UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
September 30, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission File Number
001-33451
BIODEL INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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90-0136863
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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100 Saw Mill Road
Danbury, CT
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06810
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(Address of Principal Executive
Offices)
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(Zip Code)
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Registrants telephone number, including area code
(203)
796-5000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.01 per share
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The NASDAQ Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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No
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
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No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405) is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in Rule 12 b-2 of the Exchange Act.
Large Accelerated
Filer
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Accelerated
Filer
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Non-Accelerated
Filer
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
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No
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The aggregate market value of the common stock of the registrant
held by nonaffiliates as of November 30, 2007, was
$167.5 million based on the price at which the common stock
was last sold on the NASDAQ Global Market.
The number of shares outstanding of the registrants common
stock, as of November 30, 2007 was 20,160,836.
Portions of the registrants definitive Proxy Statement, or
the 2008 Proxy Statement, which will be filed with the
Securities and Exchange Commission not later than 120 days
after September 30, 2007, for its 2008 Annual Meeting of
Stockholders are incorporated by reference into Part III of
this Report. With the exception of the portions of the 2008
Proxy Statement expressly incorporated into this Annual Report
on
Form 10-K
by reference, such document shall not be deemed filed as part of
this Annual Report on
Form 10-K.
BIODEL
INC.
INDEX TO
REPORT ON
FORM 10-K
i
FORWARD-LOOKING
STATEMENTS
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, that involve
substantial risks and uncertainties. All statements, other than
statements of historical facts, included in this Annual Report
on
Form 10-K
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.
Our forward-looking statements in this Annual Report on
Form 10-K
are subject to a number of known and unknown risks and
uncertainties that could cause actual results, performance or
achievements to differ materially from those described or
implied in the forward-looking statements, including:
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our ability to secure U.S. Food and Drug Administration
approval for our product candidates under Section 505(b)(2)
of the Federal Food, Drug, and Cosmetic Act;
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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 additional 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 and the success or
failure of any such collaborations that we enter, or our ability
to commercialize our product candidates ourselves;
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the rate and degree of market acceptance and clinical utility of
our products;
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the ability of our major suppliers, including suppliers of
insulin, to produce our product or products in our final dosage
form;
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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 Annual
Report, particularly in Item 1A of this Annual Report, and
in our other public filings with the Securities and Exchange
Commission that could cause actual results or events to differ
materially from the forward-looking statements that we make.
You should read this Annual Report and the documents that we
have filed as exhibits to the Annual Report completely and with
the understanding that our actual future results may be
materially different from what we expect. It is routine for
internal projections and expectations to change as the year or
each quarter in the year progresses, and therefore it should be
clearly understood that the internal projections and beliefs
upon which we base our expectations are made as of the date of
this Annual Report on
Form 10-K
and may change prior to the end of each quarter or the year.
While we may elect to update forward-looking statements at some
point in the future, we do not undertake any obligation to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
1
Overview
We are a specialty biopharmaceutical 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 a new drug application, or NDA, under
Section 505(b)(2) of the Federal Food, Drug, and Cosmetic
Act, or the FFDCA, to the U.S. Food and Drug
Administration, or the FDA, by the end of 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 $2.6 billion in 2006 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 September 2007, we announced that we expanded our two
Phase III clinical trials into Germany and patient
treatment has begun. In December 2007, we announced that we also
expanded our two Phase III clinical trials into Asia and
patient treatment has begun.
In addition to
VIAject
tm
,
we are developing
VIAtab
tm
,
a sublingual, or below the tongue, tablet formulation of
insulin. We are currently in the Phase I stage of clinical
testing of
VIAtab
tm
in patients with Type 1 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
2
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.
Development of a full line of
VIAject
tm
insulin products has progressed more rapidly than we originally
anticipated. We believe that focusing our resources on the
later-stage
VIAject
tm
program provides our best opportunity to maximize stockholder
value. Given the priority being placed on the development of our
VIAject
tm
product line, we now expect to submit investigational new drug
applications, or INDs, for
VIAcal
tm
and
VIAmass
tm
no earlier than late in 2008.
