders.
After the effective date of the registration statement of which
this prospectus is a part, we intend to register all shares of
common stock that we may issue under our equity compensation
plans. Once we register these shares, they can be
23
freely sold in the public market upon issuance, subject to the
lock-up
agreements described in the Underwriters section of
this prospectus.
Our
costs will increase significantly as a result of operating as a
public company, and our management will be required to devote
substantial time to comply with public company
regulations.
As a public company, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended,
or the Exchange Act, the Sarbanes-Oxley Act of 2002 as well as
other federal and state laws. These requirements may place a
strain on our people, systems and resources. The Exchange Act
requires that we file annual, quarterly and current reports with
respect to our business and financial condition. The
Sarbanes-Oxley Act requires that we maintain effective
disclosure controls and procedures and internal controls over
financial reporting. In order to maintain and improve the
effectiveness of our disclosure controls and procedures and
internal controls over financial reporting, significant
resources and management oversight will be required. This may
divert managements attention from other business concerns,
which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
24
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. All statements, other than
statements of historical facts, included in this prospectus
regarding our strategy, future operations, future financial
position, future revenues, projected costs, prospects, plans and
objectives of management are forward-looking statements. The
words anticipates, believes,
could, estimates, expects,
intends, may, plans,
potential, predicts,
projects, should, will,
would and similar expressions are intended to
identify forward-looking statements, although not all
forward-looking statements contain these identifying words.
Forward-looking statements in this prospectus include statements
about:
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our ability to secure FDA approval for our product candidates
under Section 505(b)(2) of the FFDCA;
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our ability to market, commercialize and achieve market
acceptance for product candidates developed using our
VIAdel
tm
technology;
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the progress or success of our research, development and
clinical programs, the initiation and completion of our clinical
trials, the timing of the interim analyses and the timing or
success of our product candidates, particularly
VIAject
tm
and
VIAtab
tm
;
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our ability to secure patents for
VIAject
tm
and our other product candidates;
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our ability to protect our intellectual property and operate our
business without infringing upon the intellectual property
rights of others;
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our estimates for future performance;
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our ability to enter into collaboration arrangements for the
commercialization of our product candidates;
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the rate and degree of market acceptance and clinical utility of
our products;
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our commercialization, marketing and manufacturing capabilities
and strategy; and
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our estimates regarding anticipated operating losses, future
revenues, capital requirements and our needs for additional
financing.
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We may not actually achieve the plans, intentions or
expectations disclosed in our forward-looking statements, and
you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the
forward-looking statements we make. We have included important
factors in the cautionary statements included in this
prospectus, particularly in the Risk Factors
section, that we believe could cause actual results or events to
differ materially from the forward-looking statements that we
make.
You should read this prospectus and the documents that we
reference in this prospectus and have filed as exhibits to the
registration statement of which this prospectus is a part
completely and with the understanding that our actual future
results may be materially different from what we expect. We do
not assume any obligation to update any forward-looking
statements.
25
USE OF
PROCEEDS
We estimate that the net proceeds from our issuance and sale
of shares
of common stock in this offering will be approximately
$ million, assuming an
initial public offering price of
$ per share, which is the
midpoint of the price range listed on the cover page of this
prospectus, and after deducting estimated underwriting discounts
and commissions and offering expenses payable by us. A $1.00
increase (decrease) in the assumed initial public offering price
of $ per share would increase
(decrease) our net proceeds from this offering by approximately
$ million, assuming that the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting the
estimated underwriting discounts and commissions. If the
underwriters exercise their over-allotment option in full, we
estimate that the net proceeds to us from this offering will be
approximately $ million,
assuming an initial public offering price of
$ per share, which is the
midpoint of the price range listed on the cover page of this
prospectus, and after deducting estimated underwriting discounts
and commissions and offering expenses payable by us.
We intend to use the net proceeds from this offering as follows:
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approximately $ million to fund clinical
development of
VIAject
tm
; and
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the balance, if any, to fund research and development, working
capital, capital expenditures and other general corporate
purposes, which may include acquiring additional technologies.
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This expected use of net proceeds of this offering represents
our intentions based upon our current plans and business
conditions. The amounts and timing of our actual expenditures
depend on numerous factors, including the ongoing status of and
results from clinical trials for
VIAject
tm
and
VIAtab
tm
,
as well as the development of our preclinical product pipeline,
any collaborations we may enter into with third parties for our
product candidates and any unforeseen cash needs. As a result,
our management will retain broad discretion over the allocation
of the net proceeds from this offering. Upon the completion of
the offering, we expect to have sufficient funding to complete
the FDA approval process for
VIAject
tm
and, if we collaborate with a leading pharmaceutical or
biotechnology company, for its commercialization as well. If we
do not collaborate with a leading pharmaceutical or
biotechnology company, we do not expect to have sufficient
funding from the proceeds of this offering to commercialize
VIAject
tm
.
Although we expect the net proceeds from this offering and our
other available funds to be sufficient to fund the completion of
the FDA approval process for
VIAject
tm
,
we expect that we will need to raise additional funds to fund
the completion of the development of our other product
candidates. We have no current plans, agreements or commitments
for any material acquisitions or licenses of any technologies,
products or businesses.
Pending use of the proceeds from this offering, we intend to
invest the proceeds in a variety of capital preservation
investments, including short-term or long-term investment-grade,
interest-bearing instruments.
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our capital
stock. We currently intend to retain all available funds and any
future earnings to finance the operation and expansion of our
business. Accordingly, we do not anticipate paying any cash
dividends to our stockholders in the foreseeable future. Any
future determination to pay dividends will be at the discretion
of our board of directors and will depend on a number of
factors, including our future earnings, capital requirements,
financial condition, future prospects, operating results and
anticipated cash needs.
26
CAPITALIZATION
The following table sets forth our cash, cash equivalents and
marketable securities and our capitalization as of
December 31, 2006:
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on an actual basis;
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on a pro forma basis to give effect to the conversion of all
outstanding shares of our preferred stock into an aggregate of
9,043,179 shares of our common stock upon the closing of
this offering; and
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on a pro forma as adjusted basis to give further effect to the
issuance and sale by us
of shares
of common stock in this offering at an assumed initial public
offering price of $ per share,
which is the midpoint of the price range listed on the cover
page of this prospectus, after deducting estimated underwriting
discounts and commissions and offering expenses to be paid by us.
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The pro forma and pro forma as adjusted information below is
illustrative only. Our capitalization following the closing of
this offering will be adjusted based on the actual initial
public offering price and other terms of this offering
determined at pricing. You should read this table together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our financial
statements and the related notes appearing at the end of this
prospectus.
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As of December 31, 2006
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Pro Forma
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Actual
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Pro Forma
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as Adjusted
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(unaudited)
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(unaudited)
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(in thousands, except share data)
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Cash, cash equivalents and
marketable securities(1)
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$
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14,563
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Long-term liabilities
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Stockholders equity:
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Series A convertible
preferred stock, par value $0.01 per share,
1,050,000 shares authorized and 569,000 shares issued
and outstanding, with a liquidation preference of $2,845 and
an 8% non-cumulative dividend
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6
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Series B convertible
preferred stock, par value $0.01 per share,
6,500,000 shares authorized, 6,198,179 shares issued
and outstanding, with a liquidation preference of $24,421
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62
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Common stock, par value
$0.01 per share; 50,000,000 shares authorized; and
7,575,063 shares issued and outstanding
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76
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Additional paid-in capital(1)
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28,383
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Deficit accumulated during the
development stage
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(15,367
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)
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Total capitalization(1)
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$
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13,160
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(1)
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A $1.00 increase (decrease) in the
assumed initial public offering price of
$ per share would increase
(decrease) each of cash and cash equivalents and marketable
securities, additional paid-in capital and total capitalization
by approximately $ million,
assuming that the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same and after
deducting estimated underwriting discounts and commissions.
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The table above excludes:
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1,562,697 shares of common stock issuable upon the exercise
of stock options outstanding as of December 31, 2006, at a
weighted average price of $3.85 per share;
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5,251,849 shares of common stock issuable upon the exercise
of warrants outstanding as of December 31, 2006, with a
weighted average exercise price of $3.78 per share;
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3,137,303 shares of common stock reserved for future
issuance upon exercise of stock options granted after
December 31, 2006 under our 2004 Stock Incentive Plan, as
amended and restated upon the closing of this offering;
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1,300,000 shares of common stock reserved for future
issuance under our 2005 Employee Stock Purchase Plan upon the
closing of this offering; and
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500,000 shares of common stock reserved for future issuance
under our 2005 Non-Employee Directors Stock Option Plan
upon the closing of this offering.
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28
DILUTION
If you invest in our common stock, your interest will be diluted
immediately to the extent of the difference between the public
offering price per share of our common stock and the pro forma
net tangible book value per share of our common stock after this
offering.
The historical net tangible book value of our common stock as of
December 31, 2006 was approximately $12.7 million, or
$1.68 per share, based on 7,575,063 shares of common
stock outstanding as of December 31, 2006. Historical net
tangible book value per share is equal to our total tangible
assets less total liabilities, divided by the number of shares
of common stock outstanding as of December 31, 2006. The
pro forma net tangible book value of our common stock as of
December 31, 2006 was approximately $12.7 million, or
$0.77 per share. Pro forma net tangible book value per
share gives effect to the conversion of all outstanding shares
of our preferred stock into an aggregate of
9,043,179 shares of our common stock upon the closing of
this offering.
After giving further effect to our issuance and sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per
share, which is the midpoint of the price range listed on the
cover page of this prospectus, and after deducting estimated
underwriting discounts and commissions and offering expenses
payable by us, our pro forma net tangible book value as of
December 31, 2006 would have been approximately
$ million, or
$ per share. This represents
an immediate increase in pro forma net tangible book value
of $ per share to existing
stockholders and an immediate dilution in pro forma net
tangible book value of $ per
share to new investors purchasing common stock in this offering
at the initial public offering price. Dilution per share to new
investors is determined by subtracting pro forma net tangible
book value per share after this offering from the initial public
offering price per share paid by a new investor. The following
table illustrates this calculation on a per share basis:
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Assumed initial public offering
price per share
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$
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Historical net tangible book value
per share as of December 31, 2006
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$
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1.68
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Decrease attributable to the
conversion of outstanding preferred stock
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$
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0.91
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Pro forma net tangible book value
as of December 31, 2006
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$
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0.77
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|
|
|
|
|
|
|
|
|
|
|
|
|
Increase per share attributable to
new investors
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value
per share after this offering
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share
would increase (decrease) our pro forma net tangible book value
after the offering by approximately
$ million, our pro forma net
tangible book value per share after this offering by
approximately $ and dilution per
share to new investors by approximately
$ , assuming that the number of
shares offered by us, as set forth on the cover page of this
prospectus, remains the same and after deducting the estimated
underwriting discounts and commissions.
If the underwriters exercise their over-allotment option in full
or if any shares are issued in connection with outstanding
options or warrants, you will experience further dilution.
29
The following table summarizes, as of December 31, 2006,
the number of shares purchased from us after giving effect to
conversion of all of outstanding shares of our preferred stock
into an aggregate of 9,043,179 shares of common stock upon
the closing of this offering, the total consideration and
average price per share paid, or to be paid, to us by existing
stockholders and by new investors in this offering at an assumed
initial public offering price of
$ per share, which is the
midpoint of the price range listed on the cover page of this
prospectus, before deducting estimated underwriting discounts
and commissions and offering expenses payable by us:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Per Share
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
100
|
%
|
|
|
|
|
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share
would increase (decrease) the total consideration paid by new
investors by $ million and
increase (decrease) the percentage of total consideration paid
by new investors by approximately %, assuming that
the number of shares offered by us, as set forth on the cover
page of this prospectus, remains the same.
The table above is based on 7,575,063 shares of common
stock outstanding as of December 31, 2006 and an additional
9,043,179 shares of common stock issuable upon the
conversion of all outstanding shares of our preferred stock upon
the closing of this offering and excludes:
|
|
|
|
|
1,562,697 shares of common stock issuable upon the exercise
of stock options outstanding as of December 31, 2006, at a
weighted average exercise price of $3.85 per share;
|
|
|
|
|
|
5,251,849 shares of common stock issuable upon the exercise
of warrants outstanding as of December 31, 2006, at a
weighted average exercise price of $3.78 per share;
|
|
|
|
|
|
3,137,303 shares of common stock reserved for future
issuance upon exercise of stock options granted after
December 31, 2006 under our 2004 Stock Incentive Plan, as
amended and restated effective upon the closing of this offering;
|
|
|
|
|
|
1,300,000 shares of common stock reserved for future
issuance under our 2005 Employee Stock Purchase Plan upon the
closing of this offering; and
|
|
|
|
|
|
500,000 shares of common stock reserved for future issuance
under our 2005 Non-Employee Directors Stock Option Plan
upon the closing of this offering.
|
If the underwriters exercise their over-allotment option in
full, the following will occur:
|
|
|
|
|
the percentage of shares of common stock held by existing
stockholders will decrease to approximately % of the
total number of shares of our common stock outstanding after
this offering; and
|
|
|
|
the pro forma as adjusted number of shares held by new investors
will be increased
to ,
or approximately %, of the total pro forma as
adjusted number of shares of our common stock outstanding after
this offering.
|
30
SELECTED
FINANCIAL DATA
You should read the following selected financial data together
with our financial statements and the related notes appearing at
the end of this prospectus and the Managements
Discussion and Analysis of Financial Condition and Results of
Operations section of this prospectus. We have derived the
statement of operations data set forth below and the balance
sheet data as of September 30, 2005 and 2006 set forth
below from our audited financial statements which are included
in this prospectus. We have derived the balance sheet data as of
September 30, 2004 set forth below from our audited
financial statements, which are not included in this prospectus.
We have derived the statement of operations information set
forth below for the three months ended December 31, 2005
and 2006 and the balance sheet data as of December 31, 2006
from our unaudited financial statements, which are included in
this prospectus. Our unaudited financial statements include, in
the opinion of our management, all adjustments, consisting of
only normal recurring accruals, necessary for a fair
presentation of those statements. Historical results for any
prior or interim period are not necessarily indicative of
results to be expected in any future period or for a full fiscal
year. See our financial statements and related notes for a
description of the calculation of the historical and pro forma
net loss per common share and the weighted average number of
shares used in computing the historical and pro forma per share
data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 3,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 3,
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
(inception) to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception) to
|
|
|
|
September 30,
|
|
|
Year ended September 30,
|
|
|
Three months ended December 31
|
|
|
December 31,
|
|
Statement of operations
data:
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
580
|
|
|
|
2,573
|
|
|
|
5,960
|
|
|
|
923
|
|
|
|
2,493
|
|
|
|
11,606
|
|
General and administrative
|
|
|
193
|
|
|
|
517
|
|
|
|
1,450
|
|
|
|
395
|
|
|
|
1,264
|
|
|
|
3,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
773
|
|
|
|
3,090
|
|
|
|
7,410
|
|
|
|
1,318
|
|
|
|
3,757
|
|
|
|
15,030
|
|
Other (income) and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
|
|
|
|
(9
|
)
|
|
|
(182
|
)
|
|
|
(1
|
)
|
|
|
(190
|
)
|
|
|
(381
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
3
|
|
|
|
|
|
|
|
78
|
|
Loss on settlement of debt
|
|
|
|
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss before tax provision
|
|
|
(773
|
)
|
|
|
(3,081
|
)
|
|
|
(7,933
|
)
|
|
|
(1,320
|
)
|
|
|
(3,567
|
)
|
|
|
(15,354
|
)
|
Tax provision
|
|
|
1
|
|
|
|
2
|
|
|
|
10
|
|
|
|
3
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(774
|
)
|
|
$
|
(3,083
|
)
|
|
$
|
(7,943
|
)
|
|
$
|
(1,323
|
)
|
|
$
|
(3,567
|
)
|
|
$
|
(15,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(1.05
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding basic and diluted
|
|
|
7,500,000
|
|
|
|
7,512,442
|
|
|
|
7,562,779
|
|
|
|
7,560,408
|
|
|
|
7,564,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per
share basic and diluted (unaudited)
|
|
|
|
|
|
|
|
|
|
$
|
(0.68
|
)
|
|
|
|
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares
outstanding basic and diluted (unaudited)
|
|
|
|
|
|
|
|
|
|
|
11,647,415
|
|
|
|
|
|
|
|
13,211,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
As of September 30,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(restated)
|
|
|
|
(in thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
221
|
|
|
$
|
368
|
|
|
$
|
17,539
|
|
|
$
|
14,563
|
|
Working capital (deficit)
|
|
|
194
|
|
|
|
(98
|
)
|
|
|
15,307
|
|
|
|
11,902
|
|
Total assets
|
|
|
611
|
|
|
|
1,195
|
|
|
|
18,659
|
|
|
|
15,843
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit accumulated during the
development stage
|
|
|
(774
|
)
|
|
|
(3,857
|
)
|
|
|
(11,800
|
)
|
|
|
(15,367
|
)
|
Total stockholders equity
|
|
|
581
|
|
|
|
654
|
|
|
|
16,348
|
|
|
|
13,160
|
|
32
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations together with our
financial statements and the related notes appearing at the end
of this prospectus. Some of the information contained in this
discussion and analysis or set forth elsewhere in this
prospectus, including information with respect to our plans and
strategy for our business and related financing, includes
forward-looking statements that involve risks and uncertainties.
You should read the Risk Factors section of this
prospectus for a discussion of important factors that could
cause actual results to differ materially from the results
described in or implied by the forward-looking statements
contained in the following discussion and analysis.
Overview
We are a specialty pharmaceutical company focused on the
development and commercialization of innovative treatments for
endocrine disorders such as diabetes and osteoporosis, which may
be safer, more effective and convenient. We develop our product
candidates by applying our proprietary formulation technologies
to existing drugs in order to improve their therapeutic results.
Our initial development efforts are focused on peptide hormones.
We have two insulin product candidates currently in clinical
trials for the treatment of diabetes and two preclinical product
candidates for the treatment of osteoporosis.
Our most advanced product candidate is
VIAject
tm
,
a proprietary injectable formulation of recombinant human
insulin designed to be absorbed into the blood faster than the
currently marketed rapid-acting insulin analogs. We are
currently conducting two pivotal Phase III clinical trials
of
VIAject
tm
,
one in patients with Type 1 diabetes and the other in patients
with Type 2 diabetes. In addition to
VIAject
tm
,
we are developing
VIAtab
tm
,
a sublingual tablet formulation of insulin. We are currently
conducting a Phase I clinical trial of
VIAtab
tm
in patients with diabetes. Our preclinical product candidates
for the treatment of osteoporosis are
VIAmass
tm
,
a sublingual rapid-acting formulation of parathyroid hormone
1-34, and
VIAcal
tm
,
a sublingual rapid-acting formulation of salmon calcitonin.
We have developed all of our product candidates utilizing our
proprietary
VIAdel
tm
technology which allows us to study the interaction between
peptide hormones and small molecules. We use our technology to
reformulate existing peptide drugs with small molecule
ingredients that are generally regarded as safe by the FDA to
improve their therapeutic effect by entering the blood more
rapidly and in greater quantities.
We are a development stage company. We were incorporated in
December 2003 and commenced active operations in January 2004.
To date, we have generated no revenues and have incurred
significant losses. We have financed our operations and internal
growth through private placements of convertible preferred stock
and other securities. We have devoted substantially all of our
efforts to research and development activities, including
clinical trials. Our net loss was $3.6 million for the
three months ended December 31, 2006 and $7.9 million
for the year ended September 30, 2006. As of
December 31, 2006, we had a deficit accumulated during the
development stage of $15.4 million. The deficit accumulated
during the development stage is attributable primarily to our
research and development activities, which represent
approximately 76% of the expenses that we have incurred since
our inception. We expect to continue to generate significant
losses as we continue to develop our product candidates.
Financial
Operations Overview
Revenues
To date, we have generated no revenues. We do not expect to
begin generating any revenues unless any of our product
candidates receive marketing approval or if we receive payments
in connection with strategic collaborations that we may enter
into for the commercialization of our product candidates.
Research
and Development Expenses
Research and development expenses consist of the costs
associated with our basic research activities, as well as the
costs associated with our drug development efforts, conducting
preclinical studies and clinical trials,
33
manufacturing development efforts and activities related to
regulatory filings. Our research and development expenses
consist of:
|
|
|
|
|
external research and development expenses incurred under
agreements with third-party contract research organizations and
investigative sites, third-party manufacturing organizations and
consultants;
|
|
|
|
employee-related expenses, which include salaries and benefits
for the personnel involved in our preclinical and clinical drug
development and manufacturing activities; and
|
|
|
|
facilities, depreciation and other allocated expenses, which
include direct and allocated expenses for rent and maintenance
of facilities, depreciation of leasehold improvements and
equipment and laboratory and other supplies.
|
We use our employee and infrastructure resources across multiple
research projects, including our drug development programs. To
date, we have not tracked expenses related to our product
development activities on a
program-by-program
basis. Accordingly, we cannot reasonably estimate the amount of
research and development expenses that we incurred with respect
to each of our clinical and preclinical product candidates.
However, we estimate that the majority of our research and
development expenses incurred to date are attributable to our
VIAject
tm
program. The following table illustrates, for each period
presented, our research and development costs by nature of the
cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 3,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 3,
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
(inception) to
|
|
|
Year ended
|
|
|
Three months ended
|
|
|
(inception) to
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Preclinical expenses
|
|
$
|
495
|
|
|
$
|
1,214
|
|
|
$
|
1,561
|
|
|
$
|
291
|
|
|
$
|
302
|
|
|
$
|
3,572
|
|
Manufacturing expenses
|
|
|
13
|
|
|
|
241
|
|
|
|
1,264
|
|
|
|
53
|
|
|
|
598
|
|
|
|
2,116
|
|
Clinical/regulatory expenses
|
|
|
72
|
|
|
|
1,118
|
|
|
|
3,135
|
|
|
|
579
|
|
|
|
1,593
|
|
|
|
5,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
580
|
|
|
$
|
2,573
|
|
|
$
|
5,960
|
|
|
$
|
923
|
|
|
$
|
2,493
|
|
|
$
|
11,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The successful development of our product candidates is highly
uncertain. We expect to complete our Phase III clinical trials
of
VIAject
tm
and intend to submit an NDA to the FDA for this product
candidate in 2008. We are currently conducting a Phase I
clinical trial of
VIAtab
tm
in patients with Type 1 diabetes. If the trial is successful, we
plan to initiate later stage clinical trials of
VIAtab
tm
in 2008. In addition, we expect to submit investigational new
drug applications to the FDA for our preclinical product
candidates,
VIAmass
tm
and
VIAcal
tm
,
in 2008. However, at this time, we cannot reasonably estimate or
know the nature, specific timing and estimated costs of the
efforts that will be necessary to complete the remainder of the
development of, or the period, if any, in which material net
cash inflows may commence from our product candidates. This is
due to the numerous risks and uncertainties associated with
developing drugs, including the uncertainty of:
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the progress and results of our clinical trials of
VIAject
tm
and
VIAtab
tm
;
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the scope, progress, results and costs of preclinical
development, laboratory testing and clinical trials for
VIAmass
tm
,
VIAcal
tm
and other potential product candidates;
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the costs, timing and outcome of regulatory review of our
product candidates;
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the costs of commercialization activities, including product
marketing, sales and distribution;
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the costs of preparing, filing and prosecuting patent
applications and maintaining, enforcing and defending
intellectual property-related claims;
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the emergence of competing technologies and products and other
adverse market developments;
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the effect on our product development activities of actions
taken by the FDA or other regulatory authorities;
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our degree of success in commercializing
VIAject
tm
and our other product candidates; and
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34
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our ability to establish and maintain collaborations and the
terms and success of those collaborations, if any, including the
timing and amount of payments that we might receive from
potential strategic partners.
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A change in the outcome of any of these variables with respect
to the development of a product candidate could mean a
significant change in the costs and timing associated with the
development of that product candidate. For example, if the FDA
or other regulatory authority were to require us to conduct
clinical trials beyond those which we currently anticipate will
be required for the completion of the clinical development of a
product candidate or if we experience significant delays in
enrollment in any of our clinical trials, we could be required
to expend significant additional financial resources and time on
the completion of that clinical development program.
General
and Administrative Expenses
General and administrative expenses consist primarily of
salaries and related expenses for personnel, including
stock-based compensation expenses, in our executive, legal,
accounting, finance and information technology functions. Other
general and administrative expenses include facility-related
costs not otherwise allocated to research and development
expense, travel expenses, costs associated with industry
conventions and professional fees, such as legal and accounting
fees and consulting costs.
In the year ending September 30, 2007 and in subsequent
periods, we anticipate that our general and administrative
expenses will increase, among others, for the following reasons:
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we expect to incur increased general and administrative expenses
to support our research and development activities, which we
expect to expand as we continue the development of our product
candidates;
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we expect to incur additional expenses as we advance discussions
and negotiations in connection with strategic collaborations for
the commercialization of our product candidates;
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we may also begin to incur expenses related to the sales and
marketing of our product candidates as we approach the
commercial launch of any product candidates that receive
regulatory approval; and
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we expect our general and administrative expenses to increase as
a result of increased payroll, expanded infrastructure and
higher consulting, legal, accounting and investor relations fees
associated with being a public company.