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 biopharmaceutical
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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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 starting with the United States. If our
current Phase III trials for
VIAject
tm
are successful, we expect to submit our NDA to the FDA by the
end of 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
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which 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.
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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.
The
VIAject
tm
formulation and presentation that we are using in our ongoing
Phase III clinical trials is a two vial package, with one
vial containing lyophilized insulin and the second vial
containing 10cc of the proprietary
VIAject
tm
diluents. We are currently developing a liquid, premixed
formulation in a variety of presentations including vials and
cartridges for use in pen injectors. Like
Humalog
®
,
Novolog
®
and
Apidra
®
,
the liquid presentations of
VIAject
tm
are stable when refrigerated. Based on studies we have
performed, we anticipate that the same formulation of
VIAject
tm
will be stable when frozen, as well, unlike currently available
insulins. We are developing the lyophilized vial and all of the
liquid presentations in both the 25 IU/cc and 100 IU/cc
concentrations. Accordingly, we filed a new IND for
VIAject
tm
frozen insulin and amended our current IND to include the two
part 100 IU/cc insulin concentration. In addition to our
Phase III clinical trials for
VIAject
tm
,
we have reached Phase I clinical development of
VIAtab
tm
,
our sublingual insulin product candidate. We are also conducting
preclinical studies on
VIAmass
tm
and
VIAcal
tm
,
our osteoporosis product candidates. Given the priority being
placed on the development of our
VIAject
tm
product line, we now expect to submit INDs and commence Phase I
clinical trials for these preclinical product candidates no
earlier than late in 2008.
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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
4
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.
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
5
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.
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 1.3
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 $2.6 billion
in 2006.
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.
6
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
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.
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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.
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Commercialization of
VIAject
tm
. Our
VIAject
tm
technologys ability to stabilize delicate peptides in both
liquid and lyophilized formulations may provide
commercialization advantages. In particular, we expect that the
VIAject
tm
lyophilized formulation will be able to be shipped or stored
with no refrigeration. We believe this will increase our market
reach and collaboration opportunities in markets where
refrigeration is costly or unavailable. Unlike other insulin
products, the ability to freeze the liquid formulation may also
increase the available shelf life of the product.
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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 (IU), 6 IU and 3 IU.
Volunteers also
7
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 tested 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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time to 50% of maximum GIR.
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The secondary objectives of this trial were to evaluate the
safety and the pharmacokinetic profile after a single injection
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
injection 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
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Maximum GIR
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Humulin
®
R 12 IU
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66
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|
Humalog
®
12 IU
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51
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|
VIAject
tm
12 IU
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33
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VIAject
tm
6 IU
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35
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|
VIAject
tm
3 IU
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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
®
,
mimicking first phase insulin release.
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
8
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, and
(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 doses 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, and for maximal concentrations, 16 for
VIAject
tm
,
as compared to 39 for
Humulin
®
R. In addition, the variability of the time to maximal
pharmacodynamic effect was less for
VIAject
tm
than for
Humulin
®
R (36 vs. 74). These results were 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.
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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Pharmacodynamic Measures
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VIAject
tm
|
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Humulin
®
R
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p-Value
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Minutes to maximum GIR
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99
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154
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<0.0015
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Minutes to maximum serum insulin concentration
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33
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97
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<0.0001
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Minutes to 50% of maximum serum insulin concentration
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8
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32
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<0.0001
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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. In the Phase II meal study of
VIAject
tm
,
subjects received either
VIAject
tm
,
Humulin
®
R (regular recombinant insulin) or
Humalog
®
(rapid acting insulin analog) in conjunction with a standardized
meal. Plasma insulin and blood glucose levels were monitored
throughout the study. 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.