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Interest
Income and Interest Expense
Interest income consists of interest earned on our cash and cash
equivalents. In November 2006, our board of directors approved
investment policy guidelines, the primary objectives of which
are the preservation of capital, the maintenance of liquidity,
maintenance of appropriate fiduciary control and maximum return,
subject to our business objectives and tax situation.
Our interest expense consists of interest incurred on promissory
notes that we issued in 2006 as part of our mezzanine financing.
In July 2006, in connection with our Series B convertible
preferred stock financing, all of these promissory notes were
repaid with shares of our Series B convertible preferred
stock and warrants. As of September 30, 2006, we had no
interest-bearing indebtedness outstanding.
Critical
Accounting Policies and Significant Judgments and
Estimates
Our managements discussion and analysis of our financial
condition and results of operations are based on our financial
statements that have been prepared in accordance with accounting
principles generally accepted in the United States. The
preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements, as well
as the reported expenses during the reporting periods. On an
ongoing basis, we evaluate our estimates and assumptions. We
base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
35
While our significant accounting policies are more fully
described in Note 2 to our financial statements appearing
at the end of this prospectus, we believe that the following
accounting policies, which we have discussed with our audit
committee, are the most critical to aid you in fully
understanding and evaluating our financial condition and results
of operations.
Preclinical
Study and Clinical Trial Accruals
In preparing our financial statements, we must estimate accrued
expenses pursuant to contracts with multiple research
institutions, clinical research organizations and contract
manufacturers that conduct and manage preclinical studies,
clinical trials and manufacture product for these trials on our
behalf. This process involves communicating with relevant
personnel to identify services that have been performed on our
behalf and estimating the level of services performed and the
associated costs incurred for services when we have not yet been
invoiced for or otherwise notified of the actual cost. We make
estimates of our accrued expenses as of each balance sheet date
in our financial statements based on facts and circumstances
known to us. The financial terms of these agreements vary and
may result in uneven payment flows. To date, we have not
adjusted our estimates at any balance sheet date in any material
amount. Examples of preclinical study, clinical trial and
manufacturing expenses include the following:
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fees paid to contract research organizations in connection with
preclinical and toxicology studies and clinical trials;
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fees paid to investigative sites in connection with clinical
trials;
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fees paid to contract manufacturers in connection with the
production of clinical trial materials; and
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professional service fees.
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Stock-Based
Compensation and Valuation of Equity
Effective October 1, 2005, we adopted Statement of
Financial Accounting Standards No. 123(R),
Share-Based
Payment
, or SFAS No. 123(R), which requires
compensation costs related to share-based transactions,
including employee stock options, to be recognized in the
financial statements based on fair value. We adopted
SFAS No. 123(R) using the retrospective method. Under
this method, compensation cost is measured and recognized for
all share-based payments granted subsequent to October 1,
2004. We issued no options prior to that date.
The fair value of the stock underlying the options is a
significant factor in determining credits or charges to
operations appropriate for the stock-based payments to both
employees and non-employees. Between December 23, 2004 and
May 27, 2005, we granted options to purchase an aggregate
of 544,000 shares of our common stock at an exercise price of
$1.00 per share. Between November 1, 2005 and
November 1, 2006, we granted options to purchase an
aggregate of 851,500 shares of our common stock at an exercise
price of $4.00 per share. In December 2006, we granted options
to purchase an aggregate of 332,197 shares of our common
stock at an exercise price of $8.95 per share.
For the options granted prior to December 2006, our board of
directors did not perform a contemporaneous valuation of our
common stock, but determined the exercise price for the shares
of common stock underlying the options primarily based on the
last price paid by outside investors for our preferred stock. In
connection with the preparation of our financial statements for
this offering, we engaged, for the first time, American
Appraisal, Inc, or American Appraisal, an unrelated valuation
specialist, to perform both a retrospective valuation of our
common stock prior to December 2006 and a contemporaneous
valuation with respect to the options granted in December 2006.
American Appraisal utilized two primary valuation methodologies
to determine our enterprise value, the market valuation approach
and the discounted cash flow valuation approach. American
Appraisal determined the fair value of each type of equity
instrument we had issued using the weighted-probability expected
return method as recommended by the American Institute of
Certified Public Accountants in its practice aid entitled
Valuation of Privately Held Company Equity Securities Issued
as Compensation,
or the Practice Aid.
36
Contemporaneous Valuation
Methodology.
American Appraisal, in performing
its contemporaneous valuation, considered our completion of
Phase II clinical trials of
VIAject
tm
,
our initiation of Phase III clinical trials of
VIAject
tm
and the commencement of manufacturing commercial batches of
VIAject
tm
.
In applying the market valuation methodology, American
Appraisal, reviewed the price paid by outside investors for our
preferred stock, the market capitalizations of comparable
publicly-traded companies that are in our market segment and are
conducting clinical trials in similar phases, which we refer to
as guideline companies, and initial public offering prices of
guideline companies expressed as a multiple of prices at which
their stock was sold in private placements prior to such initial
offering. American Appraisal discounted these prices at various
rates to account for the lack of marketability of a private
companys securities.
In applying the discounted cash flow valuation, American
Appraisal discounted to present value our future operating cash
flow projected by management at rates of returns that reflected
the business and financial risk of achieving such cash flow. In
applying this valuation methodology, American Appraisal
probability-weighted the scenarios in which we:
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undertake a strategic sale; and
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Retrospective Valuation Methodology.
In
conducting its retrospective valuations, American Appraisal
considered a combination of market and discounted cash flow
valuation approaches and a probability-weighted expected return
valuation methodology that is consistent with the practices
recommended by the Practice Aid. In applying these valuation
methodologies, American Appraisal considered the following
factors:
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our actual operating performance;
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a review of our progress in our product research and development
and clinical trial activities and of other events that may or
may not lead to the commercialization of our products;
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our projected operating performance and the risks inherent in
our business including the risks related to receiving FDA
approvals for our product candidates;
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issuances of preferred stock, common stock and warrants,
including the prices paid and the rights and preferences
thereof; and
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the likelihood of achieving liquidity through an initial public
offering or a sale of our business and the proceeds that would
be allocated to holders of our common stock and the amounts
contractually due to holders of our preferred stock.
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American Appraisal also utilized the market valuation approach
and the discounted cash flow valuation approach as described
under contemporaneous valuation methodology.
American Appraisals Conclusions.
For
both the retrospective and contemporaneous valuations, American
Appraisal selected probabilities to the four relevant scenarios
based on:
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the potential of an initial public offering at various stages of
our product development and stage of clinical trials;
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the potential for collaboration with partners or our sale as
part of the process of commercializing our product
candidates; and
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the need for and probability of securing the funding required to
complete our clinical trials and achieve commercialization.
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American Appraisal determined the fair value of our equity
instruments based upon the factors listed above and other
information available on the measurement dates. Specifically,
American Appraisal determined that the
37
fair market value of our common stock was $0.59 per share as of
July 14, 2005, $3.32 per share as of July 19, 2006 and
$8.95 per share as of December 19, 2006.
Accounting Treatment.
We selected the
Black-Scholes valuation model as the most appropriate valuation
method for stock option grants to employees and members of our
board of directors. The fair value of these stock option grants
is estimated as of their date of grant using the Black-Scholes
valuation method. Our compensation committee adopted the
valuations of American Appraisal in determining the fair market
value of our common stock for the Black-Scholes model. For all
options granted prior to July 14, 2005, we used a fair
market value of $0.59 per share; for options granted between
July 15, 2005 and July 19, 2006, we used a fair market
value of $3.32 per share; and for options granted after
July 19, 2006, we used a fair market value of $8.95 per
share.
Because we are a private company and therefore lack
company-specific historical and implied volatility information,
we based our estimate of expected volatility on implied
volatility of comparable companies that are publicly traded and
which have the following similarities: industry, therapeutic
focus, clinical trial phase and dividend yield. We intend to
continue to consistently apply this process using the same
comparable companies until a sufficient amount of historical
information regarding the volatility of our share price becomes
available. We use the average of (1) the weighted average
vesting period and (2) the contractual life of the option,
eight years, as the estimated term of the option. The risk free
rate of interest for periods within the contractual life of the
stock option award is based on the yield of a U.S. Treasury
strip on the date the award is granted with a maturity equal to
the expected term of the award. We estimate forfeitures based on
actual forfeitures during our limited history. Additionally, we
have assumed that dividends will not be paid.
For stock warrants or options granted to non-employees and
non-directors,
primarily consultants serving on our Scientific Advisory Board,
we measure fair value of the equity instruments utilizing the
Black-Scholes method, if that value is more reliably measurable
than the fair value of the consideration or service received.
The fair value of these equity investments are periodically
revalued as the options vest and are recognized as expense over
the related period of service or the vesting period, whichever
is longer. As of December 31, 2006, we had issued to these
non-employees options to purchase an aggregate of
377,000 shares of our common stock. Because we must revalue
these options for accounting purposes each reporting period, the
amount of stock-based compensation expense related to these
non-employee options will increase or decrease, based on changes
in the price of our common stock. For the three months ended
December 31, 2006, the stock-based compensation expense
related to these options was $130,000, of which $21,000 is
reflected in research and development expenses and $109,000 is
reflected in general and administrative expenses. For the year
ended September 30, 2006, the stock-based compensation
expense related to these options was $895,000, of which $198,000
is reflected in research and development expenses and $697,000
is reflected in general and administrative expenses.
Income
Taxes
As part of the process of preparing our financial statements, we
are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves
estimating our actual current tax expense together with
assessing temporary differences resulting from differing
treatments of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities. As of
September 30, 2006, we had federal net operating loss
carryforwards of $9.8 million, Connecticut state net
operating loss carryforwards of $9.8 million and federal
research and development tax credit carryovers of approximately
$0.3 million, all of which expire starting in 2024.
The Internal Revenue Code contains provisions that may limit the
net operating loss and credit carryforwards available to be used
in any given year as a result of certain historical changes in
the ownership interests of significant stockholders. As a result
of the cumulative impact of our equity issuances over the past
two years, a change of ownership, as defined in the Internal
Revenue Code occurred upon our issuance of Series B
convertible preferred stock in July 2006. As a result, our total
net operating losses will be subject to an annual base
limitation.
At September 30, 2006, we recorded a 100% valuation
allowance against our net deferred tax asset of approximately
$4.5 million, as our management believes it is uncertain
that it will be fully realized. If we determine in the future
that we will be able to realize all or a portion of our net
deferred tax asset, an adjustment to the deferred tax valuation
allowance would increase net income in the period in which we
make such a determination.
38
Results
of Operations
Three
Months Ended December 31, 2006 Compared to Three Months
Ended December 31, 2005
Revenue.
We did not recognize any revenue
during the three months ended December 31, 2006 or 2005.
Research and Development Expenses.
Research
and development expenses were $2.5 million for the three
months ended December 31, 2006, an increase of
$1.6 million, or 177.8%, from $0.9 million for the
three months ended December 31, 2005. This increase was
primarily related to increased research and development costs
related to our continued development of
VIAject
tm
,
for which we began to incur significant expenses relating to our
two pivotal Phase III clinical trials that we commenced in
September 2006. Specific increases in research and
development expenses included $1.0 million related to
increased clinical trial expenses during the three months ended
December 31, 2006 and $0.5 million related to
increased manufacturing expenses incurred in the three months
ended December 31, 2006 for the process development,
scale-up
and
manufacture of commercial batches of
VIAject
tm
to support our clinical trials and regulatory submissions.
Research and development expenses for the three months ended
December 31, 2006 include $38,000 in stock-based
compensation expense related to options granted to employees and
$21,000 in stock-based compensation expense related to options
granted to non-employees.
We expect our research and development expenses to increase in
the future as a result of increased development costs related to
our clinical
VIAject
tm
and
VIAtab
tm
product candidates and as we seek to advance our preclinical
VIAmass
tm
and
VIAcal
tm
product candidates into clinical development. The timing and
amount of these expenses will depend upon the outcome of our
ongoing clinical trials, particularly the costs associated with
our ongoing Phase III clinical trials of
VIAject
tm
and our Phase I and planned Phase II clinical trials of
VIAtab
tm
.
The timing and amount of these expenses will also depend on the
potential advancement of our preclinical programs into clinical
development and the related expansion of our clinical
development and regulatory organization, regulatory requirements
and manufacturing costs.
General and Administrative Expenses.
General
and administrative expenses were $1.3 million for the three
months ended December 31, 2006, an increase of
$0.9 million, or 225%, from $0.4 million for the three
months ended December 31, 2005. An increase in
compensation-related expenses accounted for $0.7 million of
this increase. Of this amount, $0.2 million was
attributable to stock-based compensation expenses and
$0.1 million was related to increased bonus payments. The
balance of the increase was primarily attributable to higher
levels of legal and accounting fees.
We expect our general and administrative expenses to continue to
increase in the future as a result of an increased payroll as we
add personnel necessary for the management of the anticipated
growth of our business, expanded infrastructure and higher
consulting, legal, accounting, investor relations and other
expenses associated with being a public company.
Interest Income.
Interest income increased to
$190,000 for the three months ended December 31, 2006 from
$1,000 for the three months ended December 31, 2005. The
increase was due to our higher balances of cash and cash
equivalents in 2006, resulting from the $21.2 million in
net cash proceeds that we received from our Series B
convertible preferred stock and warrant financing in July 2006.
Net Loss and Net Loss per Share.
Net loss was
$3.6 million, or $(0.47) per share, for the three
months ended December 31, 2006 compared to a net loss of
$1.3 million, or $(0.17) per share, for the three months
ended December 31, 2005. The increase in net loss was
primarily attributable to the increased expenses described
above. We expect our losses to increase in the future as we
incur increased clinical development costs to advance our
VIAject
tm
and
VIAtab
tm
product candidates through the clinical development process and
as our general and administrative costs rise as our organization
grows to support this higher level of clinical activity.
Year
Ended September 30, 2006 Compared to Year Ended
September 30, 2005
Revenue.
We did not recognize any revenue
during the years ended September 30, 2006 or 2005.
Research and Development Expenses.
Research
and development expenses were $6.0 million for the year
ended September 30, 2006, an increase of $3.4 million,
or 130.8%, from $2.6 million for the year ended
September 30, 2005. This increase was primarily
attributable to increased research and development costs related
to our continued development of
VIAject
tm
,
for which we conducted two Phase II clinical trials during
the year
39
ended September 30, 2006. We also commenced our two
pivotal Phase III clinical trials for
VIAject
tm
in September 2006, for which we incurred trial
start-up
costs during the fiscal year. Specific increases in research and
development expenses included $1.5 million related to
increased clinical trial expenses in 2006; $1.1 million
related to increased manufacturing expenses in 2006 for the
process development,
scale-up
and
manufacture of commercial batches of
VIAject
tm
to support our clinical trials and regulatory submissions; and
$0.5 million related to increased personnel costs and
consulting fees. Research and development expenses for the year
ended September 30, 2006 include $26,000 in stock-based
compensation expense related to options granted to employees and
$198,000 in stock-based compensation expense related to options
granted to non-employees.
General and Administrative Expenses.
General
and administrative expenses were $1.5 million for the year
ended September 30, 2006, an increase of $1.0 million,
or 200%, from $0.5 million for the year ended
September 30, 2005. Our initiation of performance-based
bonuses accounted for approximately $0.3 million of that
increase. The balance of the increase was primarily attributable
to higher levels of legal and consulting fees. General and
administrative expenses for the year ended September 30,
2006 include $267,000 in stock-based compensation expense
related to options granted to employees and $697,000 in
stock-based compensation expense related to options granted to
non-employees.
Interest and Other Income.
Interest and other
income increased to $182,000 for the year ended
September 30, 2006 from $9,000 for the year ended
September 30, 2005. The increase was due to our higher
balances of cash and cash equivalents in 2006, resulting from
the $21.2 million in cash proceeds that we received from
our Series B convertible preferred stock and warrant
financing in July 2006.
Interest Expense.
Interest expense of
approximately $78,000 for the year ended September 30, 2006
consisted of interest incurred on the promissory notes issued in
our mezzanine financing. In July 2006, all of the promissory
notes were repaid using shares of our Series B convertible
preferred stock and warrants in connection with our
Series B convertible preferred stock financing. As of
September 30, 2006, we had no interest-bearing indebtedness
outstanding.
Loss on Settlement of Debt.
In July 2006, we
completed our Series B convertible preferred stock
financing. In connection with that transaction, we exercised our
option to repay the promissory notes that we had issued in our
mezzanine financing with shares of Series B convertible
preferred stock and warrants. Due to the contractual terms of
our mezzanine financing, these investors effectively received a
25% premium on the principal amount of the promissory notes that
were a part of the mezzanine financing units. As a result of
this 25% premium, we recorded a loss on settlement of debt of
$0.6 million. No equivalent expense was incurred in the
prior year.
Net Loss and Net Loss per Share.
Net loss was
$7.9 million, or $(1.05) per share, for the year ended
September 30, 2006 compared to $3.1 million, or
$(0.41) per share, for the year ended September 30,
2005. The increase in net loss was primarily attributable to the
increased expenses described above.
Year
Ended September 30, 2005 Compared to Period Ended
September 30, 2004
We were incorporated in December 2003 and commenced active
operations in January 2004. Accordingly, the following
comparison of our results of operations for the year ended
September 30, 2005 to the period ended September 30,
2004 is a comparison of a full year of operations to our initial
ten months of operations.
Revenue.
We did not recognize any revenue
during the year ended September 30, 2005 or the period from
December 3, 2003 to September 30, 2004.
Research and Development Expenses.
Research
and development expenses were $2.6 million for the year
ended September 30, 2005 compared to $0.6 million for
the period ended September 30, 2004. The largest component
of the $2.0 million increase was an increase of
$0.8 million from 2004 to 2005 in preclinical and clinical
development expenses, including costs related to the initiation
of Phase I clinical trials for
VIAject
tm
and
VIAtab
tm
as well as the process development and
scale-up
of
clinical supplies to support those trials. An additional
$0.6 million of this increase was attributable to increased
personnel costs as six new members joined our research staff and
clinical development group. The remainder of the increase was
primarily attributable to additional expenses for consulting,
overhead and research supplies.
General and Administrative Expenses.
General
and administrative expenses were $0.5 million for the year
ended September 30, 2005 compared to $0.2 million for
the period ended September 30, 2004. This $0.3 million
40
increase was almost exclusively attributable to increased
personnel costs, including an increase in compensation expense
and the costs associated with the initiation of a health plan
for our employees.
Interest and Other Income.
As a result of our
low balances of cash and cash equivalents prior to our June 2006
Series B convertible preferred stock financing, no
meaningful interest and other income was earned in either the
year ended September 30, 2005 or the period ended
September 30, 2004.
Net Loss and Net Loss per Share.
Net loss was
$3.1 million, or $(0.41) per share, for the year ended
September 30, 2005 compared to $0.8 million, or
$(0.10) per share, for the period ended September 30,
2004. The increase in net loss is primarily attributable to the
increased expenses described above.
Liquidity
and Capital Resources
Sources
of Liquidity and Cash Flows
As a result of our significant research and development
expenditures and the lack of any approved products or other
sources of revenue, we have not been profitable and have
generated significant operating losses since we were
incorporated in 2003. We have funded our research and
development operations primarily through proceeds from our
Series A convertible preferred stock financing in 2005 and
our mezzanine and Series B convertible preferred stock
financings in 2006. Through December 31, 2006, we had
received aggregate gross proceeds of $26.6 million from
these sales.
At December 31, 2006, we had cash and cash equivalents
totaling approximately $14.6 million. To date, we have
invested our excess funds in a bank-managed money market fund.
We plan to continue to invest our cash and equivalents in
accordance with our approved investment policy guidelines.
Net cash used in operating activities was $2.7 million for
the three months ended December 31, 2006, $3.9 million
for the year ended September 30, 2006, $2.4 million
for the year ended September 30, 2005 and $0.5 million
for the period ended September 30, 2004. Net cash used in
operating activities for the three months ended December 31,
2006 primarily reflects the net loss for the period, offset in
part by depreciation and changes in accounts payable, deferred
compensation and other accrued expenses. Net cash used in
operating activities for the year ended September 30, 2006
primarily reflects the net loss for the period, offset in part
by depreciation and changes in accounts payable, the loss on
settlement of debt, other accrued expenses and deferred
compensation.
Net cash used in investing activities was $0.3 million for
the three months ended December 31, 2006, $0.3 million
for the year ended September 30, 2006, $0.6 million
for the year ended September 30, 2005 and $0.4 million
for the period ended September 30, 2004. Net cash used in
investing activities in each period primarily reflects purchases
of property and equipment. The decrease from 2005 to 2006 was
primarily related to reduced purchases of property and
equipment. The increase from 2004 to 2005 was primarily
attributable to increased purchases of property and equipment.
Net cash provided by financing activities was $52,000 for the
three months ended December 31, 2006, $21.4 million
for the year ended September 30, 2006, $3.1 million
for the year ended September 30, 2005 and $1.1 million
for the period ended September 30, 2004. Net cash provided
by financing activities in 2006 primarily reflects the proceeds
from our mezzanine and Series B convertible preferred stock
financings. Net cash provided by financing activities in 2005
primarily reflects the proceeds from our Series A
convertible preferred stock financing.
Funding
Requirements
We believe that our existing cash and cash equivalents, along
with the net proceeds of this offering, will be sufficient to
fund our anticipated operating expenses and capital expenditures
until .
We have based this estimate upon assumptions that may prove to
be wrong and we could use our available capital resources sooner
than we currently expect. Because of the numerous risks and
uncertainties associated with the development and
commercialization of our product candidates, and to the extent
that we may or may not enter into collaborations with third
parties to participate in their development and
commercialization, we are unable to estimate the amounts of
increased capital outlays and operating expenditures associated
with our current anticipated clinical trials.
41
Our future capital requirements will depend on many factors,
including:
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the progress and results of our clinical trials of
VIAject
tm
and
VIAtab
tm
;
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the scope, progress, results and costs of preclinical
development and laboratory testing and clinical trials for
VIAmass
tm
,
VIAcal
tm
and other potential product candidates;
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|
the costs, timing and outcome of regulatory reviews of our
product candidates;
|
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|
the costs of commercialization activities, including product
marketing, sales and distribution;
|
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|
the costs of preparing, filing and prosecuting patent
applications and maintaining, enforcing and defending
intellectual property-related claims;
|
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|
the emergence of competing technologies and products and other
adverse market developments;
|
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|
the effect on our product development activities of actions
taken by the FDA or other regulatory authorities;
|
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|
our degree of success in commercializing
VIAject
tm
and our other product candidates; and
|
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|
our ability to establish and maintain collaborations and the
terms and success of those collaborations, including the timing
and amount of payments that we might receive from potential
strategic partners.
|
We do not anticipate generating product revenue for the next few
years. In the absence of additional funding, we expect our
continuing operating losses to result in increases in our cash
used in operations over the next several quarters and years. To
the extent our capital resources are insufficient to meet our
future capital requirements, we will need to finance our future
cash needs through public or private equity offerings, debt
financings or corporate collaboration and licensing
arrangements. We do not currently have any commitments for
future external funding.
Additional equity or debt financing or corporate collaboration
and licensing arrangements may not be available on acceptable
terms, if at all. If adequate funds are not available, we may be
required to delay, reduce the scope of or eliminate our research
and development programs, reduce our planned commercialization
efforts or obtain funds through arrangements with collaborators
or others that may require us to relinquish rights to certain
drug candidates that we might otherwise seek to develop or
commercialize independently or enter into corporate
collaborations at a later stage of development. In addition, any
future equity funding will dilute the ownership of our equity
investors.
Off-Balance
Sheet Arrangements
We have no off-balance sheet arrangements.
Contractual
Obligations
The following table summarizes our significant contractual
obligations and commercial commitments as of September 30,
2006 (in thousands).
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Less than
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More than
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|
|
Total
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|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Operating lease obligations
|
|
$
|
266
|
|
|
$
|
76
|
|
|
$
|
190
|
|
|
$
|
|
|
|
$
|
|
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|
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|
|
|
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|
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|
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|
|
|
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|
Total fixed contractual obligations
|
|
$
|
266
|
|
|
$
|
76
|
|
|
$
|
190
|
|
|
$
|
|
|
|
$
|
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In October 2006, we entered into a lease for a second facility
for a term of 38 months. The lease provides for annual
basic lease payments of $27,000, plus operating expenses. There
were no other significant changes to our contractual obligations
and commitments between September 30, 2006 and
December 31, 2006.