We initially performed a planned interim analysis on ten
patients who had completed the study in time to be presented at
the American Diabetes Association 2007 Annual Meeting.
Administration of
VIAject
tm
resulted in statistically significantly faster insulin
absorption than
Humulin
®
R and
Humalog
®
and lower plasma insulin levels than both after three hours. The
baseline corrected blood glucose profile following the meal was
significantly lower during the early time periods of 0-120
minutes and 0-180 minutes, indicative of less hyperglycemia. The
mean total glucose infused to maintain normal blood glucose
levels was 5 times lower with
VIAject
tm
than with regular human insulin, indicative of less
hypoglycemia. The data showed that
VIAject
tm
provides better postprandial blood glucose control with less
hyperglycemia in the first three hours after the meal and less
risk of hypoglycemia in the next five hours as compared to
Humulin
®
R and
Humalog
®
.
9
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.
We also compared the AUC for blood glucose above and below the
normal range of
80-140 mg/dl
for the eight hours after the ingestion of the meal, which is a
measure of glycemic variability.
Humulin
®
R was 81,849 mg/dl* min.
Humalog
®
was 57,423 mg/dl*min. less than
Humulin
®
R.
VIAject
tm
was 38,740 mg/dl*min, less than both
Humulin
®
R and
Humalog
®
.
The hypoglycemic events data from the meal study is summarized
in the table below:
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Hypoglycemic Events per Treatment
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Hours Past Dose
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Humulin
®
R
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Humalog
®
|
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VIAject
tm
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0-3 hours
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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
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0-8 hours
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13
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18
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8
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In September 2007, we announced additional data from our interim
analysis of the sixteen patients who had completed the study.
This data demonstrated statistically significant and clinically
relevant improved glycemic control compared to
Humulin
®
R and
Humalog
®
.
Administration of
VIAject
tm
resulted in statistically significantly faster insulin
absorption than
Humulin
®
R and
Humalog
®
and lower plasma insulin levels than both after three hours. The
data also demonstrated that
VIAject
tm
provides better postprandial blood glucose control with less
hyperglycemia in the first three hours after the meal and less
risk of hypoglycemia in the next five hours as compared to
Humulin
®
R and
Humalog
®
.
Subsequently, in October 2007, we announced additional data from
our interim analysis comparing
VIAject
tm
directly with
Humalog
®
in patients who regularly used
Humalog
®
as their prandial insulin. The data demonstrated that
VIAject
tm
provided better postprandial blood glucose control with less
hyperglycemia in the first three hours after the meal and less
risk of hypoglycemia in the next five hours as compared to
Humalog
®
.
We believe this data reinforces
VIAject
tm
s
superior pharmacokinetic and pharmacodynamic profile to the
standard rapid-acting insulin analog,
Humalog
®
.
Current Pivotal Phase III Clinical
Trials.
We held a meeting with the FDA in the
first quarter of 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.
In March 2007, we performed a preliminary analysis of the
unqualified data relating to changes in body weight for a total
of 51 patients with Type 1 diabetes who had received at
least six weeks of treatment in the
10
Phase III clinical trial. Of these 51 patients, 27
were in the
VIAject
tm
treatment group and 24 were in the
Humulin
®
R treatment group. The patients in the
VIAject
tm
group lost on average 0.79 pounds while the patients in the
Humulin
®
R treatment group gained on average 2.28 pounds over the six
weeks of treatment. This difference between the treatment groups
of 3.07 pounds was statistically significant, with a p-value of
less than 0.038. The Phase III clinical trials are ongoing.
Although these preliminary findings regarding changes in body
weight are encouraging, our analysis was performed on a
relatively small number of patients, after only six weeks of a
six-month clinical trial. With more patients and longer
treatment times, the final results of the trials may be
different than those suggested by the changes in body weight
observed to date.