Quantitative
and Qualitative Disclosures about Market Risks
Our exposure to market risk is limited to our cash, cash
equivalents and marketable securities. We invest in high-quality
financial instruments, as permitted by the terms of our
investment policy guidelines. Currently, our investments are
limited to money market funds. In the future, we may add
high-quality federal agency notes,
42
corporate debt securities, United States treasury notes and
other securities, including long-term debt securities, to our
investment portfolio. A portion of our investments may be
subject to interest rate risk and could fall in value if
interest rates were to increase. Our current intention is to
hold longer term investments to maturity. The effective duration
of our portfolio is currently less than one year, which we
believe limits interest rate and credit risk. We do not hedge
interest rate exposure.
Because most of our transactions are denominated in United
States dollars, we do not have any material exposure to
fluctuations in currency exchange rates.
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards
No. 157,
Fair Value Measurements.
This standard
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands
disclosures about fair value measurements. This statement is
effective for financial statements issued for fiscal years
beginning after November 15, 2007. Earlier application is
encouraged. We anticipate that the adoption of this accounting
pronouncement will not have a material effect on our financial
statements.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
, or
FIN 48. This interpretation clarifies the accounting for
uncertainty in income taxes recognized in an enterprises
financial statements in accordance with FASB Statement
No. 109,
Accounting for Income Taxes.
FIN 48
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosures and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. We are
in the process of evaluating the effect that FIN 48 will
have on our financial statements.
In February 2006, the FASB issued Statement of Financial
Accounting Standards No. 155,
Accounting for Certain
Hybrid Financial Instruments
, an amendment of FASB
Statements No. 133 and 140. This statement permits fair
value re-measurement for any hybrid financial instrument that
contains an embedded derivative that would otherwise have to be
accounted for separately. The new statement also requires
companies to identify interest in securitized financial assets
that are freestanding derivatives or contain embedded
derivatives that would have to be accounted for separately,
clarifies which
interest-and-principal-only
strips are subject to Statement 133 and amends
Statement 140 to revise the conditions of a qualifying
special purpose entity due to the new requirement to identify
whether interests in securitized financial assets are
freestanding derivatives or contain embedded derivatives. We
have chosen to adopt this pronouncement on October 1, 2006
and it did not have a material effect on our financial
statements.
In December 2006, the FASB issued FASB Staff Position
No. 00-19-2,
Accounting for Registration Payment Arrangements.
This
Staff Position specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate
agreement or included as a provision of a financial instrument
or other agreement, should be separately recognized and measured
in accordance with Statement of Financial Accounting Standards
No. 5,
Accounting for Contingencies.
This Staff
Position further clarifies that a financial instrument subject
to a registration payment arrangement should be accounted for in
accordance with other applicable generally accepted accounting
principles without regard to the contingent obligation to
transfer consideration pursuant to the registration payment
arrangement. This Staff Position shall be effective immediately
for registration payment arrangements and the financial
instruments subject to those arrangements that are entered into
or modified subsequent to the date of issuance of this Staff
Position. For registration payment arrangements and financial
instruments subject to those arrangements that were entered into
prior to the issuance of this Staff Position, this guidance
shall be effective for financial statements issued for fiscal
years beginning after December 15, 2006, and interim
periods within those fiscal years. We have adopted the Staff
Position as of October 1, 2006, and it did not have any
affect on our financial statements.
43
BUSINESS
Overview
We are a specialty pharmaceutical company focused on the
development and commercialization of innovative treatments for
endocrine disorders such as diabetes and osteoporosis, which may
be safer, more effective and convenient. We develop our product
candidates by applying our proprietary formulation technologies
to existing drugs in order to improve their therapeutic results.
Our initial development efforts are focused on peptide hormones.
We have two insulin product candidates currently in clinical
trials for the treatment of diabetes. Additionally, we have two
preclinical product candidates for the treatment of
osteoporosis, one with parathyroid hormone 1-34 and the other
with salmon calcitonin. Our most advanced product candidate is
VIAject
tm
,
a proprietary injectable formulation of recombinant human
insulin designed to be absorbed into the blood faster than
currently marketed rapid-acting insulin products. We believe
VIAject
tm
can improve the management of blood glucose levels in patients
with diabetes by more closely mimicking the natural first-phase
insulin release that healthy individuals experience at
meal-time. We are currently conducting two pivotal
Phase III clinical trials of
VIAject
tm
,
one in patients with Type 1 diabetes and the other in patients
with Type 2 diabetes. We expect to complete these two trials and
intend to submit an NDA under Section 505(b)(2) of the
FFDCA to the U.S. Food and Drug Administration in 2008.
Diabetes is a disease characterized by abnormally high levels of
blood glucose and inadequate levels of insulin. Glucose is a
simple sugar used by all the cells of the body to produce energy
and support life. Humans need a minimum level of glucose in
their blood at all times to stay alive. Insulin is a peptide
hormone naturally secreted by the pancreas to regulate the
bodys management of glucose. When a healthy individual
begins a meal, the pancreas releases a natural spike of insulin
called the first-phase insulin release, which is critical to the
bodys overall control of glucose. Virtually all patients
with diabetes lack the first-phase insulin release. All patients
with Type 1 diabetes must treat themselves with meal-time
insulin injections. As the disease progresses, patients with
Type 2 diabetes also require meal-time insulin. However, none of
the currently marketed meal-time insulin products adequately
mimics the first-phase insulin release. As a result, patients
using insulin typically have inadequate levels of insulin in
their systems at the start of a meal and too much insulin in
their systems between meals. This, in turn, results in the lack
of adequate glucose control associated with diabetes. The
long-term adverse effects of this lack of adequate glucose
control include blindness, loss of kidney function, nerve damage
and loss of sensation and poor circulation in the periphery,
which in some severe cases, may lead to amputations.
Advances in insulin technology in the 1990s led to the
development of new molecules, referred to as rapid-acting
insulin analogs, which are similar to insulin, but are absorbed
into the blood more rapidly. These rapid-acting insulin analogs
had sales in excess of 2.3 billion in 2005 according to IMS
Health, a leading provider of pharmaceutical market data.
We have conducted Phase I and Phase II clinical trials
comparing the performance of
VIAject
tm
to
Humalog
®
,
the largest selling rapid-acting insulin analog in the United
States, and
Humulin
®
R, a form of recombinant human insulin. In these trials, we
observed that
VIAject
tm
produced a release profile into the blood that more closely
approximates the natural first-phase insulin release seen in
healthy individuals following a meal. In September 2006, we
initiated two pivotal Phase III clinical trials for
VIAject
tm
,
which will treat 400 patients with Type 1 diabetes and
400 patients with Type 2 diabetes over a six-month period.
In addition to
VIAject
tm
,
we are developing
VIAtab
tm
,
a sublingual, or below the tongue, tablet formulation of
insulin. We are currently conducting a Phase I clinical
trial of
VIAtab
tm
in patients with diabetes. We believe that
VIAtab
tm
has the potential to rapidly deliver insulin, while sparing
patients from the unpleasant aspects of injection therapy. We
are developing
VIAtab
tm
as a potential treatment for patients with Type 2 diabetes who
are in the early stages of their disease. In addition to our
clinical-stage insulin programs, our preclinical product
candidates for the treatment of osteoporosis are
VIAmass
tm
and
VIAcal
tm
.
VIAmass
tm
is a sublingual rapid-acting formulation of parathyroid hormone
1-34, or PTH 1-34.
VIAcal
tm
is a sublingual rapid-acting formulation of salmon calcitonin.
We expect to submit investigational new drug applications, or
INDs, for these product candidates to the FDA in 2008.
44
We have developed all of our product candidates utilizing our
proprietary
VIAdel
tm
technology which allows us to study the interaction between
peptide hormones and small molecules. We use our technology to
reformulate existing peptide drugs with small molecule
ingredients that are generally regarded as safe by the FDA so as
to improve their therapeutic effect by entering the blood
rapidly and in greater quantities. We believe that this approach
to drug development will allow us to utilize
Section 505(b)(2) of the FFDCA for FDA approval of our
product candidates. Section 505(b)(2) provides for a type
of NDA that allows expedited development of new formulations of
chemical entities and biological compounds that have already
undergone extensive clinical trials and been approved by the
FDA. Both the time and cost of development of a new product can
be substantially less under a Section 505(b)(2) NDA than
under a full NDA.
Our
Strategy
Our goal is to build a leading specialty pharmaceutical company
focused on the development and commercialization of innovative
treatments for endocrine disorders, which may be safer, more
effective and convenient. To achieve our goal, we are pursuing
the following strategies:
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|
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Obtain Regulatory Approval for
VIAject
tm
. Our
current focus is to complete the clinical development of
VIAject
tm
and seek regulatory approval for this product candidate in the
major world markets. If our current Phase III trials for
VIAject
tm
are successful, we expect to submit our NDA to the FDA in 2008.
|
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Commercialize our Product Candidates Through Strategic
Collaborations.
Our product candidates target
large primary care markets. To maximize the commercial potential
of our product candidates, we intend to:
|
|
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|
|
Self-fund Clinical Trial Programs.
We
intend to fund our clinical trial programs into late stage or
through completion of clinical development by ourselves. By
retaining the rights to our product candidates through most or
all of the clinical development process, we believe that we will
be able to secure more favorable economic terms when we do seek
a commercialization partner.
|
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Partner Late-stage Programs with Major Pharmaceutical
Companies.
We intend to selectively enter into
strategic arrangements with leading pharmaceutical or
biotechnology companies for the commercialization of our product
candidates late in or upon completion of clinical development.
Because we are focusing on therapeutic indications in large
markets, we believe that these larger companies have the
marketing, sales and financial resources to maximize the
commercial potential of our products.
|
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Retain Co-commercialization Rights.
In
entering into collaborative relationships, our goal will be to
retain co-promotion or co-commercialization rights in the United
States and potentially other markets. This will allow us to
begin to develop our own specialized sales and marketing
organization.
|
|
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|
Employ our Proprietary
VIAdel
tm
Technology to Reformulate Approved Peptide Hormone Drugs
that Address Large Markets.
Our
VIAdel
tm
technology consists of techniques that we have developed to
study the interaction between peptide hormones and small
molecules. We use these techniques to reformulate existing
peptide drugs with small molecule ingredients so as to improve
their therapeutic effect and their method of administration. To
date, we have developed all of our product candidates utilizing
our proprietary
VIAdel
tm
technology. We are focused on diabetes and osteoporosis, both of
which are indications that represent large markets with
significant unmet medical needs. We intend to continue to employ
our proprietary
VIAdel
tm
technology to develop additional peptide hormone product
candidates that address large markets.
|
|
|
|
Focus on the Section 505(b)(2) Regulatory Approval
Pathway.
Using our
VIAdel
tm
technology, we seek to reformulate existing drugs with
ingredients that are generally regarded as safe by the FDA. We
believe that this approach to drug development will allow us to
use the abbreviated development pathway of
Section 505(b)(2) of the FFDCA, which can result in
substantially less time and cost in bringing a new drug to
market. We intend to continue to focus our efforts on
reformulating new product candidates for which we will be able
to seek regulatory approval pursuant to Section 505(b)(2)
NDAs.
|
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|
Aggressively Continue the Development of our Pipeline of
Product Candidates.
In addition to our
Phase III clinical trials for
VIAject
tm
,
we are currently conducting a Phase I clinical trial of
VIAtab
tm
,
our oral insulin
|
45
|
|
|
|
|
product candidate. We are also conducting preclinical studies on
VIAmass
tm
and
VIAcal
tm
,
our osteoporosis product candidates. Our goal is to submit INDs
and commence Phase I clinical trials for these preclinical
product candidates in 2008.
|
Diabetes
and the Insulin Market
Diabetes
Overview
Glucose is a simple sugar used by all the cells of the body to
produce energy and support life. Humans need a minimum level of
glucose in their blood at all times to stay alive. The primary
manner in which the body produces blood glucose is through the
digestion of food. When a person is not getting this glucose
from food digestion, glucose is produced from stores and
released by the liver. The bodys glucose levels are
regulated by insulin. Insulin is a peptide hormone that is
naturally secreted by the pancreas. Insulin helps glucose enter
the bodys cells to provide a vital source of energy.
When a healthy individual begins a meal, the pancreas releases a
natural spike of insulin called the first-phase insulin release.
In addition to providing sufficient insulin to process the
glucose coming into the blood from digestion of the meal, the
first-phase insulin release acts as a signal to the liver to
stop making glucose while digestion of the meal is taking place.
Because the liver is not producing glucose and there is
sufficient additional insulin to process the glucose from
digestion, the blood glucose levels of healthy individuals
remain relatively constant and their blood glucose levels do not
become too high.
Diabetes is a disease characterized by abnormally high levels of
blood glucose and inadequate levels of insulin. There are two
major types of diabetes Type 1 and Type 2. In Type 1
diabetes, the body produces no insulin. In the early stages of
Type 2 diabetes, although the pancreas does produce insulin,
either the body does not produce the insulin at the right time
or the bodys cells ignore the insulin, a condition known
as insulin resistance. According to the Centers for Disease
Control and Prevention, or CDC, Type 2 diabetes is the more
prevalent form of the disease, affecting approximately 90% to
95% of all people diagnosed with diabetes.
Even before any other symptoms are present, one of the first
effects of Type 2 diabetes is the loss of the meal-induced
first-phase insulin release. In the absence of the first-phase
insulin release, the liver will not receive its signal to stop
making glucose. As a result, the liver will continue to produce
glucose at a time when the body begins to produce new glucose
through the digestion of the meal. As a result, the blood
glucose level of patients with diabetes goes too high after
eating, a condition known as hyperglycemia. Hyperglycemia causes
glucose to attach unnaturally to certain proteins in the blood,
interfering with the proteins ability to perform their
normal function of maintaining the integrity of the small blood
vessels. With hyperglycemia occurring after each meal, the tiny
blood vessels eventually break down and leak. The long-term
adverse effects of hyperglycemia include blindness, loss of
kidney function, nerve damage and loss of sensation and poor
circulation in the periphery, potentially requiring amputation
of the extremities.
Between two and three hours after a meal, an untreated
diabetics blood glucose becomes so elevated that the
pancreas receives a signal to secrete an inordinately large
amount of insulin. In a patient with early Type 2 diabetes, the
pancreas can still respond and secretes this large amount of
insulin. However, this occurs at the time when digestion is
almost over and blood glucose levels should begin to fall. This
inordinately large amount of insulin has two detrimental
effects. First, it puts an undue extreme demand on an already
compromised pancreas, which may lead to its more rapid
deterioration and eventually render the pancreas unable to
produce insulin. Second, too much insulin after digestion leads
to weight gain, which may further exacerbate the disease
condition.
46
The figure below, which is derived from an article in the
New
England Journal of Medicine
, illustrates the differences in
the insulin release profiles of a healthy individual and a
person in the early stages of Type 2 diabetes. In response to an
intravenous glucose injection, which simulates eating a meal,
the healthy individual produces the first-phase insulin release.
In contrast, the Type 2 diabetic lacks the first-phase insulin
release and releases the insulin more slowly and over time. As a
result, in the early stages of the disease, the Type 2
diabetics insulin level is too low at the initiation of a
meal and too high after meal digestion.
First
Phase Insulin Release
Current
Treatments for Diabetes and their Limitations
Because patients with Type 1 diabetes produce no insulin, the
primary treatment for Type 1 diabetes is daily intensive insulin
therapy. The treatment of Type 2 diabetes typically starts with
management of diet and exercise. Although helpful in the
short-run, treatment through diet and exercise alone is not an
effective long-term solution for the vast majority of patients
with Type 2 diabetes. When diet and exercise are no longer
sufficient, treatment commences with various non-insulin oral
medications. These oral medications act by increasing the amount
of insulin produced by the pancreas, by increasing the
sensitivity of insulin-sensitive cells, by reducing the glucose
output of the liver or by some combination of these mechanisms.
These treatments are limited in their ability to manage the
disease effectively and generally have significant side effects,
such as weight gain and hypertension. Because of the limitations
of non-insulin treatments, many patients with Type 2 diabetes
deteriorate over time and eventually require insulin therapy to
support their metabolism.
Insulin therapy has been used for more than 80 years to
treat diabetes. This therapy usually involves administering
several injections of insulin each day. These injections consist
of administering a long-acting basal injection one or two times
per day and an injection of a fast acting insulin at meal-time.
Although this treatment regimen is accepted as effective, it has
limitations. First, patients generally dislike injecting
themselves with insulin due to the inconvenience and pain of
needles. As a result, patients tend not to comply adequately
with the prescribed treatment regimens and are often improperly
medicated.
More importantly, even when properly administered, insulin
injections do not replicate the natural time-action profile of
insulin. In particular, the natural spike of the first-phase
insulin release in a person without diabetes results in blood
insulin levels rising within several minutes of the entry into
the blood of glucose from a meal. By contrast, injected insulin
enters the blood slowly, with peak insulin levels occurring
within 80 to 100 minutes following the injection of regular
human insulin.
47
A potential solution is the injection of insulin directly into
the vein of diabetic patients immediately before eating a meal.
In studies of intravenous injections of insulin, patients
exhibited better control of their blood glucose for 3 to
6 hours following the meal. However, for a variety of
medical reasons, intravenous injection of insulin before each
meal is not a practical therapy.
One of the key improvements in insulin treatments was the
introduction in the 1990s of rapid-acting insulin analogs, such
as
Humalog
®
,
Novolog
®
and
Apidra
®
.
However, even with the rapid-acting insulin analogs, peak
insulin levels typically occur within 50 to 70 minutes following
the injection. Because the rapid-acting insulin analogs do not
adequately mimic the first-phase insulin release, diabetics
using insulin therapy continue to have inadequate levels of
insulin present at the initiation of a meal and too much insulin
present between meals. This lag in insulin delivery can result
in hyperglycemia early after meal onset. Furthermore, the
excessive insulin between meals may result in an abnormally low
level of blood glucose known as hypoglycemia. Hypoglycemia can
result in loss of mental acuity, confusion, increased heart
rate, hunger, sweating and faintness. At very low glucose
levels, hypoglycemia can result in loss of consciousness, coma
and even death. According to the American Diabetes Association,
or ADA, insulin-using diabetic patients have on average 1.2
serious hypoglycemic events per year, many of which events
require hospital emergency room visits by the patients.
Market
Opportunity
The World Health Organization estimates that more than
180 million people worldwide have diabetes and that this
number is likely to more than double by 2030. The CDC estimates
that approximately 20.8 million people in the United
States, or 7.0% of the overall population, suffer from diabetes,
with 1.5 million new cases diagnosed in 2005. Diabetes is
currently the sixth leading cause of death by disease and is the
leading cause of new cases of kidney disease and non-traumatic
lower limb amputations and blindness among young adults.
Despite the limitations of currently available insulin
therapies, the ADA estimates that approximately $12 billion
was spent on insulin and related delivery supplies in 2002. The
rapid-acting insulin analogs have come to dominate the market
for meal-time insulin. According to IMS Health, sales of
rapid-acting insulin analogs were in excess of $2.3 billion
in 2005.
Because the time-course of insulin delivery to the blood plays
such an important role in overall glucose control, we believe
that there is significant market potential for insulin products
that reach the blood more rapidly than the insulin analogs. In
addition, because of the pain and inconvenience of insulin
injection, we believe that there is significant market potential
for rapid-acting insulin products that are delivered by means
other than injection.
The
Biodel Solution
Our two most advanced clinical programs are
VIAject
tm
,
an injectable formulation of insulin, and
VIAtab
tm
,
a sublingual formulation of insulin. We believe these product
candidates may change the way Type 1 and Type 2 diabetic
patients are treated by improving the efficacy, safety and
ease-of-use
of insulin. Based upon our preclinical and clinical data, if
approved,
VIAject
tm
may be the first commercially available drug to produce a
profile of insulin levels in the blood that approximates the
natural first-phase insulin release normally seen in persons
without diabetes following a meal.
VIAject
tm
VIAject
tm
is our proprietary formulation of injectable human insulin to be
taken immediately prior to a meal or at the end of a meal. We
formulated
VIAject
tm
using our
VIAdel
tm
technology to combine recombinant human insulin with specific
ingredients generally regarded as safe by the FDA.
VIAject
tm
is designed to be absorbed into the blood faster than the
currently marketed rapid-acting insulin analogs. One of the key
features of our formulation of insulin is that it allows the
insulin to disassociate, or separate, from the six molecule, or
hexameric, form to the single molecule, or monomeric, form and
prevents re-association to the hexameric form. We believe that
by favoring the monomeric form,
VIAject
tm
allows for more rapid delivery of insulin into the blood as the
human body requires insulin to be in the form of a single
molecule before it can be absorbed into the body to produce its
desired biological effects. Because most human insulin that is
sold for injection is in the hexameric form, the injected
48
insulin appears to the body to be six times its actual size.
This makes it more difficult for the body to absorb, as the
insulin hexamer must first disassociate to form double insulin
molecules and then single insulin molecules.
Potential
Advantages of
VIAject
tm
over Existing Insulin Treatments
We believe
VIAject
tm
offers a number of potential advantages over currently available
injectable insulin products.
|
|
|
|
|
Better Management of Blood Glucose
Levels.
Based on our clinical trials to date, we
believe that
VIAject
tm
can improve the management of blood glucose levels in patients
with diabetes. Specific observations include the following:
|
|
|
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|
|
In our Phase I clinical trial in volunteers without
diabetes, and in our Phase II clinical trial in patients
with Type 1 diabetes,
VIAject
tm
reached the blood and exerted blood glucose lowering activity
more rapidly than the rapid-acting insulin analog,
Humalog
®
,
and the regular human recombinant insulin,
Humulin
®
R. Accordingly, we believe
VIAject
tm
more closely mimics the first-phase insulin release of healthy
individuals at the beginning of a meal, which reduces the risk
of hyperglycemia.
|
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|
Our clinical trials also indicate that
VIAject
tm
may allow for a lower dose of insulin to adequately cover a meal
than
Humulin
®
R and
Humalog
®
.
As a result, we believe the use of
VIAject
tm
may reduce the amount of insulin that remains in the blood
several hours after a meal. This may, in turn, reduce the risk
of hypoglycemia. Consequently, we believe that
VIAject
tm
may be safer than any other meal-time insulin products, and
patients using
VIAject
tm
may have fewer hypoglycemic episodes resulting in fewer
emergency room visits.
|
|
|
|
|
|
Commercialization of
VIAject
tm
. Our
VIAject
tm
technologys ability to stabilize delicate peptides to
yield a longer shelf life may provide a commercialization
advantage. Unlike currently approved injectable insulin
products,
VIAject
tm
does not require a refrigerated supply line. As a result, we
believe this will increase our market reach and collaboration
opportunities with pharmaceutical partners who lack refrigerated
supply lines.
|
Clinical
Trials of
VIAject
tm
Phase I.
In 2005, we completed a
Phase I clinical trial of
VIAject
tm
.
This was a single center, open label, five-way crossover study
in which each of the ten healthy volunteers in the trial was
exposed to the following five separate treatment conditions:
three separate doses of
VIAject
tm
,
one dose of
Humulin
®
R, a regular human insulin, and one dose of
Humalog
®
,
a rapid-acting insulin analog. Volunteers received three
separate injections of
VIAject
tm
at dose levels of 12 international units, or IU, 6 IU and 3 IU.
Volunteers also received one 12 IU injection for each of
Humulin
®
R and
Humalog
®
.
International units are a standardized measure of the potency of
insulin. All volunteers received insulin subcutaneously. After a
screening visit, insulin administration and the evaluation
procedures were performed during five subsequent treatment days.
The study employed a glucose clamp procedure, which
is the standard procedure for safely studying the effects of
insulin in healthy individuals. In the glucose clamp
procedure, glucose is automatically infused into the
volunteers blood so that his or her blood glucose will be
maintained at a healthy normal level of 90mg of glucose per
deciliter of blood. The effect of insulin is to lower blood
glucose, thereby requiring an infusion of glucose to maintain
the normal glucose level. The rate at which glucose must be
infused is called the glucose infusion rate, or GIR.
The primary objective of this trial was to estimate the
pharmacodynamic activities of the applied insulins including the
dose responsiveness of
VIAject
tm
.
Pharmacodynamics refers to the time-course and ability of the
insulin to lower blood glucose after administration. The primary
pharmacodynamic measure in this trial was the GIR, from which we
were able to derive several parameters, including the following:
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maximum GIR;
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time to maximum GIR; and
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49
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time to 50% of maximum GIR.
|
The secondary objectives of this trial were to evaluate the
safety and the pharmacokinetic profile after a single
application of
VIAject
tm
in comparison to
Humulin
®
R and
Humalog
®
.
Pharmacokinetics refers to the time-course and quantity of
insulin in the serum of the blood of an individual after
application of insulin.
The table below indicates, for each treatment condition in the
trial, the mean time to 50% of maximum GIR:
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Minutes to 50% of
|
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|
Treatment Condition
|
|
Maximum GIR
|
|
|
|
|
|
Humulin
®
R 12 IU
|
|
|
66
|
|
|
|
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|
Humalog
®
12 IU
|
|
|
51
|
|
|
|
|
|
VIAject
tm
12 IU
|
|
|
33
|
|
|
|
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|
VIAject
tm
6 IU
|
|
|
35
|
|
|
|
|
|
VIAject
tm
3 IU
|
|
|
31
|
|
|
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|
All three
VIAject
tm
dose levels were faster than both
Humulin
®
R and
Humalog
®
in the time to reach 50% of the maximum GIR, which provides
evidence of the insulin in
VIAject
tm
reaching the blood faster than that of
Humulin
®
R and
Humalog
®
.
This faster action for each dose of
VIAject
tm
was statistically significant as compared to both
Humilin
®
R and
Humalog
®
.
The pharmacokinetic analysis showed a faster onset, peak and
decline in plasma insulin concentrations for all three
VIAject
tm
doses as compared to both
Humulin
®
R and
Humalog
®
.
In 2006, we analyzed the data from the Phase I clinical trial,
utilizing a pharmacokinetic modeling program known as
WinNonLin
®
.
In this analysis, we measured the absorption half life of
insulin, which is a pharmacokinetic measure of the speed at
which insulin is absorbed into the blood. The absorption half
life for a 12 IU dose was 22 minutes for
VIAject
tm
,
37 minutes for
Humalog
®
and 71 minutes for
Humulin
®
R. This faster action of
VIAject
tm
was statistically significant as compared to both
Humulin
®
R and
Humalog
®
.
All treatments were well tolerated. No serious adverse events
were reported in this trial.
Phase I/II Variability Study.
Repeated
administration of the same dose of both regular human insulin
and rapid-acting insulin analogs are known to produce variable
blood insulin level results in the same patients. This is known
as the within-subject or intra-subject variability of insulin.
In 2006, we completed a Phase I/II clinical trial of
VIAject
tm
to compare the intra-subject variability of the timing and
effect of repeated doses of
VIAject
tm
to that of
Humulin
®
R. This was a single-center, randomized, double blind,
crossover, repeated measures study in fourteen patients with
Type 1 diabetes. In the trial, each patient received
subcutaneous injections of
VIAject
tm
and
Humulin
®
R at a dose level of 0.1 IU/Kg body weight on three separate
occasions. After a screening visit, insulin administration and
evaluation procedures were performed during six subsequent
treatment days. GIR was measured for each patient utilizing the
glucose clamp procedure.
The primary objectives of this trial were (i) to compare
the intra-subject variability of blood insulin concentration
over time as measured by the standard deviation of the time to
reach 50% of the maximum serum insulin concentration,
(ii) to compare the intra-subject variability of insulin
effect over time as measured by the standard deviation of the
time to reach 50% of the maximum GIR. The secondary objectives
of this trial were to evaluate the safety and the
pharmacokinetic profile after multiple applications of
VIAject
tm
in comparison to
Humulin
®
R.
In the trial, the within-subject variability of
VIAject
tm
was less than that of
Humulin
®
R. The standard deviation of the time to reach 50% of the
maximum serum insulin concentration was 6 for
VIAject
tm
,
as compared to 20 for
Humulin
®
R. This result was statistically significant. The standard
deviation of the time to reach 50% of the maximum GIR was 17 for
VIAject
tm
,
as compared to 32 for
Humulin
®
R. However, this result was not statistically significant.
50
In the trial, we observed the following pharmacokinetic and
pharmacodynamic results, which provide further evidence that
VIAject
tm
reaches the blood faster than
Humulin
®
R in patients with diabetes:
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Pharmacokinetic and
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|
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Pharmacodynamic Measures
|
|
VIAject
TM
|
|
|
Humulin
®
R
|
|
|
p-Value
|
|
|
Minutes to maximum GIR
|
|
|
99
|
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|
|
154
|
|
|
|
0.0015
|
|
Minutes to maximum serum insulin
concentration
|
|
|
33
|
|
|
|
97
|
|
|
|
<0.0001
|
|
Minutes to 50% of maximum serum
insulin concentration
|
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8
|
|
|
|
32
|
|
|
|
<0.0001
|
|
All treatments were well tolerated. No serious adverse events
were reported in this trial.
Phase II Meal Study.
In 2006 we began a
Phase II clinical trial to examine
VIAject
tm
s
ability to control blood glucose after Type 1 diabetic patients
received a standardized meal. This is a single-center,
randomized, open-label, crossover study. To date, we have
performed a planned interim analysis on ten patients with Type I
diabetes who have completed the study. The final results of the
trial may be different than those suggested by our interim
analysis. The study is still ongoing and we expect to enroll an
additional 8 to 10 patients for a final total of 18 to
20 patients. In the trial, we are comparing the
pharmacodynamic properties of
VIAject
tm
,
Humulin
®
R
and
Humalog
®
,
relative to a standardized meal.
Patients receive four treatments based on the experimental
conditions listed below on four separate days separated by about
a week between each experimental day. In all conditions there is
a three hour baseline period, which means that we measure the
patients blood glucose levels for three hours before
administering the test medication. On the first treatment day,
the patients calculate the amount of insulin they use to cover a
standardized meal. All patients receive insulin subcutaneously.
The experimental conditions, in randomized order, are as follows:
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|
patients receive injections of
Humulin
®
R prior to a standardized meal at the dose that the patient
determines on the first treatment day is the insulin requirement
to cover the standard meal;
|
|
|
|
patients receive injections of
VIAject
tm
prior to a standardized meal at the dose that the patient
determines on the first treatment day is the insulin requirement
to cover the standard meal;
|
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|
|
patients receive injections of
Humalog
®
prior to a standardized meal at the dose that the patient
determines on the first treatment day is the insulin requirement
to cover the standard meal; and
|
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|
patients receive injections of
VIAject
tm
prior to a standardized meal at 50% of the dose that the patient
determines on the first treatment day is the insulin requirement
to cover the standard meal.
|
The patients blood glucose was continuously monitored over
the next eight hours in order to determine whether patients
experienced hyperglycemic or hypoglycemic events. If the
patients blood glucose went below 60 mg/dl, a glucose
infusion was initiated to keep the blood glucose above
60 mg/dl.
We compared the area under the curve, or AUC, of blood glucose
at specified periods of time after a meal between the different
treatments. The AUC of blood glucose concentrations for
specified time intervals is a measure of the total amount of
glucose in the blood over that specified time interval. The AUC
for the first three hours after injection is taken is a measure
of the degree of hyperglycemia experienced by the patient. The
results of this interim analysis are reported below.
VIAject
tm
statistically significantly reduced hyperglycemia after a
standardized meal when compared to
Humulin
®
R.
Humalog
®
did not significantly reduce hyperglycemia after a standardized
meal when compared to
Humulin
®
R. No statistically significant reduction was observed when
comparing
VIAject
tm
to
Humalog
®
with respect to hyperglycemia.
VIAject
tm
statistically significantly reduced hypoglycemia after a
standardized meal when compared to
Humulin
®
R. While the number of hypoglycemic events was fewer for
VIAject
tm
compared to
Humalog
®
,
it did not reach statistical significance.
51
The hypoglycemic events data from the meal study is summarized
in the table below:
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Hypoglycemic Events
per Treatment
|
|
Hours Past Dose
|
|
Humulin
®
R
|
|
|
Humalog
®
|
|
|
VIAject
tm
|
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|
0-3 hours
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|
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0
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7
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4
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3-8 hours
|
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13
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11
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4
|
|
0-8 hours
|
|
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13
|
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18
|
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8
|
|
Current Pivotal Phase III Clinical
Trials.
We held a meeting with the FDA on
February 28, 2006 to discuss the results of our
Phase II clinical studies and the design of our pivotal
Phase III clinical trials for
VIAject
tm
.
Based on that meeting, we commenced our two pivotal
Phase III clinical trials of
VIAject
tm
in September 2006. The trials are open-label, multi-center
trials designed to compare the efficacy and safety of
VIAject
tm
as compared to
Humulin
®
R. One of the trials is testing
VIAject
tm
in patients with Type 1 diabetes and the other in patients with
Type 2 diabetes. We expect to enroll approximately
400 patients in each trial. Patients will undergo a
six-month treatment regimen. Approximately one-half of the
patients in each trial will be treated with
VIAject
tm
and the remainder with
Humulin
®
R as their meal-time injection insulins.
The primary objective of the trials is to determine if
VIAject
tm
is not inferior to
Humulin
®
R in the management of blood glucose levels. The primary
endpoint in the trials is the mean change in patients
glycosolated hemoglobin, or HbA1c, levels from baseline to the
end of the study. Changes in HbA1c levels are a measure of
patients average blood glucose levels over the treatment
period and an indication of how well the patients are
controlling blood glucose levels. HbA1c is the FDAs
preferred endpoint for diabetes trials.
Secondary endpoints in the trials include additional blood
glucose measures, total daily insulin doses and changes in body
weight. We are also assessing the safety of
VIAject
tm
as compared to
Humulin
®
R
in these trials.
We monitor safety on a daily basis in these clinical trials. The
major safety concern with patients taking insulin is the
occurrence of hypoglycemic events. As of March 12, 2007, we
have had a total of 113 mild and moderate hypoglycemic events in
our Phase III clinical trials, 73 in patients receiving
Humulin
®
R
and 40 in patients receiving
VIAject
tm
.
This difference between
VIAject
tm
and
Humulin
®
R
is statistically significant, with a p-value of less than 0.01.
Also as of March 12, 2007 we have had a total of four
severe hypoglycemic events in our Phase III clinical trials. Of
these four events, three were in patients receiving
Humulin
®
R
and one was in a patient with Type 1 diabetes in the
VIAject
tm
group. It was determined that the cause of the severe
hypoglycemic event was most likely not due to
VIAject
tm
but due to the patients self-prescribed dose increase in
basal insulin. The Phase III clinical trials are ongoing.
The final safety results of the trials may be different than
those suggested by the hypoglycemic events observed to date.
We expect to complete these two trials and, if the trials are
successful, we intend to submit an NDA to the FDA for approval
of
VIAject
tm
in 2008.
VIAtab
tm
VIAtab
tm
is our formulation of recombinant human insulin, designed to be
taken orally via sublingual administration.
VIAtab
tm
tablets dissolve in approximately three minutes, providing the
potential for rapid absorption of insulin into the blood. In
addition, unlike other oral insulin products under development
that must be swallowed, the sublingual delivery of
VIAtab
tm
may avoid the destructive effects on insulin by the stomach and
liver. We are developing
VIAtab
tm
as a potential treatment for patients with Type 2 diabetes in
the early stages of their disease. We believe that
VIAtab
tm
may be a suitable treatment for these patients because of its
potential rapid delivery and because it does not require
injections.
In our preclinical
in vitro
and animal studies, we
successfully delivered insulin by sublingual administration. We
are currently conducting a Phase I clinical trial of
VIAtab
tm
in patients with Type 1 diabetes. In the trial, we are testing
for changes in patients blood insulin levels following
administration of
VIAtab
tm
.
Because
Type 1 diabetics do not produce their own insulin, changes in
their insulin levels provide evidence of
VIAtab
tm
s
delivery of insulin to their blood. If the trial is successful,
we plan to initiate later stage clinical trials of
VIAtab
tm
in 2008.
52
Additional
Pipeline Opportunities
In addition to our clinical insulin product candidates, we have
used our
VIAdel
tm
technology to develop two preclinical product candidates for the
treatment of osteoporosis.
VIAmass
tm
VIAmass
tm
is a sublingual, rapid-acting formulation of PTH 1-34. PTH 1-34
is the active portion of the human parathyroid hormone and is
used to treat and reverse osteoporosis. It is currently
delivered by injection and manufactured by Eli Lilly under the
trade name
Forteo
®
.
Parathyroid hormone is normally released by the body in a
spike-like fashion. This rapid release profile is particularly
important to achieving its desired clinical effect of bone
strengthening and growth. In animal studies, when administered
continuously as opposed to rapidly, PTH 1-34 caused bone loss,
just the opposite of its desired clinical effect. Because PTH
1-34 requires rapid entry into the blood in order to provide
effective treatment and because we believe that we can
administer it in a sublingual fashion, we believe it is a good
candidate for our
VIAdel
tm
technology. We believe that a non-invasive formulation is
preferred by most of the patients using this product who are
older women with osteoporosis. To date, we have made
formulations of PTH 1-34, characterized them, studied their
stability and tested them in human sublingual cell culture
models.
VIAcal
tm
VIAcal
tm
is a sublingual, rapid acting formulation of recombinant salmon
calcitonin. Salmon calcitonin is another peptide hormone used to
treat osteoporosis. It is administered by injection and as a
nasal spray and is sold by various companies, including
Novartis. The pharmacologic activity of salmon calcitonin is the
same as that of the naturally produced human hormone, but salmon
calcitonin is substantially more potent on a weight basis and
has a longer duration of action in humans. Salmon calcitonin
acts predominantly on bone to depress bone resorption. Because
salmon calcitonin requires rapid entry into the blood and
because we believe that we can administer it in a sublingual
fashion, we believe it is a good candidate for our
VIAdel
tm
technology. To date, we have made formulations of salmon
calcitonin, characterized them, studied their stability and
tested them in human sublingual cell culture models.
Our
VIAdel
tm
Technology
Peptide hormones, such as insulin, parathyroid hormone,
calcitonin and growth hormone, are valuable drugs used to treat
a variety of important human diseases. Peptide hormones are, in
general, relatively unstable and poorly absorbed into the blood
from the gastrointestinal tract. As a result, they are typically
given by subcutaneous injection. Because peptide hormones are
charged molecules, their absorption from injection sites is
inhibited and slowed. This is in contrast to their natural
release into the blood, which is typically in one or more very
rapid, spike-like, secretions. Slowing of the rate of absorption
reduces the clinical efficacy of many peptide hormones,
including insulin, parathyroid hormone and calcitonin in
particular.
Our
VIAdel
tm
technology consists of several proprietary models that we have
developed to study the interaction of small molecules with
peptide hormones and their effects on the stability, apparent
molecular size, complexed state, surface charge distribution and
rate of absorption and mechanisms of absorption of peptide
hormones. These models have allowed us to develop proprietary
formulations designed to increase the rate of absorption and
stability of these peptide hormones, potentially allowing for
improved efficacy by injection and for administration by
non-invasive routes, such as sublingual administration.
We use our
VIAdel
tm
technology to develop proprietary formulations of small
molecules which form weak and reversible hydrogen bonds with
their molecular cargo. By doing so, we believe that our
formulations mask the charge on peptides. As a consequence, the
peptides in our formulations face less resistance from cell
membranes, which would generally repel them, thus allowing them
to pass through cell membranes into the blood more rapidly and
in greater quantities than other currently approved formulations
of the same peptides. Our
VIAdel
tm
technology is designed to allow us to develop formulations that
stabilize delicate peptides which can result in longer shelf
lives for our formulations. Furthermore, because we use our
VIAdel
tm
technology to reformulate existing peptide drugs with
ingredients that are generally regarded as safe by the FDA and
because our reformulations do not drastically
53
alter the structure of these peptides, we believe that our
VIAdel
tm
technology allows us to develop product candidates for which the
Section 505(b)(2) approval pathway is available.
Government
Regulation
The FDA and other federal, state, local and foreign regulatory
agencies impose substantial requirements upon the clinical
development, approval, labeling, manufacture, marketing and
distribution of drug products. These agencies regulate research
and development activities and the testing, approval,
manufacture, quality control, safety, effectiveness, labeling,
storage, record keeping, advertising and promotion of our
product candidates. The regulatory approval process is generally
lengthy and expensive, with no guarantee of a positive result.
Moreover, failure to comply with applicable FDA or other
requirements may result in civil or criminal penalties, recall
or seizure of products, injunctive relief including partial or
total suspension of production, or withdrawal of a product from
the market.
United
States Government Regulation
The FDA regulates the research, manufacture, promotion and
distribution of drugs in the United States under the FFDCA and
other statutes and implementing regulations. The process
required by the FDA before prescription drug product candidates
may be marketed in the United States generally involves the
following:
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|
completion of extensive nonclinical laboratory tests, animal
studies and formulation studies, all performed in accordance
with the FDAs Good Laboratory Practice, or GLP,
regulations;
|
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|
submission to the FDA of an IND which must become effective
before human clinical trials may begin;
|
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|
for some products, performance of adequate and well-controlled
human clinical trials in accordance with the FDAs
regulations, to establish the safety and efficacy of the product
candidate for each proposed indication;
|
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|
satisfactory completion of an FDA preapproval inspection of the
manufacturing facilities at which the product is produced to
assess compliance with cGMP regulations; and
|
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FDA review and approval of the NDA prior to any commercial
marketing, sale or shipment of the drug.
|
The testing and approval process requires substantial time,
effort and financial resources, and we cannot be certain that
any approvals for our product candidates will be granted on a
timely basis, if at all.
Nonclinical tests include laboratory evaluations of product
chemistry, formulation and stability, as well as studies to
evaluate toxicity in animals and other animal studies. The
results of nonclinical tests, together with manufacturing
information and analytical data, are submitted as part of an IND
to the FDA. Some nonclinical testing may continue even after an
IND is submitted. An IND automatically becomes effective
30 days after receipt by the FDA, unless the FDA, within
the
30-day
time period, specifically places the clinical trial on a
clinical hold. In such case, the IND sponsor and the FDA must
resolve any outstanding concerns before the clinical trial can
begin. Clinical holds also may be imposed at any time before or
during studies due to safety concerns or non-compliance. An
independent institutional review board, or IRB, at each of the
clinical centers proposing to conduct the clinical trial must
review and approve the plan for any clinical trial before it
commences at that center. An IRB considers, among other things,
whether the risks to individuals participating in the trials are
minimized and are reasonable in relation to anticipated
benefits. The IRB also approves the consent form signed by the
trial participants and must monitor the study until completed.
We submitted our first IND to the FDA in February 2005, and our
second IND in March 2005. We have commenced clinical trials
under both INDs.
Clinical Trials.
Clinical trials involve the
administration of the product candidate to human subjects under
the supervision of qualified medical investigators according to
approved protocols that detail the objectives of the study,
dosing procedures, subject selection and exclusion criteria, and
the parameters to be used to monitor participant safety. Each
protocol is submitted to the FDA as part of the IND.
Clinical trials are typically conducted in three sequential
phases, but the phases may overlap, or be combined.
54
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Phase I clinical trials typically involve the initial
introduction of the product candidate into healthy human
volunteers. In Phase I clinical trials, the product
candidate is typically tested for safety, dosage tolerance,
absorption, metabolism, distribution, excretion and
pharmacodynamics.
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Phase II clinical trials are conducted in a limited patient
population to gather evidence about the efficacy of the product
candidate for specific, targeted indications; to determine
dosage tolerance and optimal dosage; and to identify possible
adverse effects and safety risks.
|
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|
Phase III clinical trials are undertaken to evaluate
clinical efficacy and to test for safety in an expanded patient
population at geographically dispersed clinical trial sites. The
size of Phase III clinical trials depends upon clinical and
statistical considerations for the product candidate and
disease, but sometimes can include several thousand patients.
Phase III clinical trials are intended to establish the
overall risk-benefit ratio of the product candidate and provide
an adequate basis for physician labeling.
|
Clinical testing must satisfy extensive FDA regulations. Reports
detailing the results of the clinical trials must be submitted
at least annually to the FDA and safety reports must be
submitted for serious and unexpected adverse events. We cannot
at this time predict when the clinical testing process will be
completed, if at all. Success in early stage clinical trials
does not assure success in later stage clinical trials. The FDA
or an IRB or we may suspend a clinical trial at any time on
various grounds, including a finding that the research subjects
or patients are being exposed to an unacceptable health risk.
New Drug Applications.
The results of product
development, nonclinical studies and clinical trials are
submitted to the FDA as part of an NDA. An NDA also must contain
extensive manufacturing information, as well as proposed
labeling for the finished product. An NDA applicant must develop
information about the chemistry and physical characteristics of
the drug and finalize a process for manufacturing the product in
accordance with cGMP. The manufacturing process must be capable
of consistently producing quality product within specifications
approved by the FDA. The manufacturer must develop methods for
testing the quality, purity and potency of the final product. In
addition, appropriate packaging must be selected and tested and
stability studies must be conducted to demonstrate that the
product does not undergo unacceptable deterioration over its
shelf life. Prior to approval, the FDA will conduct an
inspection of the manufacturing facilities to assess compliance
with cGMP. The submission of an NDA also is subject to the
payment of user fees, but a waiver of the fees may be obtained
under specified circumstances.
The FDA reviews all NDAs submitted before it accepts them for
filing. The FDA may request additional information rather than
accept an NDA for filing. In this event, the NDA must be
resubmitted with the additional information and is subject to
review before the FDA accepts it for filing. After an
application is filed, the FDA may refer the NDA to an advisory
committee for review, evaluation and recommendation as to
whether the application should be approved and under what
conditions. The FDA is not bound by the recommendation of an
advisory committee, but it generally follows such
recommendations. The FDA may deny approval of an NDA if the
applicable regulatory criteria are not satisfied. Data obtained
from clinical trials are not always conclusive and the FDA may
interpret data differently than we interpret the same data. The
FDA may issue an approvable letter, which may require additional
clinical or other data or impose other conditions that must be
met in order to secure final approval of the NDA. If a product
receives regulatory approval, the approval may be significantly
limited to specific diseases and dosages or the indications for
use may otherwise be limited, which could restrict the
commercial value of the product. In addition, the FDA may
require us to conduct Phase IV testing which involves
clinical trials designed to further assess a drugs safety
and effectiveness after NDA approval, and may require
surveillance programs to monitor the safety of approved products
which have been commercialized. Once issued, the FDA may
withdraw product approval if ongoing regulatory requirements are
not met or if safety or efficacy questions are raised after the
product reaches the market.
Section 505(b)(2) NDAs.
There are two
types of NDAs: the full NDA and the Section 505(b)(2) NDA.
We intend to file Section 505(b)(2) NDAs that might, if
accepted by the FDA, save time and expense in the development
and testing of our product candidates. A full NDA is submitted
under Section 505(b)(1) of the FFDCA, and must contain full
reports of investigations conducted by the applicant to
demonstrate the safety and effectiveness of the drug. A
Section 505(b)(2) NDA may be submitted for a drug for which
one or more of the investigations relied upon by the applicant
was not conducted by or for the applicant and for which the
applicant has no right of reference from
55
the person by or for whom the investigations were conducted. A
Section 505(b)(2) NDA may be submitted based in whole or in
part on published literature or on the FDAs finding of
safety and efficacy of one or more previously approved drugs,
which are known as reference drugs. Thus, the filing of a
Section 505(b)(2) NDA may result in approval of a drug
based on fewer clinical or nonclinical studies than would be
required under a full NDA. The degree to which an applicant may
avoid conducting such studies varies depending on the drug, and
the amount and quality of data publicly available for the
applicant to rely on, and the similarity of and differences
between the applicants drug and the reference drug. In
some cases, extensive, time-consuming, and costly clinical and
nonclinical studies may still be required for approval of a
Section 505(b)(2) NDA.
Because we are developing improved formulations of previously
approved chemical entities, such as insulin, our drug approval
strategy is to submit Section 505(b)(2) NDAs to the FDA. We
plan to pursue similar routes for submitting applications for
our product candidates in foreign jurisdictions if available.
The FDA may not agree that our product candidates are approvable
as Section 505(b)(2) NDAs. Insulin is a unique and complex
drug in that it is a complex hormone molecule, which makes it
more difficult to demonstrate that two insulin substances are
highly similar than would be the case with many small molecule
drugs. The availability of the Section 505(b)(2) pathway
for insulin is even more controversial than for small molecule
drugs, and the FDA may not accept this pathway for our insulin
drug candidates. There is no specific guidance available for
insulin Section 505(b)(2) NDAs, and no insulin product has
been approved under a Section 505(b)(2) NDA. If the FDA
determines that Section 505(b)(2) NDAs are not appropriate
and that full NDAs are required for our product candidates, the
time and financial resources required to obtain FDA approval for
our product candidates could substantially and materially
increase, and our products might be less likely to be approved.
If the FDA requires full NDAs for our product candidates, or
requires more extensive testing and development for some other
reason, our ability to compete with alternative products that
arrive on the market more quickly than our product candidates
would be adversely impacted.
Patent Protections.
An applicant submitting a
Section 505(b)(2) NDA must certify to the FDA with respect
to the patent status of the reference drug upon which the
applicant relies in support of approval of its drug. With
respect to every patent listed in FDAs Orange Book, which
is the FDAs list of approved drug products, as claiming
the reference drug or an approved method of use of the reference
drug, the Section 505(b)(2) applicant must certify that:
(1) there is no patent information listed by the FDA for
the reference drug; (2) the listed patent has expired;
(3) the listed patent has not expired, but will expire on a
particular date; (4) the listed patent is invalid,
unenforceable, or will not be infringed by the manufacture, use,
or sale of the product in the Section 505(b)(2) NDA; or
(5) if the patent is a use patent, that the applicant does
not seek approval for a use claimed by the patent. If the
applicant files a certification to the effect of
clause (1), (2) or (5), FDA approval of the
Section 505(b)(2) NDA may be made effective immediately
upon successful FDA review of the application, in the absence of
marketing exclusivity delays, which are discussed below. If the
applicant files a certification to the effect of
clause (3), the Section 505(b)(2) NDA approval may not
be made effective until the expiration of the relevant patent
and the expiration of any marketing exclusivity delays.