In June 2007 we announced additional interim results of our
Phase III clinical trials that demonstrated statistically
significant daily meal-time dose reductions in patients with
Type 1 and Type 2 diabetes using
VIAject
tm
,
which were based on the March 2007 interim analysis. Type
1 patients receiving
VIAject
tm
showed a 28% reduction in daily meal-time dose while control
patients receiving
Humulin
®
R showed a non-significant increase of less than 1%. Type
2 patients receiving
VIAject
tm
showed a 49% reduction in daily meal-time dose while control
patients receiving
Humulin
®
R showed a non-significant increase of 2.3%.
In addition, we monitor safety regularly in these clinical
trials. The major safety concern with patients taking insulin is
the occurrence of hypoglycemic events. At the time of the
preliminary analysis, 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. At the time of the preliminary analysis, 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. 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
by the end of 2008.
The
VIAject
tm
formulation and presentation that we are using in our ongoing
Phase III clinical trials is a two vial package, with one
vial containing lyophilized insulin and the second vial
containing 10 cc of the proprietary
VIAject
tm
diluents. We are currently developing a liquid, premixed
formulation in a variety of presentations including vials and
cartridges for use in pen injectors. Like
Humalog
®
,
Novolog
®
and
Apidra
®
,
the liquid presentations of
VIAject
tm
are stable when refrigerated. Based on studies we have
performed, we anticipate that the same formulation of
VIAject
tm
will be stable when frozen, as well, unlike currently available
insulins. We are developing the lyophilized vial and all of the
liquid presentations in both the 25 IU/cc and 100 IU/cc
concentrations. Accordingly, we filed a new IND for
VIAject
tm
frozen insulin and amended our current IND to include the two
part 100 IU/cc insulin concentration.
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 in Phase I clinical testing of
VIAtab
tm
in patients with Type 1 diabetes. During this phase, we test 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
no earlier than the end of 2008.
11
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
12
our reformulations do not drastically 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, among
other things, 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, among other things, 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, including Good Clinical Practices, to establish the
safety and efficacy of the product candidate for each proposed
indication;
|
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submission to the FDA of an NDA;
|
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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 current Good Manufacturing Practice, or
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. The IND also includes one or more protocols
for the initial clinical trial or trials and an
investigators brochure. An IND automatically becomes
effective 30 days after receipt by the FDA, unless the FDA,
within the
30-day
time
period, raises concerns or questions relating to the proposed
clinical trials as outlined in the IND and places the clinical
trial on a clinical hold. In such cases, the IND sponsor and the
FDA must resolve any outstanding concerns or questions before
any clinical trials can begin. Clinical trial holds also may be
imposed at any time before or during studies due to safety
concerns or non-compliance with regulatory requirements. 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.
13
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.
Human clinical trials are typically conducted in three
sequential phases, but the phases may overlap, or be combined.
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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 product labeling.
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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,
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.
Assuming successful
completion of the required clinical trials, 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 considers them carefully when making
decisions. 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
14
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 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, 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 new 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) NDA
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 the 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), referred to as a
paragraph IV certification, 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
15
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 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
exclusivity 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, among other
things, new indications, dosage forms, routes of administration
or strengths of an existing drug, or for a new use, 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 application.
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
indication for which the drug has such designation. Orphan drug
exclusivity prevents approval of another application for the
same drug for the same orphan indication, for a period of seven
years, regardless of whether the application is a full NDA or a
Section 505(b)(2) NDA, except in limited circumstances,
such as a showing of clinical superiority to the product with
orphan exclusivity. 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.
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.
16
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 unannounced 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 post-approval
testing and surveillance programs to monitor safety and the
effectiveness 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;
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providing the FDA with updated safety and efficacy information;
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reporting on advertisements and promotional labeling;
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drug sampling and distribution requirements; and
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complying with electronic record and signature requirements.
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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. The FDA and
other agencies actively enforce the laws and regulations
prohibiting the promotion of off-label uses, and a company that
is found to have improperly promoted off-label uses may be
subject to significant liability. 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.
New Legislation.