If the Section 505(b)(2) NDA applicant provides a
certification to the effect of clause (4), the applicant
also must send notice of the certification to the patent owner
and the holder of the NDA for the reference drug. The filing of
a patent infringement lawsuit within 45 days of the receipt
of the notification may prevent the FDA from approving the
Section 505(b)(2) NDA for 30 months from the date of
the receipt of the notification unless the court determines that
a longer or shorter period is appropriate because either party
to the action failed to reasonably cooperate in expediting the
action. However, the FDA may approve the Section 505(b)(2)
NDA before the 30 months have expired if a court decides
that the patent is invalid, unenforceable, or not infringed, or
if a court enters a settlement order or consent decree stating
the patent is invalid or not infringed.
Notwithstanding the approval of many products by the FDA
pursuant to Section 505(b)(2), over the last few years
certain brand-name pharmaceutical companies and others have
objected to the FDAs interpretation of
Section 505(b)(2). If the FDAs interpretation of
Section 505(b)(2) is successfully challenged in court, the
FDA may be required to change its interpretation of
Section 505(b)(2) which could delay or even prevent the FDA
from approving any Section 505(b)(2) NDA that we submit.
The pharmaceutical industry is highly competitive, and it is not
uncommon for a manufacturer of an approved product to file a
citizen petition with the FDA seeking to delay approval of, or
impose additional approval requirements for, pending competing
products. If successful, such petitions can significantly delay,
or even prevent, the approval of the new product. Moreover, even
if the FDA
56
ultimately denies such a petition, the FDA may substantially
delay approval while it considers and responds to the petition.
Marketing Exclusivity.
Market exclusivity
provisions under the FFDCA can delay the submission or the
approval of Section 505(b)(2) NDAs, thereby delaying a
Section 505(b)(2) product from entering the market. The
FFDCA provides five-year marketing exclusivity to the first
applicant to gain approval of an NDA for a new chemical entity,
or NCE, meaning that the FDA has not previously approved any
other drug containing the same active moiety. This exclusivity
prohibits the submission of a Section 505(b)(2) NDA for any
drug product containing the active moiety during the five-year
exclusive period. However, submission of a
Section 505(b)(2) NDA that certifies that a listed patent
is invalid, unenforceable, or will not be infringed, as
discussed above, is permitted after four years, but if a patent
infringement lawsuit is brought within 45 days after such
certification, FDA approval of the Section 505(b)(2) NDA
may automatically be stayed until
7
1
/
2
years
after the NCE approval date. The FFDCA also provides three years
of marketing exclusivity for the approval of new and
supplemental NDAs for product changes, including new
indications, dosages or strengths of an existing drug, if new
clinical investigations, other than bioavailability studies,
that were conducted or sponsored by the applicant are deemed by
FDA to be essential to the approval of the product change.
Five-year and three-year exclusivity will not delay the
submission or approval of another full NDA; however, as
discussed above, an applicant submitting a full NDA under
Section 505(b)(1) would be required to conduct or obtain a
right of reference to all of the preclinical and adequate and
well-controlled clinical trials necessary to demonstrate safety
and effectiveness.
Other types of exclusivity in the United States include orphan
drug exclusivity and pediatric exclusivity. The FDA may grant
orphan drug designation to a drug intended to treat a rare
disease or condition, which is generally a disease or condition
that affects fewer than 200,000 individuals in the United
States, or more than 200,000 individuals in the United States
and for which there is no reasonable expectation that the cost
of developing and making available in the United States a drug
for this type of disease or condition will be recovered from
sales in the United States for that drug. Seven-year orphan drug
exclusivity is available to a product that has orphan drug
designation and that receives the first FDA approval for the
disease for which the drug has such designation. Orphan drug
exclusivity prevents approval of another application for the
same drug for the same orphan indication regardless of whether
the application is a full NDA or a Section 505(b)(2) NDA.
Pediatric exclusivity, if granted, provides an additional six
months to an existing exclusivity or statutory delay in approval
resulting from a patent certification. This six-month
exclusivity, which runs from the end of other exclusivity
protection or patent delay, may be granted based on the
voluntary completion of a pediatric study in accordance with an
FDA-issued Written Request for such a study. The
current pediatric exclusivity provision is scheduled to end on
October 1, 2007, but it may be reauthorized.
Section 505(b)(2) NDAs are similar to full NDAs filed under
Section 505(b)(1) in that they are entitled to any of these
forms of exclusivity if they meet the qualifying criteria. They
also are entitled to the patent protections described above,
based on patents that are listed in the FDAs Orange Book
in the same manner as patents claiming drugs and uses approved
for NDAs submitted as full NDAs.
Other Regulatory Requirements.
Maintaining
substantial compliance with appropriate federal, state and local
statutes and regulations requires the expenditure of substantial
time and financial resources. Drug manufacturers are required to
register their establishments with the FDA and certain state
agencies, and after approval, the FDA and these state agencies
conduct periodic inspections to ensure continued compliance with
ongoing regulatory requirements, including cGMPs. In addition,
after approval, some types of changes to the approved product,
such as adding new indications, manufacturing changes and
additional labeling claims, are subject to further FDA review
and approval. The FDA may require testing and surveillance
programs to monitor the effect of approved products that have
been commercialized. Any drug products manufactured or
distributed by us pursuant to FDA approvals are subject to
continuing regulation by the FDA, including:
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record-keeping requirements;
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|
reporting of adverse experiences with the drug;
|
|
|
|
providing the FDA with updated safety and efficacy information;
|
|
|
|
reporting on advertisements and promotional labeling;
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57
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|
|
drug sampling and distribution requirements; and
|
|
|
|
complying with electronic record and signature requirements.
|
In addition, the FDA strictly regulates labeling, advertising,
promotion and other types of information on products that are
placed on the market. There are numerous regulations and
policies that govern various means for disseminating information
to health-care professionals as well as consumers, including to
industry sponsored scientific and educational activities,
information provided to the media and information provided over
the Internet. Drugs may be promoted only for the approved
indications and in accordance with the provisions of the
approved label.
The FDA has very broad enforcement authority and the failure to
comply with applicable regulatory requirements can result in
administrative or judicial sanctions being imposed on us or on
the manufacturers and distributors of our approved products,
including warning letters, refusals of government contracts,
clinical holds, civil penalties, injunctions, restitution, and
disgorgement or profits, recall or seizure of products, total or
partial suspension of production or distribution, withdrawal of
approvals, refusal to approve pending applications, and criminal
prosecution resulting in fines and incarceration. In addition,
even after regulatory approval is obtained, later discovery of
previously unknown problems with a product may result in
restrictions on the product or even complete withdrawal of the
product from the market.
From time to time, legislation is drafted, introduced and passed
in Congress that could significantly change the statutory
provisions governing the approval, manufacturing and marketing
of products regulated by the FDA. In addition, FDA regulations
and guidance are often revised or reinterpreted by the agency in
ways that may significantly affect our business and our
products. It is impossible to predict whether legislative
changes will be enacted, or FDA regulations, guidance or
interpretations changed or what the impact of such changes, if
any, may be.
Regulations
Outside the United States
In addition to regulations in the United States, we will be
subject to a variety of regulations in other jurisdictions
governing clinical trials and commercial sales and distribution
of our products. Whether or not we obtain FDA approval for a
product, we must obtain approval of a product by the comparable
regulatory authorities of countries outside the United States
before we can commence clinical trials or marketing of the
product in those countries. The approval process varies from
country to country, and the time may be longer or shorter than
that required for FDA approval. The requirements governing the
conduct of clinical trials, product licensing, pricing and
reimbursement also vary between jurisdictions.
To obtain regulatory approval of a drug under European Union
regulatory systems, we may submit applications for marketing
authorizations either under a centralized or decentralized
procedure. The centralized procedure is compulsory for medicines
produced by certain biotechnological processes, new active
substances indicated for the treatment of AIDS, cancer,
neurodegenerative disorders and diabetes, and orphan drugs, and
optional for other new active substances and those products
which constitute a significant therapeutic, scientific or
technical innovation. The procedure provides for the grant of a
single marketing authorization that is valid for all European
Union member states, as well as for Iceland, Liechtenstein, and
Norway. The decentralized procedure provides for approval by one
or more other, or concerned, member states of an assessment of
an application performed by one member state, known as the
reference member state. Under this procedure, an applicant
submits an application, or dossier, and related materials
including a draft summary of product characteristics, and draft
labeling and package leaflet, to the reference member state and
concerned member states. The reference member state prepares a
draft assessment and drafts of the related materials within
120 days after receipt of a valid application. Within
90 days of receiving the reference member states
assessment report, each concerned member state must decide
whether to approve the assessment report and related materials.
If a member state cannot approve the assessment report and
related materials on the grounds of potential serious risk to
the public health, the disputed points may eventually be
referred to the European Commission, whose decision is binding
on all member states.
58
Competition
The pharmaceutical industry is characterized by intense
competition and rapidly evolving technology. For several
decades, scientists have attempted to improve the
bioavailability of injected formulations and to devise
alternative non-invasive delivery systems for the delivery of
macromolecules such as insulin. While we believe that product
candidates using our
VIAdel
tm
technology will be an improvement over existing products, our
product candidates will compete against many products with
similar indications.
If approved, our primary competition for
VIAject
tm
will be rapid acting meal-time injectable insulins such as
Humalog
®
,
which is marketed by Eli Lilly,
NovoLog
®
,
which is marketed by Novo Nordisk, and
Apidra
®
,
which is marketed by Sanofi-Aventis.
In addition,
VIAject
tm
may face competition from products employing non-invasive
methods of insulin delivery, such as oral insulin pills, which
are currently in development, or inhalable insulins, such as
Exubera
®
,
which has been recently approved, or others which are in
clinical development. Emisphere Technologies, Inc. is developing
oral insulin in pill form. Emisphere is still in early-stage
preclinical trials of its oral tablet. Generex has developed an
oral spray that is currently in Phase II development. The
development of insulin formulations that are taken orally, or
swallowed, face problems because insulin is largely broken down
in the digestive system and as a result much of the insulin
delivered orally does not enter the blood and the timing and
amount of dosage that does is variable and unpredictable.
Of all non-invasive methods for the delivery of insulin,
pulmonary administration has generated some of the most
promising results. Pfizers
Exubera
®
,
an inhalable insulin delivered by a device developed by Nektar
Therapeutics, was recently approved by the FDA and the EMEA.
MannKinds pulmonary
Technosphere
tm
technology is a New Chemical Entity currently in Phase III
clinical trials in Type 1 and Type 2 diabetic patients. Eli
Lilly, in collaboration with Alkermes, is currently in
Phase III clinical trials for pulmonary insulin delivery
systems. The Eli Lilly/Alkermes product,
AIR
®
,
is currently being tested in Type 1 diabetic patients. Novo
Nordisk and Aradigm Corporation also have
AERx
®
,
a pulmonary insulin product under development. Phase III
clinical trials for
AERx
®
were halted due to poor results, but the re-initiation of the
drugs Phase III program was announced on
March 7, 2006. In addition, Kos Pharmaceuticals, Inc.,
recently acquired by Abbott, is also developing an inhaled
formulation of insulin, but the product appears to be several
years behind the competition.
Insulin administered as a nasal spray has been studied
extensively but does not appear to be a practical route for
insulin administration because without the addition of
penetration enhancers, the bioavailability of the insulin is too
low and too variable. Nasally administered insulin using
penetration enhancers has produced irritation and destruction of
the nasal passages with frequent use.
There are five main classes of drugs that are currently used to
treat osteoporosis: bisphosphonates, selective estrogen receptor
modulators, calcitonins, hormone replacement therapies and PTH.
With the exception of PTH, these drugs are used to reduce bone
loss. The market leading oral bisphosphonates, such as
alendronate, which is manufactured by Merck under the trade name
Fosomax
®
,
and risedronate which is manufactured by Proctor &
Gamble under the trade name
Actonel
®
,
are administered in a convenient oral form, but have poorly
tolerated gastrointestinal side effects and tend to produce
abnormal and deficient bone. Since
VIAcal
tm
and
VIAmass
tm
are administered sublingually, we believe these products will
offer the convenience of an oral product while by-passing
potential gastrointestinal side effects. Accordingly, we believe
doctors and patients will be attracted to the safer efficacious
treatments found in
VIAcal
tm
and
VIAmass
tm
.
Unlike the drug classes that reduce bone loss, PTH actually
rebuilds lost bone. Currently available PTH such as Eli
Lillys
Forteo
®
is administered by injection. This may be an inconvenient method
of administration for patients who suffer from osteoporosis,
most of whom are elderly. Since
VIAcal
tm
and
VIAmass
tm
are administered sublingually, we believe these products will
serve an unmet need and may make substantial inroads in the
treatment of osteoporosis.
Intellectual
Property and Proprietary Technology
Our technologies have been developed exclusively by our
employees, without input from third parties.
59
We currently do not own or in-license any issued patents. Our
pending patent applications, those we may file in the future, or
those we may license from third parties, may not result in
patents being issued.
We have a policy of filing for patent protection on all our
product candidates. Our currently pending patent applications
consist of the following:
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|
|
|
|
three pending United States patent applications and
corresponding foreign and international patent applications
relating to our
VIAdel
tm
,
VIAject
tm
and
VIAtab
tm
technology;
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|
one pending United States patent application and corresponding
foreign patent applications relating to our technology for
enhancing delivery of drugs in a form for absorption through the
skin into the blood, a process known as transdermal drug
delivery;
|
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two pending United States patent applications and corresponding
foreign patent applications relating to sublingual
and/or
oral
delivery devices that can be used to deliver the
VIAdel
tm
product; and
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|
one pending United States patent application and a corresponding
international patent application relating to a device for mixing
injectable drugs.
|
The active and inactive ingredients in our
VIAject
tm
and
VIAtab
tm
product candidates have been known and used for many years and,
therefore, are no longer subject to patent protection.
Accordingly, our pending patent applications are directed to the
particular formulations of these ingredients in our products,
and to their use. Although we believe our formulations and their
use are patentable and provide a competitive advantage, even if
issued, our patents may not prevent others from marketing
formulations using the same active and inactive ingredients in
similar but different formulations.
We require our employees, consultants and members of our
scientific advisory board to execute confidentiality agreements
upon the commencement of employment, consulting or collaborative
relationships with us. These agreements provide that all
confidential information developed or made known during the
course of the relationship with us be kept confidential and not
disclosed to third parties except in specific circumstances. In
the case of employees, the agreements provide that all
inventions resulting from work performed for us, utilizing our
property or relating to our business and conceived or completed
by the individual during employment shall be our exclusive
property to the extent permitted by applicable law.
Manufacturing
While we believe our laboratory in Danbury, Connecticut is
equipped to meet the limited manufacturing requirements of all
of our product candidates through Phase II clinical trials,
we intend to manufacture our product candidates by contracting
with third parties which operate manufacturing facilities in
accordance with cGMP. We have contracted with Cardinal
Health PTS, LLC, a large commercial manufacturer, to
manufacture our
VIAject
tm
product candidate to supply our Phase III clinical trials
and our initial commercial requirements. This agreement has no
specified termination date, but generally may be terminated upon
sixty days advance notice by either party. We believe that the
manufacturer complies with the relevant regulatory requirements.
Working with our commercial manufacturer, we have manufactured
all three commercial size batches necessary for regulatory
approval. We believe that if this manufacturer becomes unable or
unwilling to supply
VIAject
tm
we will be able to promptly find a replacement manufacturer to
facilitate the manufacturing of
VIAject
tm
.
We have also contracted with Diosynth B.V., a global producer of
insulin, to supply us with all of the insulin that we will need
for the testing and manufacturing of our product candidates.
This agreement has no specified termination date, but generally
may be terminated upon two-years advance notice by either
party. We believe our insulin supplier has sufficient capacity
to provide us with sufficient quantities of insulin to support
our need through commercialization of our insulin product
candidates.
Sales and
Marketing
We currently have limited sales and marketing capabilities and
no distribution capabilities. Our current strategy is to
selectively enter into collaboration agreements with leading
pharmaceutical or biotechnology companies for the
commercialization of our product candidates late in or upon
completion of clinical development.
60
In entering into these collaboration agreements, our goal will
be to maintain co-promotion or co-commercialization rights in
the United States and potentially other markets. In order to
implement our strategy successfully, we must develop a
specialized sales and marketing organization with sufficient
technical expertise.
We generally expect to retain commercial rights for our product
candidates for which we receive marketing approvals in
situations in which we believe it is possible to access the
market through a focused, specialized sales force. In
particular, we plan to focus on the pediatric market because we
believe
VIAject
tm
is particularly suited for the treatment of children with
diabetes, the number of pediatric endocrinologists is relatively
few and we believe this patient population is underserved.
Employees
At March 15, 2007 we had 25 full time-employees and several
part-time consultants who perform services for us on a regular
basis. We consider our employee relations to be good.
Facilities
We maintain office space and laboratory facilities of
9,700 square feet in Danbury, Connecticut. Our main
facility is subject to a lease that expires in January 2010. Our
laboratory is fully equipped to perform our current drug
delivery and related research and development activities, as
well as to manufacture on a limited basis our own product line
in accordance with cGMP.
Legal
Proceedings
We currently are not involved in any legal proceedings.
61
MANAGEMENT
Executive
Officers and Directors
The following table sets forth our executive officers and
directors and their respective ages and positions as of
March 15, 2007:
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|
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Name
|
|
Age
|
|
Position
|
|
Dr. Solomon S. Steiner
|
|
|
69
|
|
|
Chairman, President and Chief
Executive Officer
|
F. Scott Reding
|
|
|
55
|
|
|
Chief Financial Officer and
Treasurer
|
Dr. Roderike Pohl
|
|
|
45
|
|
|
Vice President, Research
|
Erik Steiner
|
|
|
41
|
|
|
Vice President, Operations
|
Robert Feldstein
|
|
|
72
|
|
|
Vice President, Patent and
Intellectual Property
|
Dr. Andreas Pfützner
|
|
|
47
|
|
|
Chief Medical Officer
|
R. Timmis Ware
|
|
|
70
|
|
|
Corporate Secretary and General
Counsel
|
Dr. Albert Cha(1)
|
|
|
34
|
|
|
Director
|
David Kroin(3)
|
|
|
31
|
|
|
Director
|
Dr. Ira W. Lieberman(1)(3)
|
|
|
64
|
|
|
Director
|
Dr. Daniel Lorber(2)
|
|
|
59
|
|
|
Director
|
Dr. Charles Sanders(1)
|
|
|
75
|
|
|
Director
|
Paul Sekhri(2)(3)
|
|
|
48
|
|
|
Director
|
Dr. Samuel Wertheimer(2)
|
|
|
47
|
|
|
Director
|
Scott A. Weisman(1)(3)
|
|
|
52
|
|
|
Director
|
(1) Member of the Compensation Committee.
(2) Member of the Nominating and Corporate Governance
Committee.
(3) Member of the Audit Committee.
Dr. Solomon S. Steiner
co-founded our company and
has served as our Chairman, President and Chief Executive
Officer since our inception in December 2003. In 1991,
Dr. Steiner founded Pharmaceutical Discovery Corporation,
or PDC, a biopharmaceutical corporation. Dr. Steiner served
as PDCs Chief Executive Officer and Chairman of the Board
of Directors from its inception until December 2001, when PDC
was merged with two other companies to form MannKind
Corporation. From December 2001 to February 2003,
Dr. Steiner served on MannKinds board of directors
and as a Corporate Vice President and Chief Scientific Officer.
In 1985, Dr. Steiner founded and was the Chairman of the
Board of Directors and President of Clinical Technologies
Associates, Inc., or CTAI, now known as Emisphere Technologies,
Inc. Under his leadership CTAI went public in February of 1989.
Dr. Steiner is an inventor of Emispheres oral
delivery system for peptides and mucopolysaccharides.
Dr. Steiner is currently an adjunct full professor at New
York Medical College and research full professor of psychiatry
and neurology at New York University School of Medicine.
Dr. Steiner received a Ph.D. from New York University.
Dr. Steiner is Erik Steiners father.
Mr. F. Scott Reding
joined our company in, and has
served as our Vice President, Chief Financial Officer and
Treasurer since, November 2006. From November 2000 to January
2004, Mr. Reding served as Senior Vice President, Chief
Financial Officer, Treasurer and Secretary of Molecular Staging,
Inc., a biotechnology company. From February 1999 to November
2000, Mr. Reding served as Senior Vice President, Chief
Financial Officer and Secretary of Repros Therapeutics, Inc.,
formerly Zonagen, Inc., a biopharmaceutical company. From 1996
to 1998, Mr. Reding served as Vice President, Chief
Financial Officer and Treasurer of ImmunoTherapy, Inc. Due to a
medical condition from which he has recovered, Mr. Reding
was unable to work from April 2004 to November 2006.
Mr. Reding received an MBA from Columbia University
Graduate School of Business.
Dr. Roderike Pohl
joined our company and has served
as our Vice President, Research since our inception in December
2003. From August 2003 to November 2003, Dr. Pohl served as
a scientific consultant with Steiner Ventures, LLC, or SV. From
December 1998 to July 2003, Dr. Pohl served as Vice
President of Preclinical Research
62
at PDC, now MannKind Corporation. Dr. Pohl received a Ph.D.
from the University of Connecticut School of Pharmacy.
Mr. Erik Steiner
co-founded our company and has served as
our Vice President, Operations since our inception in December
2003. From February 2003 to December 2003, Mr. Steiner
co-founded and served as the Vice President, Operations of SV.
From May 1999 to February 2003, Mr. Steiner served as Head
of Operations of Cabot McMullen Inc, a film and television
production company. Prior thereto Mr. Steiner served as
Administrative Director and Fiscal Administrator of the New
Jersey Public Interest Research Group. Mr. Steiner is
Solomon Steiners son.
Mr. Robert Feldstein
joined our company and has served as
our Vice President, Patent and Intellectual Property since our
inception in December 2003. Since 1995, Mr. Feldstein has
served as the President of i-Tech Manufacturing Company, an
emergency and industrial lighting products company.
Mr. Feldstein founded Scientific Prototypes Manufacturing
Company, a research, development and manufacturing of scientific
equipment company, where he served as President from 1962 to
1995. Mr. Feldstein is a part-time employee of Biodel and
devotes approximately 10% of his time to our affairs.
Dr. Andreas Pfützner
has served as our Vice
President, Chief Medical Officer since April 2005 and since
October 2004 has served on our scientific advisory board. In
1998, Dr. Pfützner founded the Institute for Clinical
Research and Development in Mainz, Germany and serves as its
Managing Director. Since 2001, Dr. Pfützner has been a
professor of applied clinical research at the University of
Applied Sciences Rheinbach. From 2000 to 2002,
Dr. Pfützner was Senior Vice President of Medical and
Regulatory Affairs at PDC and later MannKind Corporation.
Dr. Pfützner holds an M.D. from University of Mainz,
Germany and a Ph.D. from Rocheville University.
Mr. R. Timmis Ware
joined our company in, and has
served as our general counsel and corporate secretary since,
August 2005. From December 2001 to August 2005, Mr. Ware
was in private practice. From June 1994 to December 2001,
Mr. Ware served as general counsel and corporate secretary
of PDC, now MannKind Corporation. Prior thereto, Mr. Ware
was a partner at the law firm of Chadbourne & Parke,
LLP. Mr. Ware is a member of the New York and Florida Bars
and received a L.L.B. from New York University.
Dr. Albert Cha
has been a member of our board of
directors since July 2006. In October 2000, Dr. Cha joined
Vivo Ventures, a venture capital firm, and serves as a managing
partner. He currently serves on the boards of several private
biotechnology and medical device companies. Dr. Cha
received an M.S. from Stanford University and an M.D. and Ph.D.
from the University of California at Los Angeles.
Mr. David Kroin
has been a member of our board of
directors since July 2006. Mr. Kroin is a co-founder and
managing director of Great Point Partners, LLC, an asset
management firm. From December 1998 to September 2003,
Mr. Kroin was an investment professional for J.H.
Whitney & Co., a private equity firm. Mr. Kroin
serves on the board of directors of Gentium S.p.A., a
biopharmaceutical company.
Dr. Ira W. Lieberman
has been a member of our board
of directors since December 2004. Since October 2004,
Dr. Lieberman has served as President and Chief Executive
Officer of LIPAM International, Inc., an advisory and investment
firm, which performs advisory and consulting work for the World
Bank Institute, client governments, and private sector clients.