On September 27, 2007,
the President signed into law the Food and Drug Administration
Amendments Act of 2007, or FDAAA. This new legislation grants
significant new powers to the FDA, many of which are aimed at
improving drug safety and assuring the safety of drug products
after approval. In particular, the new law authorizes the FDA
to, among other things, require post-approval studies and
clinical trials, mandate changes to drug labeling to reflect new
safety information, and require risk evaluation and mitigation
strategies for certain drugs, including certain currently
approved drugs. In addition, the new law significantly expands
the federal governments clinical trial registry and
results databank and creates new restrictions on the advertising
and promotion of drug products. Under the FDAAA, companies that
violate these and other provisions of the new law are subject to
substantial civil monetary penalties.
The FDA has not yet implemented many of the provisions of the
FDAAA, so we cannot predict the impact of the new legislation on
the pharmaceutical industry or our business. However, the
requirements and changes imposed by the FDAAA may make it more
difficult, and more costly, to obtain and maintain approval for
new pharmaceutical products, or to produce, market and
distribute existing products. In addition, the FDAs
regulations, policies and guidance are often revised or
reinterpreted by the agency or the courts in ways that may
significantly affect our business and our products. It is
impossible to predict whether additional legislative
17
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 the necessary approvals 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 certain diseases such
as AIDS, cancer, neurodegenerative disorders and diabetes, and
products designated as orphan medicinal products, 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.
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 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. 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/
18
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.
On October 9, 2007, the United States Patent and Trademark
Office issued U.S. Patent No. 7,279,457 encompassing
VIAject
tm
and
VIAtab
tm
,
two product candidates in clinical trials. The patent will
expire no earlier than January 2026.
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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ten pending United States patent applications and corresponding
foreign and international patent applications relating to our
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.
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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.
The individual 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, except in
proprietary combinations. Accordingly, our patent is directed to
the particular formulations of these ingredients in our
products, and to their use. Although we believe our formulations
and their use are patented and provide
19
a competitive advantage, 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 Catalent Pharma
Solutions (formerly known as 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 in the event of an
uncured breach. 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 contracted with N.V. Organon (formerly known as 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. Our agreement with N.V. Organon will
terminate in November 2009; however, N.V. Organon has agreed to
continue to supply us with insulin pursuant to the terms of the
agreement until we have qualified a new insulin supplier. We are
currently in the process of qualifying additional insulin
suppliers, as well as discussing with N.V. Organon the
implementation of a new commercial supply agreement. We believe
that, prior to the termination of this agreement, we will have
procured from N.V. Organon quantities of insulin sufficient to
support our needs for at least three years following the
commercial launch 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. 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 September 30, 2007 we had 30 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.
20
Additional
Information
Our website is
www.biodel.com
. We are not including the
information contained on our website as a part of, or
incorporating it by reference into, this Annual Report on
Form 10-K.
We make available free of charge on our website our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such
material with, or furnished it to, the Securities and Exchange
Commission. Our reports filed with the Securities and Exchange
Commission are also available at the Securities and Exchange
Commissions website at
www.sec.gov
.
Executive
Officers of the Registrant
The following table sets forth our executive officers, their
respective ages and positions as of November 30, 2007:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Dr. Solomon S. Steiner
|
|
|
70
|
|
|
Chairman, President and Chief Executive Officer
|
Gerard Michel
|
|
|
44
|
|
|
Chief Financial Officer, Vice President, Corporate Development
and Treasurer
|
Dr. Roderike Pohl
|
|
|
46
|
|
|
Vice President, Research
|
Erik Steiner
|
|
|
41
|
|
|
Vice President, Operations
|
Dr. Andreas Pfützner
|
|
|
47
|
|
|
Chief Medical Officer
|
R. Timmis Ware
|
|
|
71
|
|
|
Corporate Secretary and General Counsel
|
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. Gerard Michel
joined our company, in November
2007, as Chief Financial Officer, Vice President of Corporate
Development and Treasurer. From October 2003 to November 2007,
Mr. Michel served as Chief Financial Officer and from April
2006 to November 2007, Vice President, Corporate Development of
NPS Pharmaceuticals, a biopharmaceutical company. From June 1995
to July 2002, Mr. Michel served as a Principal of the
consulting firm Booz-Allen & Hamilton. Mr. Michel
received an MBA and B.S. from University of Rochester, and an
M.S., Microbology from The University of Rochester School of
Medicine and Dentistry.