From July 2003 to October 2004, Dr. Lieberman served as a
Senior Economic Advisor to George Soros for the Open Society
Institute, a grant making foundation. From February 1993 to July
2004, Dr. Lieberman served in several positions for the
World Bank Institute. Dr. Lieberman received an MBA from
Columbia University and a Ph.D. from Oxford University.
Dr. Daniel Lorber
has been a member of our board of
directors since December 2004 and since October 2004, a member
of our scientific advisory board. Since 1981, Dr. Lorber
has served as the medical director of the Diabetes Control
Foundation, Diabetes Care and Information Center in Flushing,
New York and since 1991, as the director of endocrinology at The
New York Hospital Medical Center of Queens. Dr. Lorber is
also an attending physician in endocrinology and general
internal medicine at the New York Hospital Medical Center of
Queens. Since 1994, Dr. Lorber has served as a clinical
associate professor of medicine at Weill Medical College of
Cornell University. Dr. Lorber also serves as a consultant
in medical, dental and podiatric liability litigation and to the
insurance industry on care standards for diabetes mellitus.
Dr. Lorber is a member of the board of directors of the
American
63
Diabetes Association. Dr. Lorber received an M.D. from the
Albert Einstein College of Medicine and completed a fellowship
in endocrinology at the Vanderbilt University Medical Center.
Dr. Charles Sanders
has been a member of our board
of directors since August 2006. Since 1995, Dr. Sanders has
served on numerous boards and continues to chair the boards of
Project Hope and the Foundation for the National Institutes of
Health. From July 1989 to July 1994, Dr. Sanders served as
Chief Executive Officer of Glaxo Inc., a pharmaceutical company,
and from 1992 until his retirement in 1995, served as the
Chairman of the Board of Glaxo Inc. Previously Dr. Sanders
was general director of Massachusetts General Hospital and
professor of medicine at Harvard Medical School.
Dr. Sanders received an M.D. from Southwestern Medical
College of the University of Texas. Dr. Sanders serves on
the boards of directors of Icagen, Inc., a biopharmaceutical
company, Vertex Pharmaceuticals Incorporated, a biotechnology
company, Genentech, Inc., a biotechnology company, Biopure
Corporation, an oxygen therapeutic company, and Cephalon, Inc.,
a biopharmaceutical company.
Mr. Paul Sekhri
has been a member of our board of
directors since January 2006. In January 2005, Mr. Sekhri
founded, and serves as President and Chief Executive Officer of,
Cerimon Pharmaceuticals, Inc., a pharmaceutical company. From
October 2003 to December 2004, Mr. Sekhri served as the
President and Chief Business Officer of ARIAD Pharmaceuticals,
Inc., a pharmaceutical company. From January 2003 to September
2003, Mr. Sekhri was a partner with The Sprout Group, a
venture capital firm. From August 2001 to January 2003,
Mr. Sekhri served as Senior Vice President and Head of
Global Search and Evaluation and from August 1999 to August
2001, as Vice President and Head of Global Early Commercial
Development for Novartis Pharma AG, a pharmaceutical company.
Dr. Samuel Wertheimer
has been a member of our board
of directors since July 2006. Since 2000, Dr. Wertheimer
has been a principal at OrbiMed Advisors, LLC in the private
equity funds management group. Dr. Wertheimer was a Fellow
at the Memorial Sloan-Kettering Cancer Center.
Dr. Wertheimer received a Ph.D. from New York University,
and an M.P.H. from Yale University.
Mr. Scott A. Weisman
has been a member of our board
of directors since December 2004. He is a private investor. From
March 2004 to February 2007, Mr. Weisman served as a
managing director of McGinn, Smith & Company, Inc., an
investment banking firm. From 1998 to September 2003,
Mr. Weisman served in various senior positions for H.C.
Wainwright & Co., Inc., an investment banking firm.
Prior thereto, Mr. Weisman was a practicing securities
attorney and a partner in the law firm of Kelley Drye &
Warren LLP. Mr. Weisman received a J.D. from Albany Law
School.
Scientific
Advisory Board
Our scientific advisory board consists of experts in the
scientific community who are available to our board of directors
and our executive officers for consultation and advice. In such
capacity, they do not have any voting or decision making power.
Our scientific advisors are consulted regularly to assess, among
other things:
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our research and development programs;
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the design and implementation of our clinical trials;
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our patent and publication strategies;
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market opportunities from a clinical perspective;
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commercialization strategies related to our technology;
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new technologies relevant to our research and development
programs; and
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specific scientific and technical issues relevant to our
technology.
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64
Our current scientific advisory board members are:
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Name
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Professional
Affiliation
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Joseph V. Brady, Ph.D.
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Professor at Johns Hopkins
University
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James Costin, M.D.
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Consultant, former Vice President
of Research at Carter-Wallace, Inc.
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Thomas Forst, M.D.
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President and Medical Director of
Institute for Clinical Research and Development
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Professor Lutz
Heinemann, Ph.D.
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Chief Executive Officer and Head
of Business Development for the Profil Institute for Metabolic
Research, Ltd.
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John Laragh, M.D.
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Director of the Cardiovascular
Center at the New York Presbyterian Hospital-Cornell Medical
Center
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Daniel Lorber, M.D.,
F.A.C.P., C.D.E
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Medical Director of the Diabetes
Control Foundation, Diabetes Care & Information Center
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Jerrold Olefsky, M.D.
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Professor of Medicine at the
University of California, San Diego
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Andreas
Pfützner, M.D., Ph.D.
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Founder of Institute for Clinical
Research and Development
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Board
Composition and Election of Directors
Our board of directors is currently authorized to have, and we
currently have, nine members, one of whom is an employee of
ours. In accordance with the terms of our certificate of
incorporation that will become effective upon the closing of
this offering, which we refer to as our second amended and
restated certificate of incorporation, and bylaws that will
become effective upon the closing of this offering, which we
refer to as our amended and restated bylaws, our board of
directors will be divided into three classes, class I,
class II and class III, with each class serving
staggered three-year terms. Upon the closing of this offering,
the members of the classes will be divided as follows:
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the class I directors will be David Kroin, Dr. Albert
Cha and Dr. Samuel Wertheimer, and their term will expire at the
annual meeting of stockholders to be held in 2008;
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the class II directors will be Dr. Charles Sanders,
Dr. Daniel Lorber and Paul Sekhri, and their term will
expire at the annual meeting of stockholders to be held in
2009; and
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the class III directors will be Dr. Solomon
S. Steiner, Dr. Ira Lieberman and Scott Weisman, and
their term will expire at the annual meeting of stockholders to
be held in 2010.
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Our directors may be removed only for cause and only by the
affirmative vote of the holders of 75% or more of our voting
stock. Upon the expiration of the term of a class of directors,
directors in that class will be eligible to be elected for a new
three-year term at the annual meeting of stockholders in the
year in which their term expires.
Dr. Lieberman, Dr. Lorber, Mr. Weisman and
Mr. Sekhri are independent directors, as defined by the
applicable rules of the Nasdaq National Market. We refer to
these directors as our independent directors. Upon
the closing of this offering each of these independent directors
will serve on one or more of our audit committee, compensation
committee and nominating and corporate governance committee.
Except as indicated under Executive Officers
and Directors, there are no family relationships among any
of our directors or executive officers.
65
Board
Committees
Our board of directors has established an audit committee, a
compensation committee and a nominating and corporate governance
committee. Our board of directors is responsible for determining
the composition of the members of these committees. The
composition and responsibilities of each committee are described
below:
Audit
Committee
Our audit committee consists of Dr. Lieberman, the chair of the
committee, Mr. Sekhri, Mr. Kroin and Mr. Weisman. The
committees responsibilities include:
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evaluating the independent registered public accounting
firms qualifications, independence and performance;
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engaging the independent registered public accounting firm;
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approving the retention of the independent registered public
accounting firm to perform any proposed permissible non-audit
services;
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monitoring the rotation of partners of the independent
registered public accounting firm on our engagement team as
required by law;
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reviewing our financial statements;
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reviewing our critical accounting policies and estimates;
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discussing with management and the independent registered public
accounting firm the results of the annual audit and the review
of our quarterly unaudited financial statements;
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reviewing and evaluating, at least annually, the performance of
the audit committee and its members, including compliance of the
audit committee with its charter;
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meeting regularly with the independent registered public
accounting firm and our internal financial personnel who have
unrestricted access to the audit committee; and
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functioning independently and, when applicable, functioning in
compliance with the requirements of Sarbanes-Oxley Act of 2002
and the Securities and Exchange Commission.
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Mr. Lieberman is our audit committee financial expert. We
believe that the composition of our audit committee meets the
criteria for independence under, the applicable requirements of
the Nasdaq National Market and the Securities and Exchange
Commissions rules and regulations.
Compensation
Committee
Our compensation committee consists of Dr. Cha, the chair
of the committee, Dr. Lieberman, Mr. Sanders and
Mr. Weisman. The committees responsibilities include:
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reviewing and recommending policies relating to compensation and
benefits of our officers and employees;
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reviewing and approving corporate goals and objectives relevant
to compensation of our chief executive officer and other senior
officers, evaluating the performance of these officers in light
of those goals and objectives, and setting compensation based on
such evaluations;
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administering our benefit plans and the issuance of stock
options and other awards under our stock plans;
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reviewing and establishing appropriate insurance coverage for
our directors and executive officers;
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recommending the type and amount of compensation to be paid or
awarded to members of our board of directors; and
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reviewing and evaluating, at least annually, the performance of
the compensation committee and its members, including compliance
of the compensation committee with its charter.
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66
Nominating
and Corporate Governance Committee
Our nominating and corporate governance committee consists of
Mr. Wertheimer, the chair of the committee, Dr. Lorber
and Mr. Sekhri. The committees responsibilities
include:
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planning for succession with respect to the position of chief
executive officer and other senior executives;
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reviewing and recommending nominees for election as directors;
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assessing the performance of the board of directors and
monitoring committee evaluations;
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suggesting, as appropriate, ad hoc committees of the board of
directors;
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developing guidelines for board composition; and
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reviewing and evaluating, at least annually, the performance of
the nominating and corporate governance committee and its
members, including compliance of the nominating and corporate
governance committee with its charter.
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Code of
Business Conduct and Ethics
Prior to the completion of this offering, we expect to adopt a
code of business conduct and ethics that applies to our
officers, directors and employees. We expect that our code of
business conduct and ethics will be available on our website at
http://www.biodel.com upon the completion of this offering. We
intend to disclose any amendments to the code, or waivers to its
requirements, on our website.
Compensation
Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board
of directors or compensation committee, or other committee
serving an equivalent function, of any other entity that has one
or more of its executive officers serving as a member of our
board of directors or our compensation committee. None of the
members of our compensation committee has ever been our employee.
Director
Compensation
For the year ended September 30, 2005, we paid each of our
non-employee directors either $600 in cash or 600 shares of
our common stock for each meeting of our board of directors
attended. For the year ended September 30, 2006, we paid
each of our non-employee directors either $600 or 150 shares of
our common stock for each meeting attended. In November 2006,
our board of directors approved a compensation program pursuant
to which these directors received either $600 or 150 shares of
our common stock for each meeting of the board attended in
person and $300 or 75 shares of our common stock for each board
meeting attended by telephone. In addition, we reimburse our
non-employee directors for reasonable expenses incurred in
connection with attending board and committee meetings. Upon
appointment, non-employee directors receive a one time grant of
25,000 stock options, which vest in two equal installments over
two years. Annually, non-employee directors receive a grant of
10,000 stock options, which also vest in two equal installments
over two years. The exercise price of these options is the fair
market value as determined by the board of directors on the date
of grant. In January 2007, our board of directors adopted a
compensation policy pursuant to which our
non-employee
directors will be paid $1,000 in cash for each meeting of our
board attended in person, $500 for each meeting of our board
attended telephonically and $500 for each committee meeting
attended, in person or by telephone. In addition, the Chairman
of the Audit Committee will receive an annual fee of $5,000 and
the Chairmen of the Compensation Committee and of the Nominating
and Corporate Governance Committee will each receive an annual
fee of $3,000.
Executive
Compensation
The following summary compensation table sets forth the total
compensation paid or accrued to our chief executive officer and
each of our other most highly compensated executive officers
whose total annual compensation for the year ended
September 30, 2006 exceeded $100,000. We refer to these
officers as our named executive officers.
67
Summary
Compensation Table
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Long-Term
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Compensation
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Annual Compensation(1)
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Securities
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All Other
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Name and Principal
Position(s)
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Year
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Salary
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Bonus
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Underlying Options
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Compensation
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Dr. Solomon S. Steiner
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2006
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$
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250,000
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(2)
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$
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400,000
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(3)
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75,000
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Chief Executive Officer,
Chairman of the Board of
Directors and President
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Dr. Roderike Pohl
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2006
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150,000
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11,250
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15,000
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Vice President, Research
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Erik Steiner
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2006
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100,000
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18,750
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20,000
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Vice President, Operations
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(1)
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In accordance with the rules of the
Securities and Exchange Commission, the compensation described
in this table does not include medical, group life insurance or
other benefits which are available generally to all of our
salaried employees and certain perquisites and other personal
benefits received which do not exceed the lesser of $50,000 or
10% of any named executive officers salary and bonus
disclosed in this table.
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(2)
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Includes $62,500 that was earned
during the year ended September 30, 2006 but has been
voluntarily deferred by Dr. Steiner.
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(3)
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Includes $250,000 that was earned
during the year ended September 30, 2006 but has been
voluntarily deferred by Dr. Steiner. Pursuant to our
employment agreement with Dr. Steiner, SV is entitled to receive
this bonus.
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Stock
Options
The following table provides information concerning grants of
options to purchase shares of our common stock under our 2004
Stock Incentive Plan to our named executive officers during the
year ended September 30, 2006. Amounts in the following
table represent potential realizable gains that could be
achieved for the options if exercised at the end of the option
term. The 5% and 10% assumed annual rates of compounded stock
price appreciation are calculated based on the requirements of
the Securities and Exchange Commission and do not represent an
estimate or projection of our future common stock prices. These
amounts represent certain assumed rates of appreciation in the
value of our common stock from the fair market value on the date
of grant. Actual gains, if any, on stock option exercises depend
on the future performance of the common stock and overall stock
market conditions. The amounts reflected in the following table
may not necessarily be achieved.
Option
Grants in Last Fiscal Year
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Potential Realizable
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Value at
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Assumed Annual
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Percentage of
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Rates of
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Number of
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Total Options
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Stock Price
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Securities
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Granted to
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Exercise
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Appreciation for
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Underlying Options
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Employees in
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Price Per
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Expiration
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Option Term(1)
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Name
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Granted
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Fiscal Year
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Share
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Date
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5%
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10%
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Dr. Solomon S. Steiner
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75,000
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11.5
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%
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$
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4.00
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12/15/2013
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Dr. Roderike Pohl
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15,000
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2.3
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%
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$
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4.00
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12/15/2013
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Erik Steiner
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20,000
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3.1
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%
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$
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4.00
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12/15/2013
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(1)
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The dollar amounts under these
columns are the result of calculations at rates set by the
Securities and Exchange Commission and, therefore, are not
intended to forecast possible future appreciation, if any, in
the price of the underlying common stock. The potential
realizable values are calculated using the assumed initial
public offering price of $ per
share and assuming that the market price appreciates from this
price at the indicated rate for the entire term of each option
and that each option is exercised and sold on the last day of
its term at the assumed appreciated price.
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68
Option
Exercises and Year-End Option Values
The following table provides information about the number of
shares issued upon option exercises by our named executive
officers during the year ended September 30, 2006, and the
value realized by our named executive officers. The table also
provides information about the number and value of shares
underlying options held by our named executive officers at
September 30, 2006. There was no public trading market for
our common stock as of September 30, 2006. Accordingly, as
permitted by the rules of the Securities and Exchange
Commission, we have calculated the value of unexercised
in-the-money
options at fiscal year end assuming that the fair market value
of our common stock as of September 30, 2006 was equal to
the assumed initial public offering price of
$ per share, less the aggregate
exercise price, multiplied by the number of shares subject to
the option, without taking into account any taxes that may be
payable in connection with the transaction.
Aggregated
Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values
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Number of Securities
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Value of Unexercised
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Underlying Unexercised
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In-the-Money
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Shares
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Options at
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Options at
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Acquired
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September 30,
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September 30,
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on
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Value
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2006
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2006
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Name
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Exercise (#)
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Realized
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Exercisable
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Unexercisable
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Exercisable
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Unexercisable
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Dr. Solomon S. Steiner
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$
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18,750
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131,250
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Dr. Roderike Pohl
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15,000
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Erik Steiner
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20,000
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Employment
Agreements
Pursuant to an employment agreement with Dr. Steiner,
effective December 30, 2004 and as amended and restated
March 20, 2007, we employ Dr. Steiner as our president
and chief executive officer. The agreement provides for a
three-year term and will continue for successive one-year terms
unless the agreement is terminated by either party on prior
written notice in accordance with the terms of the agreement. In
the event of a change of control as defined in the agreement,
the term is automatically extended for a period of two years
from the effective date of the change of control. The agreement
provides for an annual salary of $250,000 and a bonus in an
amount determined by our board of directors. Our board of
directors is also required to consider the grant of stock or
options to Dr. Steiner at least annually. In addition, SV
is entitled to receive a bonus of $250,000 on the first to occur
of (i) our stockholders equity exceeding
$20 million, (ii) any class of our securities
registered under the Securities Act, (iii) our entry into a
strategic partnership with an initial advance, payment or
investment of $5 million, (iv) our change in control,
as defined in our 2004 Stock Incentive Plan; (v) the
termination of Dr. Steiners employment by reason of
death or disability pursuant to the agreement, (vi) the
agreement not being renewed pursuant to its terms, or
(vii) December 30, 2009. We may terminate
Dr. Steiners employment with or without cause. If we
terminate Dr. Steiners employment without cause, or
if Dr. Steiner terminates his employment with us for good
reason, Dr. Steiner is entitled to receive salary and
benefits for the greater of two years or the balance of the term
of the agreement. Dr. Steiner is not entitled to severance
payments if we terminate him for cause or if he resigns without
good reason. Dr. Steiner, is bound by non-competition and
non-solicitation covenants that prohibit him from competing with
us (i) during the term of his employment and, if
Dr. Steiner is terminated by us for cause, for one year
after termination of employment or (ii) if his employment
is terminated by us without cause or at his election for good
reason, for so long as he is receiving compensation and
benefits. In addition, Dr. Steiner is bound by
confidentiality covenants for the term of his employment and for
five years after termination of employment, regardless of the
reason for termination.
Pursuant to an employment agreement with Dr. Pohl,
effective December 30, 2004 and as amended and restated
March 20, 2007, we employ Dr. Pohl as our vice
president, research. The agreement provides for a three-year
term and will continue for successive one-year terms unless the
agreement is terminated by either party on prior written notice
in accordance with the terms of the agreement. In the event of a
change of control as defined in
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the agreement, the term is automatically extended for a period
of two years from the effective date of the change of control.
The agreement provides for an annual salary of $150,000 and a
bonus in an amount determined by our board of directors. Our
board of directors is also required to consider the grant of
stock or options to Dr. Pohl at least annually. We may
terminate Dr. Pohls employment with or without cause.
If we terminate Dr. Pohls employment without cause,
or if Dr. Pohl terminates her employment with us for good
reason, Dr. Pohl is entitled to receive salary and benefits
for the greater of two years or the balance of the term of the
agreement. Dr. Pohl is not entitled to severance payments
if we terminate her for cause or if she resigns without good
reason. Dr. Pohl is bound by non-competition and
non-solicitation covenants that prohibit her from competing with
us (i) during the term of her employment and, if
Dr. Pohl is terminated by us for cause, for one year after
termination of employment or (ii) if her employment is
terminated by us without cause or at her election for good
reason, for so long as she is receiving compensation and
benefits. In addition, Dr. Pohl is bound by confidentiality
covenants for the term of her employment and for five years
after termination of employment, regardless of the reason for
termination.
Pursuant to an employment agreement with Mr. Reding,
effective November 1, 2006 and as amended and restated
March 20, 2007, we employ Mr. Reding as our chief
financial officer and treasurer. The agreement provides for a
one-year term and will continue for successive one-year terms
unless the agreement is terminated by either party on prior
written notice in accordance with the terms of the agreement. In
the event of a change of control as defined in the agreement,
the term is automatically extended for a period of two years
from the effective date of the change of control. The agreement
provides for an annual salary of $195,000 and a bonus of up to
60% of his annual salary in an amount determined by our board of
directors. The agreement provides for an initial grant of
options to purchase 200,000 shares of our common stock at
an exercise price of $4.00 per share, vesting pro rata over
four years. Our board of directors is also required to consider
the grant of stock or options to Mr. Reding at least
annually. We may terminate Mr. Redings employment
with or without cause. If we terminate Mr. Redings
employment without cause, or if Mr. Reding terminates his
employment with us for good reason, Mr. Reding is entitled
to receive salary and benefits for the greater of two years or
the balance of the term of the agreement. Mr. Reding is not
entitled to severance payments if we terminate him for cause or
if he resigns without good reason. Mr. Reding is bound by
non-competition and non-solicitation covenants that prohibit him
from competing with us (i) during the term of his
employment and, if Mr. Reding is terminated by us for
cause, for one year after termination of employment or
(ii) if his employment is terminated by us without cause or
at his election for good reason, for so long as he is receiving
compensation and benefits. In addition, Mr. Reding is bound
by confidentiality covenants for the term of his employment and
for two years after termination of employment, regardless of the
reason for termination.
Severance
Agreement
On January 23, 2007, we entered into an executive severance
agreement with Erik Steiner. The agreement provides for a
two-year term and will continue for successive one-year terms
unless the agreement is terminated by either party in accordance
with the terms of the agreement.
We may terminate Mr. Steiners employment at any time
with or without cause. In the event we terminate
Mr. Steiners employment without cause, as defined in
the agreement, or Mr. Steiner terminates his employment
with us for good reason, as defined in the agreement,
Mr. Steiner is entitled to the following:
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annual base salary earned through the termination date;
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in the event Mr. Steiner satisfied the performance criteria
for an annual bonus prior to termination, a portion of the
annual bonus based on the number of days worked during the year;
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if the performance criteria were not achievable, an average of
the bonus paid to Mr. Steiner over the last three fiscal years,
or the average annual bonus;
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any compensation previously deferred by Mr. Steiner and any
accrued paid time-off;
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annual base salary for a period of 18 months following the
date of termination, subject to Mr. Steiner entering into a
release agreement with us;
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health insurance and, under certain circumstances, life,
disability and other insurance benefits for a period of
18 months or until Mr. Steiner qualifies for similar
benefits from another employer;
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150% of the average annual bonus;
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acceleration of all outstanding options; and
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extension of the exercisability of options.
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Under the agreement, if we terminate Mr. Steiner with cause
or if Mr. Steiner terminates his employment with us without
good reason, Mr. Steiner is not entitled to severance
payments or other benefits.
Change of
Control Agreement
On January 23, 2007, we entered into a change of control
agreement with Erik Steiner. The agreement provides for a
two-year term and will continue for successive one-year terms
unless the agreement is terminated by either party in accordance
with the terms of the agreement.
Under the agreement, a change of control will be deemed to occur
upon:
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any transaction that results in a person or group acquiring
beneficial ownership of 50% or more of our voting stock, other
than by us, one of our employee benefit plans, Dr. Steiner
or any other entity in which Dr. Steiner holds a majority
of the beneficial interests;
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our merger, consolidation or reorganization in which our
stockholders immediately prior to the transaction hold less than
50% of the voting power of the surviving entity following the
transaction, subject to certain limitations;
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a transaction in which we sell all or substantially all of our
assets, subject to certain limitations;
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our liquidation; or
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any reorganization of our board of directors in which
Messrs. Steiner, Lieberman, Lorber, Weisman and Sekhri
cease for any reason to constitute a majority of our board of
directors.
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In the event we terminate Mr. Steiners employment
without cause, as defined in the agreement or Mr. Steiner
terminates his employment with us for good reason, as defined in
the agreement, after a change of control, Mr. Steiner is
entitled to receive the following:
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annual base salary earned through the termination date;
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in the event Mr. Steiner satisfied the performance criteria
for an annual bonus prior to termination, a portion of the
annual bonus based on the number of days worked during the year;
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if the performance criteria were not achievable, the average
annual bonus;
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any compensation previously deferred by Mr. Steiner and any
accrued paid time-off;
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annual base salary for a period of 18 months following the
date of termination, subject to Mr. Steiner entering into a
release agreement with us;
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health insurance and, under certain circumstances, life,
disability and other insurance benefits for a period of
18 months or until Mr. Steiner qualifies for similar
benefits from another employer;
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150% of the average annual bonus;
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acceleration of all outstanding options; and
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extension of the exercisability of options.
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Under the agreements, if we terminate Mr. Steiner for cause
or Mr. Steiner terminates his employment with us without
good reason, Mr. Steiner is not entitled to severance payments
or other benefits.