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 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
21
served as Administrative Director and Fiscal Administrator of
the New Jersey Public Interest Research Group. Mr. Steiner
is Solomon Steiners son.
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.
Dr. Pfützner is our part time Chief Medical Officer,
devoting approximately 25% of his time to our affairs.
Mr. R. Timmis Ware
has served as our general counsel
and corporate secretary since joining us in 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 an L.L.B.
from New York University.
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 applicable to common
stockholders was approximately $27.0 million for the year
ended September 30, 2007. As of September 30, 2007, we
had a deficit accumulated during the development stage of
approximately $39.8 million. 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;
|
|
|
|
conduct additional Phase I clinical development 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
22
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 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 later stage clinical trials of
VIAtab
tm
if our Phase I clinical development 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 our cash and cash
equivalents will enable us to fund our anticipated operating
expenses and capital expenditures for at least the next eighteen
months. 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 progress of the development of the full line of
VIAject
tm
insulin products;
|
|
|
|
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 additional 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
23
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 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 which has undergone
clinical development. We do not expect to advance any other
product candidates into clinical trials any earlier than late
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. If these trials are
successful, we intend to submit an NDA under
Section 505(b)(2) of the FFDCA to the FDA by the
24
end of 2008. We are currently in the Phase I stage of clinical
testing of
VIAtab
tm
in patients with Type 1 diabetes. If Phase I clinical
development of
VIAtab
tm
is successful, we plan to initiate a Phase II clinical
trial no earlier than the end of 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 two interim results of our
Phase II meal study of
VIAject
tm
were based on data from the first 10 patients that
completed the trial in time for presentation at the American
Diabetes Association 2007 Annual Meeting and then
16 patients that completed the study. The final results of
this trial may be different from those suggested by our interim
analyses. Similarly, the final results from our Phase III
clinical trials of
VIAject
tm
may be different than those observed to date. In addition, the
final safety and 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, 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:
|
|
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|
|
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
|
25
|
|
|
|
|
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.
|
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;
|
|
|
|
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
26
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:
|
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|
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;
|
|
|
|
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
27
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:
|
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|
|
a covered benefit under its health plan;
|
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|
|
safe, effective and medically necessary;
|
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|
|
appropriate for the specific patient;
|
|
|
|
cost-effective; and
|
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|
|
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 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
28
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 that we believe is
sufficient to cover us from potential damages arising from
proposed clinical trials of
VIAject
tm
.
We also carry local insurance 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 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. 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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29
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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 also on
our ability to maintain market acceptance against emerging
industry developments. We cannot assure present or prospective
stockholders that we will be able to do so.
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 risks that we will not have sufficient quantities of our
product candidates or such quantities at an acceptable cost, or
that our suppliers will not be able to manufacture our products
in their final dosage form. In any such case, 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.
30
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 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 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
31
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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not infringing on the proprietary rights of others; and
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preventing others from infringing on 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 have been granted one patent and have ten 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.
32
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 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 may 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.
There may be 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
33
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 requires 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 also requires the submission of
information about the 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, the nature of the disease or condition to
be treated 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.
34
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 and in either case may not be
successful.
We believe that
VIAject
tm
and
VIAtab
tm
qualify for approval under Section 505(b)(2) of the FFDCA.
Because we are developing new 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 and has more
complex and unpredictable effects in the body 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.