The executive severance and change of control agreements provide
that in the event Mr. Steiner becomes entitled to identical
benefits under both agreements, we will not duplicate coverage
and the executive will be only be entitled to such compensation
payments and other benefits as available under one of the
agreements.
71
Employee
Benefit Plans
2004
Stock Incentive Plan
Our 2004 Stock Incentive Plan was adopted by our board of
directors on October 1, 2004 and approved by our
stockholders on December 23, 2004. On March 20, 2007,
our board of directors adopted, and our stockholders approved,
an amendment and restatement of the 2004 Stock Incentive Plan to
become effective upon the closing of this offering. We refer to
this plan as the 2004 Stock Incentive Plan, both before and
after the effective date of the amendment and restatement. All
awards granted under the 2004 Stock Incentive Plan prior to the
closing of this offering will continue to be governed by the
terms of the 2004 Stock Incentive Plan prior to our amendment
and restatement. All awards granted under the 2004 Stock
Incentive Plan after the closing of this offering will be
governed by the terms of the 2004 Stock Incentive Plan as
amended and restated. The material differences between the terms
of options granted under the 2004 Stock Incentive Plan prior to
and following this offering are identified below. On
September 28, 2006, our board of directors adopted, and our
stockholders approved, an amendment to our 2004 Stock Incentive
Plan to increase the shares of common stock available for
issuance from 1,200,000 to 2,200,000.
Share reserve.
An aggregate of
4,700,000 shares of our common stock are reserved for
future issuance under the 2004 Stock Incentive Plan, effective
upon the closing of this offering. The unexercised portion of
any shares subject to options and stock awards that expire,
terminate or are repurchased under the 2004 Stock Incentive Plan
will again become available for the grant of awards under the
2004 Stock Incentive Plan.
As of March 15, 2007, options to purchase
1,652,697 shares of our common stock subject to the terms
of the 2004 Stock Incentive Plan prior to our amendment and
restatement were outstanding. The 2004 Stock Incentive Plan
provides for multiple forms of equity awards but to date only
options have been granted thereunder by our board of directors.
We may adjust the number of shares reserved for issuance under
the 2004 Stock Incentive Plan in the event of our
reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, stock dividend, stock split or
similar event.
Administration.
Our board of directors
administers the 2004 Stock Incentive Plan, or, upon its
delegation, a committee of two or more members of our board of
directors. In this discussion, we refer to our board of
directors and the committee as the administrator. The
administrator is authorized to take any action with respect to
the 2004 Stock Incentive Plan including: (i) adopt, amend,
rescind rules and regulations relating to the 2004 Stock
Incentive Plan, (ii) determine which persons meet the
eligibility requirements of the 2004 Stock Incentive Plan,
(iii) grant awards and determine the terms and conditions
of such awards, (iv) determine whether an adjustment is
required, and (v) interpret the 2004 Stock Incentive Plan
and the terms and conditions of awards granted under the 2004
Stock Incentive Plan. Pursuant to the 2004 Stock Incentive Plan
to become effective upon the closing of this offering, the
administrator may also (i) amend, terminate or suspend the
2004 Stock Incentive Plan, (ii) effect, with the consent of
any adversely affected option holder, (1) the reduction of
the exercise price of any outstanding option, (2) the
cancellation of any outstanding option under the 2004 Stock
Incentive Plan and the grant in substitution therefor of a new
option, restricted stock award, stock appreciation right,
phantom stock award, other stock award, cash and/or other
valuable consideration, or (3) any other action that is
treated as a repricing under generally accepted accounting
principles, (iii) exercise such powers and to perform such
acts as our board of directors deems necessary and
(iv) adopt such procedures and
sub-plans
to
permit participation in the 2004 Stock Incentive Plan by
employees who are foreign nationals or employed outside the
United States.
Types of awards, eligibility.
The 2004 Stock
Incentive Plan provides for the grant of incentive stock
options, or ISOs, and non-statutory stock options, or NSOs, both
of which are exercisable for common stock, although ISOs may
only be granted to employees, restricted stock awards, stock
appreciation rights, phantom stock awards and other stock
awards. Except as indicated below, all awards available under
the 2004 Stock Incentive Plan may generally be granted to our
employees, directors, officers and advisors and consultants. We
may not grant to any participant any awards for more than
120,000 shares of common stock in any fiscal year. The 2004
Stock Incentive Plan to become effective upon the closing of
this offering does not limit the number of awards to be granted
to a participant in a fiscal year.
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Stock options.
Stock options are granted under
the 2004 Stock Incentive Plan pursuant to a stock option
agreement. Generally, the exercise price for an ISO cannot be
less than 100% of the fair market value of the common stock
subject to the option on the date of grant. The exercise price
for a NSO cannot be less than 85% of the fair market value per
share of our common stock on the date of grant. The exercise
price of an ISO cannot be less than 110% of the fair market
value of the common stock with respect to an employee who owns
more than 10% of the total voting power of all classes of our
stock. Options granted under the 2004 Stock Incentive Plan vest
at the rate specified in the stock option agreement. In
addition, following this offering, our 2004 Stock Incentive Plan
will allow for the early exercise of options, as set forth in an
applicable stock option agreement. All shares of our common
stock acquired through options exercised early are subject to
repurchase by us. Options granted under the 2004 Stock Incentive
Plan prior to its amendment and restatement must vest at the
rate of at least 20% per year and may not be exercised
early in the case of an employee and one year after the date of
termination in the case of a non-employee director.
In general, the term of stock options granted under the 2004
Stock Incentive Plan may not exceed ten years, or five years
with respect to an employee who owns stock and possesses more
than 10% of the total combined voting power of all classes of
our stock. With respect to options granted under the 2004 Stock
Incentive Plan following this offering, unless the terms of an
optionees stock option agreement provide for earlier
termination, if an optionees service relationship with us,
or any affiliate of ours, terminates due to disability death or
retirement, the optionee or his or her beneficiary generally may
exercise any vested options after the date the service
relationship ends for up to twelve months in the event of
disability, up to eighteen months in the event of death and up
to twenty-four months in the event of selected retirements. If
an optionees relationship with us or any affiliate of ours
ceases for any reason other than disability or death, the
optionee may exercise any vested options for up to three months
after the termination of service, unless the terms of the stock
option agreement provide for earlier termination. However, in
the event the optionees service with us or an affiliate of
ours is terminated for cause (as defined in the 2004 Stock
Incentive Plan), all options held by the optionee under the 2004
Stock Incentive Plan will terminate in their entirety on the
date of termination.
With respect to options granted under the 2004 Stock Incentive
Plan prior to this offering, if an optionees service with
us is terminated due to disability or death, the optionee or his
or her beneficiary may exercise any vested options for up to six
months after the date of termination. The maximum number of
awards that may be issued as ISOs under the 2004 Stock Incentive
Plan to become effective upon the closing of this offering will
be 4,000,000 shares of common stock. If an optionees
service with us is terminated for any reason other than
disability or death, the optionee may exercise any vested
options for up to thirty days after the date of termination.
However, in the event an optionees service with us is
terminated for cause under the terms of the 2004 Stock Incentive
Plan, all options held by the optionee under the 2004 Stock
Incentive Plan will terminate on the date of termination.
Pursuant to the 2004 Stock Incentive Plan, each non-employee
director is automatically awarded an option to purchase
25,000 shares of our common stock upon joining our board of
directors and is automatically awarded an annual grant of
options to purchase 10,000 shares of our common stock on
December 1. Each of the options granted to non-employee
directors (i) must be exercisable at a price per share
equal to 100% of the fair market value of our common stock on
the date of grant, and (ii) will vest as to 50% of the
number of shares underlying the option on the first anniversary
of the date of grant and will vest as to the remaining 50% on
the second anniversary of the date of grant. Upon the closing of
this offering, options granted to non-employee directors will
instead be granted under our 2005 Non-Employee Directors
Stock Option Plan described below.
Acceptable consideration for the purchase of common stock issued
under the 2004 Stock Incentive Plan will be determined by our
board of directors and may include cash or common stock
previously owned by the optionee, or may be paid, subject to
applicable law, through a promissory note, the net exercise of
the option or other legal consideration or arrangements approved
by our Board of Directors.
Generally, options granted under the 2004 Stock Incentive Plan
may not be transferred other than by will or the laws of descent
and distribution unless the optionee holds an NSO and the
related option agreement provides otherwise. However, an
optionee may designate a beneficiary who may exercise the
options granted under the 2004 Stock Incentive Plan following
the optionees death.
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General federal income tax consequences.
When
we become subject to the requirements of Section 162(m) of
the Internal Revenue Code of 1986, which denies a deduction to
publicly held corporations for certain compensation paid to
specified employees in a taxable year to the extent that the
compensation exceeds $1,000,000, no person may be granted
options or other stock awards under the 2004 Stock Incentive
Plan covering more than 200,000 shares of our common stock in
any calendar year and no more than 50,000 shares of our
common stock in any calendar year effective upon the closing of
this offering.
Restricted stock awards.
Restricted stock
awards are purchased under the 2004 Stock Incentive Plan to
become effective after the closing of this offering through a
restricted stock award agreement. To the extent required by law,
the purchase price for restricted stock awards must be at least
the par value of the stock. The purchase price for a restricted
stock award may be payable in cash or through a deferred payment
or related arrangement, the recipients past services
performed for us, or any other form of legal consideration or
arrangement acceptable to our board of directors. Rights to
acquire shares under a restricted stock award may be transferred
only as set forth in the restricted stock award agreement.
Stock appreciation rights.
Stock appreciation
rights are granted under the 2004 Stock Incentive Plan to become
effective upon the closing of this offering pursuant to stock
appreciation rights agreements. The plan administrator
determines the term and strike price for a stock appreciation
right. Stock appreciation rights granted under the 2004 Stock
Incentive Plan vest at the rate specified in the stock
appreciation rights agreement. Unless a recipients stock
appreciation rights agreement provides otherwise, if a
recipients service relationship with us or any affiliate
of ours terminates for any reason, the recipient or his or her
beneficiary may exercise any vested stock appreciation rights
for up to three months after the date the service relationship
ends.
Phantom stock.
Phantom stock awards are
granted under the 2004 Stock Incentive Plan to become effective
upon the closing of this offering pursuant to phantom stock
award agreements. A phantom stock award may require the payment
of at least the par value of the option subject to the award.
Payment of any purchase price may be made in cash or common
stock previously owned by the recipient or a combination of the
two. Dividend equivalents may be credited in respect of shares
covered by a phantom stock award, as determined by our board of
directors. All phantom stock awards will be forfeited upon
termination of the holders service relationship with us or
any affiliate of ours to the extent not vested on that date.
Other stock awards.
The administrator may
grant other awards based in whole or in part by reference to our
common stock. The administrator will set the number of shares
under the award, the purchase price, if any, the timing of
exercise and vesting and any repurchase rights associated with
these awards.
Change in control.
Each outstanding award will
become exercisable in full in the event of (i) the
acquisition by any single entity or group of 50% or more of our
outstanding voting securities or (ii) our sale of all or
substantially all of our assets or a reorganization, merger,
business combination or consolidation, which results in at least
50% of our voting securities held by persons or entities who did
not hold at least 50% of such voting securities prior to such
transaction. The administrator may also accelerate the vesting
and exercisability of any awards granted under the 2004 Stock
Incentive Plan. Pursuant to the 2004 Stock Incentive Plan to
become effective upon the closing of this offering, a change in
control also includes, (i) a change in our board of
directors after March 20, 2007, such that the existing
members cease to constitute a majority of our board of
directors, (ii) the sale of 90% of our outstanding
securities or (iii) a merger, consolidation or similar
transaction where we are the surviving corporation following the
transaction but the shares of common stock outstanding preceding
the merger, consolidation or similar transaction are converted
or exchanged into other property by virtue of such transaction.
Amendment; Termination.
Our board of directors
has the authority to amend or terminate the 2004 Stock Incentive
Plan, except that without stockholder approval no such amendment
or termination may (i) deprive the recipient of any award
without such recipients consent or (ii) increase the
number of shares of common stock issued pursuant to ISOs or
change, alter or modify the employees or class of employees
eligible to receive ISOs. Our board of directors has the power
to amend, suspend or terminate the 2004 Stock Incentive Plan.
Pursuant to the 2004 Stock Incentive Plan to become effective
upon the closing of this offering, our board of directors may
amend the 2004 Stock Incentive Plan without stockholder approval
unless such approval is required by law.
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We are required to provide annual financial statements to
individuals who participated in the 2004 Stock Incentive Plan
prior to its amendment and restatement.
2005
Employee Stock Purchase Plan
Our 2005 Employee Stock Purchase Plan, or the Purchase Plan, was
adopted by our board of directors and approved by our
stockholders on March 20, 2007. The Purchase Plan will
become effective upon the closing of this offering. The Purchase
Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Code. Under the
Purchase Plan, eligible employees will be able to purchase
shares of our common stock at semi-annual intervals, with their
accumulated payroll deductions.
Share reserve.
An aggregate of
1,300,000 shares of our common stock are reserved for
issuance pursuant to purchase rights to be granted to our
eligible employees under the Purchase Plan. On the first day of
each calendar year, for a period of ten years beginning on
January 1, 2008, the share reserve will automatically
increase by the lesser of:
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100,000 shares; or
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1% of the total number of shares of our common stock outstanding
on that date.
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In no event shall the annual increase exceed 10% of the total
number of shares of our capital stock outstanding on
December 31 of the prior fiscal year.
Administration.
Our board of directors will
administer the Purchase Plan or delegate the duty to a committee
of one or more members of our board of directors. Subject to the
terms of the Purchase Plan, the plan administrator is authorized
to take any action with respect to the Purchase Plan including:
to determine grant dates for purchase rights, interpret the
Purchase Plan and purchase rights, amend the Purchase Plan and
establish rules for the administration of the Purchase Plan.
Eligibility.
Employees scheduled to work more
than 20 hours per week and more than five calendar months
per year may join an offering period on the start date of that
period. Employees who would immediately after the grant of any
purchase rights under the Purchase Plan own 5% or more of the
total combined voting power or value of our common stock or the
stock of any of our affiliates are not eligible to participate
in the Purchase Plan. An employee may purchase a maximum of
$25,000 in fair market value of our common stock in any calendar
year.
Payroll deductions.
An employee may purchase
shares of our common stock during offerings through payroll
deductions. The first offering will begin on the effective date
of this offering and last approximately six months, with one
purchase occurring at the end of the six-month period. Eligible
employees may contribute up to 15% of his or her earnings for
the period of that offering withheld for the purchase of common
stock under the Purchase Plan. The purchase price per share will
be equal to the lower of 85% of the fair market value per share
on the start date of the offering period in which the employee
is enrolled or 85% of the fair market value per share on the
semi-annual purchase date. The fair market value of shares of
our common stock will be determined in accordance with the terms
of the Purchase Plan. Employees may end their participation in
the offering at any time during the offering period, and
participation ends automatically on termination of employment.
Transferability.
Generally, a purchase right
granted under the Purchase Plan may not be transferred other
than by will or the laws of descent and distribution. However,
an employee may designate a beneficiary who may exercise the
purchase right following the employees death.
Corporate transactions.
In the event of our
sale of all or substantially all of our assets, the sale of at
least 90% of our outstanding securities or our merger, all
outstanding purchase rights under the Purchase Plan may be
assumed, continued or substituted for by the surviving or
acquiring entity. If the surviving or acquiring entity elects
not to assume, continue or substitute for these rights, then the
participants accumulated contributions will be used to
purchase shares of our common stock within ten days prior to the
corporate transaction and the purchase rights will terminate
immediately thereafter. Our board of directors will make
appropriate adjustments for a consolidation, reorganization,
reincorporation, stock split, stock dividend or
recapitalization, or any other increase or decrease in the
number of issued shares of common stock effected without receipt
of consideration by us.
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Amendment; Termination.
Our board of directors
may amend, suspend or terminate the Purchase Plan. However, no
amendment or termination of the Purchase Plan or outstanding
offering may adversely affect any outstanding purchase rights
other than an amendment, suspension or termination as a result
of an accounting treatment for the Purchase Plan that is
detrimental to our best interests.
2005
Non-Employee Directors Stock Option Plan
Our 2005 Non-Employee Directors Stock Option Plan, or the
Directors Plan, was adopted by our board of directors and
approved by our stockholders on March 20, 2007. The
Directors Plan will become effective upon the closing of
this offering.
Share reserve.
An aggregate of
500,000 shares of our common stock are reserved for
issuance under the Directors Plan. Shares subject to
options granted under the Directors Plan that expire or
otherwise terminate without being exercised will become
available for issuance under the Directors Plan. Shares
subject to options granted under the Directors Plan that
are withheld for the payment of taxes or shares that are
provided by a non-employee director to exercise an option, will
remain available for issuance under the Directors Plan.
Administration.
Our Board of Directors will
administer the Directors Plan or delegate its duty to a
committee of one or more members of our board of directors.
Subject to the terms of the Directors Plan, the plan
administrator is authorized to determine the provisions of each
option, interpret the Directors Plan and amend, terminate
or suspend the Directors Plan.
Automatic grants.
Upon the completion of this
offering, each of our non-employee directors will automatically
receive an initial option to purchase 25,000 shares of our
common stock. Each non-employee director who is first elected or
appointed to our board of directors after the closing of this
offering will receive an initial option to purchase
25,000 shares of our common stock on the date of his or her
election or appointment.
Annual grants.
In addition, each non-employee
director will receive an option to purchase 10,000 shares
of our common stock on an annual basis commencing with the first
annual meeting of stockholders held after the completion of this
offering. However, in the event a non-employee director has not
served since the date of the preceding annual meeting of our
stockholders, that director will receive an annual grant that
has been reduced pro rata for each full quarter prior to the
date of grant during which such person did not serve as a
non-employee director.
Terms.
The term of the stock options granted
under the Directors Plan may not exceed 10 years and
the exercise price for the options cannot be less than 100% of
the fair market value per share on the date of grant. The fair
market value per share will be determined in accordance with the
terms of the Directors Plan. All option grants under the
Directors Plan vest in full on the date of grant. A
non-employee director who has a service relationship with us or
any of our affiliates and does not continue as an employee,
director or consultant of either us or one of our affiliates,
may exercise options for the term provided in the option
agreement to the extent the options were exercisable on the date
of termination of the service relationship.
Transferability.
Generally, an option granted
under the Directors Plan may not be transferred other than
by will or by the laws of descent and distribution. However, an
optionee may designate a beneficiary who may exercise the option
following the optionees death.
Corporate transactions.
In the event of our
sale of all or substantially all of our assets, sale of at least
90% of our outstanding securities, or our merger, each a
corporate transaction, all outstanding options granted under the
Directors Plan may be assumed, continued or substituted
for by any surviving entity. If the surviving or acquiring
entity elects not to assume, continue or substitute for these
options, the options will be terminated if not exercised prior
to the effective date of the corporate transaction.
Our board of directors will make appropriate adjustments for a
consolidation, reorganization, reincorporation, stock split,
stock dividend, combination or recapitalization of the stock, or
any other increase or decrease in the number of issued shares of
common stock effected without receipt of consideration by us.
76
Amendment; Termination.
Our board of directors
may amend, suspend or terminate the Directors Plan.
However, no amendment, suspension or termination may adversely
affect a non-employee directors outstanding options
without the non-employee directors written consent.
401(k)
Plan
Effective January 1, 2006, we sponsored a 401(k) plan that
is a defined contribution plan. Employees may make pre-tax
contributions to the 401(k) plan each year of up to the
statutorily prescribed annual limit, which is $15,500 for 2007
for participants who are under age 50, and $20,000 for
participants who are age 50 and above during 2007. Employee
contributions are held in trust as required by law and invested
by the plans trustee according to the employees
instructions. Under our 401(k) plan, we may also make
discretionary contributions, subject to established limits and a
vesting schedule. As of March 15, 2007, we had not elected
to make any contributions to the 401(k) plan. The 401(k) plan is
intended to qualify under Section 401(a) of the Code so
that contributions to the 401(k) plan, and income earned on
these contributions, are not taxable to participants until
withdrawn or distributed from the plan.
Limitations
of Liability and Indemnification of Officers and
Directors
Our second amended and restated certificate of incorporation
limits the personal liability of directors for breach of
fiduciary duty to the maximum extent permitted by the Delaware
General Corporation Law, or the DGCL. Our amended and restated
certificate of incorporation provides that no director will have
personal liability to us or to our stockholders for monetary
damages for breach of fiduciary duty or other duty as a
director. However, these provisions do not eliminate or limit
the liability of any of our directors:
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for any breach of their duty of loyalty to us or our
stockholders;
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for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
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for any act related to unlawful stock repurchases, redemptions
or other distributions or payment of dividends; or
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for any transaction from which the director derived an improper
personal benefit.
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Any amendment to or repeal of these provisions will not
eliminate or reduce the effect of these provisions in respect of
any act or failure to act, or any cause of action, suit or claim
that would accrue or arise prior to any amendment or repeal or
adoption of an inconsistent provision.
Our amended and restated bylaws provide that we shall indemnify
our directors and officers and advance expenses, including
attorneys fees, to our directors and officers in
connection with a legal proceeding, subject to limited
exceptions.
We have entered into indemnification agreements with each of our
directors and executive officers, in addition to the
indemnification provided for in our amended and restated
certificate of incorporation and bylaws.
77
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since our incorporation in December 2003, we have engaged in the
following transactions with our directors, executive officers
and holders of more than 5% of our voting securities and
affiliates of our directors, executive officers and holders of
more than 5% of our voting securities:
Issuance
of Series A Convertible Preferred Stock
On March 17, 2005 we issued an aggregate of
20,000 shares of our Series A convertible preferred
stock at a price of $5.00 per share to the following
executive officer:
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Number of
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Shares of Series A
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Convertible
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Aggregate
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Name
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Preferred Stock
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Purchase Price
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R. Timmis Ware(1)
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20,000
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$
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100,000
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(1) Shares issued to Catherine & Co., of
which Mr. Ware is one of the two partners.
Upon the closing of this offering, these shares of our
Series A convertible preferred stock are automatically
convertible into an aggregate of 100,000 shares of our
common stock.
Bridge
Financing
Between February and April 2006 we issued and sold for $25,000,
a 7% note in the principal amount of $25,000 and a warrant
to purchase our common stock, which we refer to as a unit, to
the executive officers listed in the table below for aggregate
consideration of $500,000. We refer to this transaction as the
bridge financing. On July 19, 2006, these units were repaid
with an aggregate of 158,730 shares of Series B
convertible preferred stock and warrants to purchase an
aggregate of 120,616 shares of our common stock. The
following table sets forth the number of units sold to our
executive officers and directors, and the number of shares of
Series B convertible preferred stock and warrants into
which they were repaid upon the closing of the issuance of the
Series B convertible preferred stock:
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Number of
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Shares of
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Series B
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Convertible
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Common Stock
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Preferred Stock
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Warrants
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Issued in
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Issued in
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Number
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Repayment
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Repayment of the
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Aggregate
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Name
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of Units
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of the Units
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Units
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Purchase Price
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Solomon Steiner
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12
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95,238
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72,370
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$
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300,000
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Robert Feldstein
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4
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31,746
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24,123
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100,000
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R. Timmis Ware(1)
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4
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31,746
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24,123
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100,000
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(1) Shares issued to Catherine & Co., of
which Mr. Ware is one of the two partners.
Upon the closing of this offering, these shares of Series B
convertible preferred stock are automatically convertible into
an aggregate of 158,730 shares of common stock.
78
Issuance
of Series B Convertible Preferred Stock
On July 19, 2006, we issued and sold an aggregate of
5,114,214 shares of our Series B convertible preferred
stock and warrants to purchase an aggregate of
3,886,219 shares of our common stock for an aggregate
consideration of $20,150,000 to the following directors and
holders of more than five percent of our securities:
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Number of
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Shares of
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Series B
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Warrants
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Convertible
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to Purchase
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Aggregate
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Name
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Preferred Stock
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Common Stock
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Purchase Price
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Great Point Partners I,
L.P.(1)
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1,776,650
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1,350,051
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$
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7,000,000.00
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Vivo Ventures Fund V, L.P.(2)
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1,505,178
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1,155,334
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5,930,400.00
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Vivo Ventures V Affiliates Fund,
L.P.(2)(3)
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17,665
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1,853
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69,600.00
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Caduceus Private Investments II,
LP(4)
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1,185,717
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901,024
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4,671,724.98
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Caduceus Private
Investments II (QP), LP(4)
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443,957
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337,378
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1,749,190.58
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UBS Juniper Crossover Fund,
L.L.C.(4)
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146,976
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111,649
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579,085.44
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Solomon Steiner
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38,071
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28,930
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150,000.00
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(1)
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Mr. Kroin, one our directors, is a co-founder and managing
director of Great Point Partners I, L.P. and may be deemed
to beneficially own these shares.
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(2)
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Dr. Cha, one of our directors, is a managing partner of
Vivo Ventures Fund V, L.P. and may be deemed to beneficially own
these shares.