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 or distribution 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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In addition, our product labeling, advertising and promotion is
subject to regulatory requirements and continuing regulatory
review. The FDA strictly regulates the promotional claims that
may be made about prescription drug products. In particular, a
drug may not be promoted for uses that are not approved by the
FDA as reflected in the products approved labeling. The
FDA and other agencies actively enforce the laws and regulations
prohibiting the promotion of off-label uses, and a company that
is found to have improperly promoted off-label uses may be
subject to significant liability.
Recently
enacted legislation may make it more difficult and costly for us
to obtain regulatory approval of our product candidates and to
produce, market and distribute our existing
products.
On September 27, 2007, the President signed into law the
FDAAA. This new legislation grants significant new powers to the
FDA, many of which are aimed at improving drug safety and
assuring the safety of drug products after approval. Under the
FDAAA, companies that violate the new law are subject to
substantial civil monetary penalties. While we expect the FDAAA
to have a significant impact on the pharmaceutical industry, the
FDA has not yet implemented many of its provisions and the
extent of the impact is not yet known. The new requirements and
changes imposed by the FDAAA may make it more difficult, and
more costly, to obtain and maintain approval of new
pharmaceutical products and to produce, market and distribute
existing products.
In addition, the FDAs regulations, policies or guidance
may change and new or additional statutes or government
regulations may be enacted that could prevent or delay
regulatory approval of our product candidates or further
restrict or regulate post-approval activities. It is impossible
to predict whether additional legislative changes will be
enacted, or FDA regulations, guidance or interpretations
changed, or what the impact of such changes, if any, may be.
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 of other countries regarding safety and efficacy
and governing, among other things, clinical trials and
commercial sales and distribution of our products. 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, as well as additional
risks. 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
36
FDA. We may not be able to file for regulatory approvals and may
not receive necessary approvals to commercialize our products in
any market.
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 Gerard
Michel, 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 and Dr. Pohl, 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 experiences 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
37
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.
Risks
Related to Our Common Stock
Our
executive officers, directors and principal stockholders will
maintain the ability to control all matters submitted to
stockholders for approval.
Our executive officers, directors and stockholders who own more
than 5% of our outstanding common stock beneficially own shares
representing more than 50% of our outstanding 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 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:
|
|
|
|
|
establish a classified Board of Directors such that not all
members of the board are elected at one time;
|
|
|
|
allow the authorized number of our directors to be changed only
by resolution of our Board of Directors;
|
|
|
|
limit the manner in which stockholders can remove directors from
the board;
|
|
|
|
establish advance notice requirements for stockholder proposals
that can be acted on at stockholder meetings and nominations to
our Board of Directors;
|
|
|
|
require that stockholder actions must be effected at a duly
called stockholder meeting and prohibit actions by our
stockholders by written consent;
|
|
|
|
limit who may call stockholder meetings;
|
|
|
|
authorize our Board of Directors to issue preferred stock
without stockholder approval, which could be used to institute a
stockholder rights plan or 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
|
|
|
|
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.
|
38
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.
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 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 three- and nine-months ended
June 30, 2007 and for the year ended September 30,
2006 to correct errors 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 had material weaknesses in our internal control over
financial reporting, as defined in the standards established by
the Public Company Accounting Oversight Board. We addressed and
resolved these material weaknesses. We are also in the process
of documenting, reviewing and, where appropriate, improving our
internal controls and procedures in preparation for becoming
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 our
stock price is volatile, purchasers of our common stock could
incur substantial losses.
Our stock price may 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. The market
price for our common stock may be influenced by many factors,
including:
|
|
|
|
|
results of clinical trials of our product candidates or those of
our competitors;
|
|
|
|
regulatory or legal developments in the United States and other
countries;
|
|
|
|
variations in our financial results or those of companies that
are perceived to be similar to us;
|
|
|
|
developments or disputes concerning patents or other proprietary
rights;
|
|
|
|
the recruitment or departure of key personnel;
|
|
|
|
changes in the structure of healthcare payment systems;
|
|
|
|
market conditions in the pharmaceutical and biotechnology
sectors and issuance of new or changed securities analysts
reports or recommendations;
|
|
|
|
general economic, industry and market conditions; and
|
|
|
|
the other factors described in this Risk Factors
section.
|
39
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 investors sole source of gain for the foreseeable
future.