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(3)
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Affiliate of Vivo Ventures Fund V, L.P.
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(4)
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Affiliate of OrbiMed Advisors, LLC. Mr. Wertheimer, one of
our directors, is a principal of OrbiMed Advisors, LLC and may
be deemed to beneficially own these shares.
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Placement
Agent Compensation
In connection with the issuance of our Series A convertible
preferred stock, units and Series B convertible preferred
stock, we retained McGinn Smith & Company, Inc., or
MSI, to serve as our placement agent. Scott Weisman, one of our
directors, is a Managing Director Capital Markets of
MSI. The following table sets forth the total amount of cash
compensation paid to MSI and the number of warrants issued to
MSI and Mr. Weisman as compensation for MSIs services:
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Warrants
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Warrants
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to Purchase
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to Purchase
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Series A
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Series B
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Warrants
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Convertible
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Convertible
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to Purchase
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Preferred
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Preferred
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Common
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Name
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Stock
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Stock
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Stock
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Cash
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McGinn Smith & Company,
Inc.
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22,360
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59,650
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45,328
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$
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699,500
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(1)
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Scott Weisman
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33,540
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89,475
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67,991
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(1)
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Consists of $279,500 paid in connection with the Series A
convertible preferred stock financing, $70,000 paid in
connection with the Bridge financing and $350,000 paid in
connection with the Series B convertible preferred stock
financing. Does not include $15,000 paid as reimbursement for
expenses incurred in connection with the Series A
convertible preferred stock financing.
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Registration
Rights
We have granted registration rights, subject to certain
limitations and restrictions, to Great Point Partners I,
L.P. and entities affiliated with Vivo Venture and OrbiMed
Advisors, LLC, holders of 5% or more of our voting
79
securities, and to Solomon Steiner, Andreas Pfützner, R.
Timmis Ware, Scott Weisman and Robert Feldstein, who are our
executive officers and directors. See Description of
Capital Stock Registration Rights.
Consulting
Services
On April 1, 2005, we entered into a consulting agreement
with Dr. Andreas Pfützner, our chief medical officer,
to provide consulting services to us in connection with the
research and development of our product candidates. The initial
term of the agreement ended on December 31, 2006 and
automatically renewed for successive one-year terms unless the
agreement is terminated by either party on prior written notice
in accordance with the terms of the agreement. The agreement
provides for compensation of $2,000 for each full business day
Dr. Pfützner devoted to the performance of his
services. Dr. Pfützner is bound by non-competition and
non-solicitation covenants that prohibit him from competing with
us during the term of the agreement and for one year after
termination of the agreement. In the year ended
September 30, 2006, we paid Dr. Pfützner an
aggregate of $67,906 as compensation for his services.
Director
Compensation
Please see Management Director
Compensation for a discussion of options granted and other
compensation to our non-employee directors.
Executive
Compensation and Employment Agreements
Please see Management Executive
Compensation and Stock Options for
additional information on compensation of our executive
officers. Information regarding employment agreements with our
executive officers is set forth under
Management Employment Agreements.
Information regarding a severance agreement with
Erik Steiner is set forth under
Management Severance Agreement.
Information regarding a change of control agreement with
Mr. Steiner is set forth under Management
Change of Control Agreement.
80
PRINCIPAL
STOCKHOLDERS
The following table sets forth information regarding beneficial
ownership of our capital stock as of March 15, 2007, as
adjusted to reflect the sale of shares of our common stock in
this offering, by the following: (a) each person known by
us to be the beneficial owner of 5% or more of any class of our
voting securities; (b) each of our directors and named
executive officers; and (c) all of our directors and
executive officers as a group.
The column entitled Percentage of Shares Beneficially
Owned Before Offering is based on a total of
16,618,242 shares of our common stock outstanding on
March 15, 2007, assuming conversion of all outstanding
shares of our preferred stock into common stock upon the closing
of this offering. The column entitled Percentage of
Shares Beneficially Owned After Offering
is based
on shares
of common stock to be outstanding after this offering, including
the shares
that we are selling in this offering, but not including any
shares issuable upon exercise of warrants or options.
For purposes of the table below, we deem shares of common stock
subject to options or warrants that are currently exercisable or
exercisable within 60 days of March 15, 2007 to be
outstanding and to be beneficially owned by the person holding
the options or warrants for the purpose of computing the
percentage ownership of that person but we do not treat them as
outstanding for the purpose of computing the percentage
ownership of any other person. Except as otherwise noted, the
persons or entities in this table have sole voting and investing
power with respect to all of the shares of common stock
beneficially owned by them, subject to community property laws,
where applicable.
81
The information below also does not reflect any potential
participation in our directed share program by such persons or
their affiliates. See Underwriters Directed
Share Program. Unless otherwise indicated, the address for
each of the stockholders in the table below is c/o Biodel
Inc., 6 Christopher Columbus Avenue, Danbury, Connecticut 06810.
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Percentage of
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Percentage of
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Number of
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Shares
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Shares
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Shares
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Beneficially
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Beneficially
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Beneficially
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Owned
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Owned
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Name of Beneficial
Owner
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Owned
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Before Offering
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After Offering
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5% Stockholders
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Great Point Partners I,
L.P.
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3,126,701
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(1)
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17.4
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%
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165 Mason Street
Greenwich, CT 06824
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Entities affiliated with OrbiMed
Advisors, LLC
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3,126,701
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(2)
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17.4
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%
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767 Third Avenue
New York, NY 10017
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Entities affiliated with Vivo
Ventures
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2,680,030
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(3)
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15.0
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%
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575 High Street
Suite 201
Palo Alto, CA 94301
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Executive Officers and
Directors
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Dr. Solomon S. Steiner
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6,129,543
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(4)
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36.7
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%
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David Kroin
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3,127,151
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(5)
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17.4
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%
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Dr. Samuel Wertheimer
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3,127,151
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(6)
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17.4
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%
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Dr. Albert Cha
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2,680,480
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(7)
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15.0
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%
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Scott A. Weisman
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872,851
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(8)
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5.2
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%
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Erik Steiner
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349,628
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(9)
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2.1
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%
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Dr. Roderike Pohl
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348,378
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(10)
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2.1
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%
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Dr. Ira Lieberman
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60,400
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(11)
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*
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Dr. Daniel Lorber
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39,500
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(12)
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*
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Dr. Charles Sanders
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30,225
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(13)
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*
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Paul Sekhri
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12,500
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(14)
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*
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All executive officers and
directors as a group (15 individuals)
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17,065,932
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(15)
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81.4
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%
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*
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Less than 1% of outstanding shares.
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(1)
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Includes a warrant to purchase
1,350,051 shares of our common stock.
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(2)
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Consists of
(i) 1,185,717 shares of our common stock and a warrant
to purchase 901,024 shares of our common stock held by
Caduceus Private Investments II LP,
(ii) 443,957 shares of our common stock and a warrant
to purchase 337,378 shares of our common stock held by
Caduceus Private Investments II (QP), and (iii) LP,
146,976 shares of common stock and a warrant to purchase
111,649 shares of our common stock held by UBS Juniper
Crossover Fund, L.L.C.
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(3)
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Consists of
(i) 1,505,178 shares of our common stock and a warrant
to purchase 1,155,334 shares of our common stock held by
Vivo Ventures Fund V, L.P. and (ii) 17,665 shares
of our common stock and a warrant to purchase 1,853 shares
of our common stock held by Vivo Ventures V Affiliates Fund, L.P.
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(4)
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Consists of
(i) 5,971,993 shares of our common stock owned by SV,
of which Dr. Steiner is the sole managing member,
(ii) warrants to purchase 101,300 shares of our common
stock, and (iii) options to purchase 56,250 shares of
our common stock which are exercisable within 60 days of
March 15, 2007. Dr. Steiner and his wife jointly own
52% of SV with the balance split equally among their four adult
children, including Erik Steiner.
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(5)
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Includes (i) 1,776,650 shares
of our common stock and (ii) a warrant to purchase
1,350,051 shares of our common stock held by Great Point
Partners I, L.P. Mr. Kroin is a co-founder and
managing director of Great Point Partners I, L.P. and may
be deemed to beneficially own these shares.
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82
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(6)
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Includes
(i) 1,185,717 shares of our common stock and a warrant
to purchase 901,024 shares of our common stock held by
Caduceus Private Investments II LP,
(ii) 443,957 shares of our common stock and a warrant
to purchase 337,378 shares of our common stock held by
Caduceus Private Investments II (QP), LP, and
(iii) 146,976 shares of common stock and a warrant to
purchase 111,649 shares of our common stock held by UBS
Juniper Crossover Fund, L.L.C. Mr. Wertheimer is a
principal of OrbiMed Advisors, LLC and may be deemed to
beneficially own these shares.
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(7)
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Includes
(i) 1,505,178 shares of our common stock and a warrant
to purchase 1,155,334 shares of our common stock held by
Vivo Ventures Fund V, L.P. and (ii) 17,665 shares
of our common stock and a warrant to purchase 1,853 shares
of our common stock held by Vivo Ventures V Affiliates Fund,
L.P. Dr. Cha is a managing partner of Vivo Ventures Fund V,
L.P. and may be deemed to beneficially own these shares.
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(8)
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Includes warrants to purchase
337,228 shares of common stock, and options to purchase
38,750 shares of our common stock which are exercisable
within 60 days of March 15, 2007.
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(9)
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Includes options to purchase
5,000 shares of our common stock which are exercisable
within 60 days of March 15, 2007.
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(10)
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|
Includes options to purchase
3,750 shares of our common stock which are exercisable
within 60 days of March 15, 2007.
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(11)
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Includes options to purchase
30,000 shares of our common stock which are exercisable
within 60 days of March 15, 2007.
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(12)
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Includes options to purchase
35,000 shares of our common stock which are exercisable
within 60 days of March 15, 2007.
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(13)
|
|
Includes options to purchase
30,000 shares of our common stock which are exercisable
within 60 days of March 15, 2007.
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(14)
|
|
Includes options to purchase
12,500 shares of our common stock which are exercisable
within 60 days of March 15, 2007.
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(15)
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Includes warrants to purchase
4,295,817 shares of common stock, and options to purchase
299,375 shares of our common stock which are exercisable
within 60 days of March 15, 2007.
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83
DESCRIPTION
OF CAPITAL STOCK
The following descriptions of our capital stock and provisions
of our amended and restated certificate of incorporation and
bylaws are summaries and are qualified by reference to our
second amended and restated certificate of incorporation and
amended and restated bylaws. We will file copies of these
documents with the Securities and Exchange Commission as
exhibits to our registration statement of which this prospectus
forms a part. The description of the capital stock reflects
changes to our capital structure that will occur upon the
closing of this offering.
Upon the closing of this offering, our authorized capital stock
will consist of 100,000,000 shares of common stock, par
value $0.01 per share, and 50,000,000 shares of
preferred stock, par value $0.01 per share, all of which
preferred stock will be undesignated.
As of March 15, 2007, we had issued and outstanding:
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7,575,063 shares of common stock outstanding held by 18
stockholders of record;
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569,000 shares of Series A convertible preferred stock
that are convertible into 2,845,000 shares of common
stock; and
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6,198,179 shares of Series B convertible preferred
stock that are convertible into 6,198,179 shares of common
stock;
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As of March 15, 2007, we also had outstanding:
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options to purchase 1,652,697 shares of common stock at a
weighted average exercise price of $4.13 per share;
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warrants to purchase an aggregate of 4,823,224 shares of
common stock at an exercise price of $3.94 per share;
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warrants to purchase an aggregate of 149,125 shares of
Series B convertible preferred stock at an exercise price
of $3.94 per share; and
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warrants to purchase an aggregate of 55,900 shares of
Series A convertible preferred stock at an exercise price
of $5.00 per share.
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Upon the closing of this offering, all of the outstanding shares
of our preferred stock will automatically convert into a total
of 9,043,179 shares of our common stock. In addition, upon
the closing of this offering and after giving effect to the
conversion of our preferred stock into common stock, warrants to
purchase an aggregate of 5,251,849 shares of common stock
at a weighted average exercise price of $3.78 per share
will remain outstanding.
Common
Stock
Each holder of our common stock is entitled to one vote for each
share on all matters submitted to a vote of our stockholders.
Holders of our common stock do not have cumulative voting
rights. An election of directors by our stockholders shall be
determined by a plurality of the votes cast by the stockholders
entitled to vote on the election. Holders of common stock are
entitled to receive proportionately any dividends that may be
declared by our board of directors, subject to any preferential
dividend rights of outstanding preferred stock.
If we liquidate, dissolve or wind up, the holders of our common
stock are entitled to share ratably in all assets legally
available for distribution to our stockholders after the payment
of all of our debts and other liabilities and the satisfaction
of any liquidation preference granted to the holders of any
outstanding shares of our preferred stock. Holders of common
stock have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of
common stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
84
Preferred
Stock
Under the terms of our amended and restated certificate of
incorporation, our board of directors is authorized to issue
shares of preferred stock in one or more series without
stockholder approval. Our board of directors has the discretion
to determine the rights, preferences, privileges and
restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue
preferred stock and determine its rights and preferences is to
eliminate delays associated with a stockholder vote on specific
issuances. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions, future
financings and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire, or
could discourage a third party from seeking to acquire, a
majority of our outstanding voting stock. Upon the closing of
this offering, there will be no shares of preferred stock
outstanding, and we have no present plans to issue any shares of
preferred stock.
Warrants
As of March 15, 2007, we had outstanding warrants to
purchase an aggregate of 4,823,224 shares of common stock,
with an exercise price of $3.94 per share, warrants to purchase
55,900 shares of Series A convertible preferred stock,
with an exercise price of $5.00 per share and warrants to
purchase 149,125 shares of Series B convertible
preferred stock, with an exercise price of $3.94 per share,
all of which were exercisable as of that date. Each warrant
contains provisions for the adjustment of the exercise price and
the number of shares issuable upon the exercise of the warrant
in the event we declare any stock dividends or effect any stock
split, reclassification or consolidation of our common stock.
The warrants also contain a provision that provides for an
adjustment to the exercise price and number of shares issuable
in the event that we issue certain securities for a per share
price less than a specified price. Upon the closing of this
offering, the warrants to purchase 55,900 shares of
Series A convertible preferred stock will automatically
convert into warrants to purchase 279,500 shares of common
stock at an exercise price of $1.00 per share and the warrants
to purchase 149,125 shares of Series B convertible
preferred stock will automatically convert into warrants to
purchase 149,125 shares of common stock at an exercise
price of $3.94 per share. Accordingly, upon the closing of this
offering, we will have outstanding warrants to purchase an
aggregate of 5,251,849 shares of our common stock at a weighted
average exercise price of $3.78 per share.
Stock
Options
As of March 15, 2007, options to purchase an aggregate of
1,652,697 shares of our common stock were outstanding under
the 2004 Stock Incentive Plan and an additional
472,303 shares of our common stock are reserved for future
grant of options under our 2004 Stock Incentive Plan. In
February 2006, our Board of Directors adopted, and our
stockholders subsequently approved, effective upon completion of
this offering, our 2005 Employee Stock Purchase Plan, our 2005
Non-Employee Directors Stock Option Plan and an increase
in the number of shares available for grant under our 2004 Stock
Incentive Plan to 4,700,000. For additional information
regarding our 2004 Stock Incentive Plan, 2005 Employee Stock
Purchase Plan and 2005
Non-Employee
Directors Stock Option Plan, see
Management Employee Benefit Plans.
Registration
Rights
Pursuant to a subscription and registration rights agreement
with the holders of our Series A convertible preferred
stock and an amended and restated registration rights agreement
with certain holders of our Series B convertible preferred
stock and pursuant to outstanding warrants to purchase shares of
our Series B convertible preferred stock, Series A
convertible preferred stock and common stock, holders of an
aggregate
of shares
of our common stock or their transferees may be entitled to
rights with respect to registration of these shares under the
Securities Act, subject to certain limitations and restrictions.
Substantially all of such holders have agreed to waive these
rights with respect to this offering and at any time that such
holders shares may be sold or transferred without
registration under Rule 144(k).
85
Demand
Registration Rights
At any time beginning after six months following the closing of
this offering, subject to specified limitations, the holders a
majority of the shares of Series A convertible preferred
stock may require us to, on not more than one occasion, and
holders of at least 50% of our Series B convertible
preferred stock may require us to, on not more than two
occasions, file a registration statement under the Securities
Act covering all or part of the common stock owned by such
stockholders.
Incidental
Registration Rights
Subject to certain limitations, these stockholders are entitled
to notice and to include their shares of common stock in any
registration of our common stock initiated either for our own
account or for the account of our other securityholders.
Limitations
and Expenses
Other than in a demand registration, with specified exceptions,
a holders right to include shares in a registration is
subject to the right of the underwriters to limit the number of
shares included in the offering. All fees, costs and expenses of
any demand registrations and incidental registrations will be
paid by us, and all selling expenses, including underwriting
discounts and commissions, will be paid by the holders of the
securities being registered.
Anti-Takeover
Effects of Provisions of Delaware Law and Our Certificate of
Incorporation and Bylaws
Delaware
Law
We are subject to Section 203 of the DGCL. Subject to
certain exceptions, Section 203 prohibits a publicly held
Delaware corporation from engaging in a business
combination with an interested stockholder for
three years following the date the person became an interested
stockholder, unless the interested stockholder attained such
status with the approval of our board of directors or unless the
business combination is approved in a prescribed manner.
Section 203 of the DGCL generally defines a business
combination to include, among other things, any merger or
consolidation involving us and the interested stockholder and
the sale of more than 10% of our assets.
In general, an interested stockholder is any entity
or person beneficially owning 15% or more of our voting stock or
any entity or person associated or affiliated with or
controlling or controlled by such entity or person. The
restrictions contained in Section 203 are not applicable to
any of our existing stockholders that will own 15% or more of
our outstanding voting stock upon the closing of this offering.
Staggered
Board
Our second amended and restated certificate of incorporation and
our amended and restated bylaws divide our board of directors
into three classes with staggered three-year terms. In addition,
our second amended and restated certificate of incorporation and
our amended and restated bylaws provide that directors may be
removed only for cause and only by the affirmative vote of the
holders of 75% of our shares of capital stock present in person
or by proxy and entitled to vote. Under our second amended and
restated certificate of incorporation and amended and restated
bylaws, any vacancy on our board of directors, including a
vacancy resulting from an enlargement of our board of directors,
may be filled only by vote of a majority of our directors then
in office. Furthermore, our second amended and restated
certificate of incorporation provides that the authorized number
of directors may be changed only by the resolution of our board
of directors. The classification of our board of directors and
the limitations on the ability of our stockholders to remove
directors, change the authorized number of directors and fill
vacancies could make it more difficult for a third party to
acquire, or discourage a third party from seeking to acquire,
control of our company.
86
Stockholder
Action; Special Meeting of Stockholders; Advance Notice
Requirements for Stockholder Proposals and Director
Nominations
Our second amended and restated certificate of incorporation and
our amended and restated bylaws provide that any action required
or permitted to be taken by our stockholders at an annual
meeting or special meeting of stockholders may only be taken if
it is properly brought before such meeting and may not be taken
by written action in lieu of a meeting. Our second amended and
restated certificate of incorporation and our amended and
restated bylaws also provide that, except as otherwise required
by law, special meetings of the stockholders can only be called
by our chairman of the board, our president or chief executive
officer or our board of directors. In addition, our amended and
restated bylaws establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting of
stockholders, including proposed nominations of candidates for
election to the board of directors. Stockholders at an annual
meeting may only consider proposals or nominations specified in
the notice of meeting or brought before the meeting by or at the
direction of the board of directors, or by a stockholder of
record on the record date for the meeting, who is entitled to
vote at the meeting and who has delivered timely written notice
in proper form to our secretary of the stockholders
intention to bring such business before the meeting. These
provisions could have the effect of delaying until the next
stockholder meeting stockholder actions that are favored by the
holders of a majority of our outstanding voting securities.
Super-Majority
Voting
The DGCL provides generally that the affirmative vote of a
majority of the shares entitled to vote on any matter is
required to amend a corporations certificate of
incorporation or bylaws, unless a corporations certificate
of incorporation or bylaws, as the case may be, requires a
greater percentage. Our amended and restated bylaws may be
amended or repealed by a majority vote of our board of directors
or the affirmative vote of the holders of at least 75% of the
votes that all our stockholders would be entitled to cast in any
annual election of directors. In addition, the affirmative vote
of the holders of at least 75% of the votes that all our
stockholders would be entitled to cast in any election of
directors is required to amend or repeal or to adopt any
provisions inconsistent with any of the provisions of our second
amended and restated certificate of incorporation described
above.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
expected to be Continental Stock Transfer & Trust
Company.
NASDAQ
Global Market Listing
There is currently no established public trading market for our
common stock. We have not yet applied to list our common stock
on the Nasdaq Global Market under the trading symbol
BIOD.
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SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no market for our common
stock, and a liquid trading market for our common stock may not
develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued
upon exercise of outstanding options and warrants or in the
public market after this offering, or the anticipation of those
sales, could adversely affect market prices prevailing from time
to time and could impair our ability to raise capital through
sales of our equity securities.
Upon the closing of this offering, we will have
outstanding shares
of common stock, after giving effect to the issuance
of shares
of common stock in this offering and the conversion of all
outstanding shares of our preferred stock into an aggregate of
9,043,179 shares of our common stock and assuming no
exercise of the underwriters over-allotment option and no
exercise of options or warrants outstanding as of March 15,
2007.
Of the shares to be outstanding immediately after the closing of
this offering,
the shares
to be sold in this offering will be freely tradable without
restriction under the Securities Act unless purchased by our
affiliates, as that term is defined in Rule 144
under the Securities Act. The
remaining shares
of common stock are restricted securities under
Rule 144. Substantially all of these restricted securities
will be subject to the
180-day
lock-up
period described below.
After the
180-day
lock-up
period, these restricted securities may be sold in the public
market only if registered or if they qualify for an exemption
from registration under Rule 144 or 701 under the
Securities Act, which exemptions are summarized below.
Rule 144
In general, under Rule 144, beginning 90 days after
the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year, including the
holding period of any prior owner other than one of our
affiliates, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding,
which will equal
approximately shares
immediately after the offering; and
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the average weekly trading volume of our common stock on the
Nasdaq Global Market during the four calendar weeks preceding
the date of filing of a Notice of Proposed Sale of Securities
Pursuant to Rule 144 with respect to the sale.
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Sales under Rule 144 are also subject to requirements
regarding the manner of sale, notice and the availability of
current public information about us. Upon expiration of the
180-day
lock-up
period described
below, shares
of our common stock will be eligible for sale under
Rule 144, excluding shares eligible for resale under
Rule 144(k) as described below. We cannot estimate the
number of shares of common stock that our existing stockholders
will elect to sell under Rule 144.
Rule 144(k)
Subject to the
lock-up
agreements described below, shares of our common stock eligible
for sale under Rule 144(k) may be sold immediately upon the
closing of this offering. In general, under Rule 144(k), a
person may sell shares of common stock acquired from us
immediately upon the closing of this offering, without regard to
manner of sale, the availability of public information about us
or volume limitations, if:
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the person is not our affiliate and has not been our affiliate
at any time during the three months preceding the sale; and
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the person has beneficially owned the shares proposed to be sold
for at least two years, including the holding period of any
prior owner other than our affiliates.
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Upon the expiration of the
180-day
lock-up
period described below,
approximately shares
of common stock will be eligible for sale under Rule 144(k).
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Rule 701
Our directors, officers, other employees and consultants who
acquired or will acquire shares of our common stock upon
exercise of options granted under our 2004 Stock Incentive Plan
prior to this offering are entitled to rely on Rule 701
under the Securities Act which permits such persons to resell
those shares in reliance on Rule 144 beginning 90 days
after the effective date of this prospectus but without
compliance with the various restrictions, including holding
period, contained in Rule 144. Subject to the
lock-up
agreements described below,
approximately shares
of our common stock will be eligible for sale in accordance with
Rule 701.
Lock-up
Agreements
We, our directors and executive officers, substantially all of
our existing stockholders and our option holders have entered
into
lock-up
agreements with the underwriters. Under these agreements,
subject to exceptions, we may not issue any new shares of common
stock, and those holders of stock and options may not, directly
or indirectly, offer, sell, contract to sell, pledge or
otherwise dispose of or hedge any common stock or securities
convertible into or exchangeable for shares of common stock, or
publicly announce the intention to do any of the foregoing,
without the prior written consent of Morgan Stanley & Co.
Incorporated for a period of 180 days from the date of this
prospectus. This consent may be given at any time without public
notice. In addition, during this 180 day period, we have
also agreed not to file any registration statement for, and each
party to a
lock-up
agreement has agreed not to make any demand for, or exercise any
right of, the registration of, any shares of common stock or any
securities convertible into or exercisable or exchangeable for
common stock or the filing of a prospectus with any Canadian
securities regulatory authority without the prior written
consent of Morgan Stanley & Co. Incorporated.
Registration
Rights