We
will incur substantial costs 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.
We are subject to the reporting requirements of 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.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
Not applicable.
We maintain office space and laboratory facilities of
29,700 square feet in Danbury, Connecticut. On
July 23, 2007 and as amended on October 1, 2007, we
entered into a lease agreement with Mulvaney Properties LLC for
approximately 20,000 square feet of rentable office space
located at 100 Saw Mill Road, Danbury, Connecticut for a seven
year term beginning August 1, 2007 until July 31,
2014. Upon 180 days written notice prior to the expiration
of the lease, we may renew the lease for one additional seven
year term under the same terms and conditions. Our laboratory
facility of approximately 9,700 square feet 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
current Good Manufacturing Practices (cGMP).
We moved into our new corporate headquarters in the first
quarter of fiscal year 2008. We expect a new full service
laboratory, research and development facility intended to
replace our current facility to be completed in fiscal 2010.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
We currently are not involved in any legal proceedings.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO VOTE OF SECURITY HOLDERS
|
None.
40
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
Since May 11, 2007, our common stock has traded on the
NASDAQ Global Market under the symbol BIOD.
The following table sets forth the high and low sale prices per
share for our common stock for each of the quarters in the
period beginning May 11, 2007 through September 30,
2007, as reported on the NASDAQ Global Market:
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
High
|
|
Low
|
|
June 30, 2007
|
|
$
|
21.89
|
|
|
$
|
16.26
|
|
September 30, 2007
|
|
$
|
17.33
|
|
|
$
|
16.80
|
|
The closing price of our common stock, as reported by the NASDAQ
Global Market, was $19.54 on December 14, 2007.
Holders
As of December 14, 2007, the number of holders of record of
our common stock was 72.
Dividends
We have never paid or declared any cash dividends on our common
stock. We currently intend to retain earnings, if any, to
finance the growth and development of our business. Payment of
future dividends, if any, will be at the discretion of our Board
of Directors.
Equity
Compensation Plan Information
Information relating to compensation plans under which our
equity securities are authorized for issuance is set forth under
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters in our
definitive proxy statement for our 2008 Annual Meeting of
Stockholders.
Issuer
Purchases of Equity Securities
We did not make any purchases of our shares of common stock in
the fourth quarter of fiscal 2007, nor did any affiliated
purchaser or anyone acting on behalf of us or an affiliated
purchaser.
41
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
You should read the following selected financial data together
with our financial statements and the related notes which are
included elsewhere in this Annual Report and the
Managements Discussion and Analysis of Financial
Condition and Results of Operations section of this Annual
Report. We have derived the statement of operations data set
forth below for the three-year period ended September 30,
2007 and the balance sheet data as of September 30, 2006
and 2007 set forth below from our audited financial statements
which are included in this Annual Report. We have derived the
statement of operations data set forth below for the period from
inception to September 30, 2004 and the balance sheet data
as of September 30, 2004 and 2005 set forth below from our
audited financial statements, which are not included in this
Annual Report. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 3,
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Year Ended September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
580
|
|
|
|
2,666
|
|
|
|
5,987
|
|
|
|
15,939
|
|
General and administrative
|
|
|
193
|
|
|
|
724
|
|
|
|
1,548
|
|
|
|
8,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
773
|
|
|
|
3,390
|
|
|
|
7,535
|
|
|
|
24,325
|
|
Other (income) and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
|
|
|
|
(9
|
)
|
|
|
(182
|
)
|
|
|
(1,902
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
Loss on settlement of debt
|
|
|
|
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss before tax provision
|
|
|
(773
|
)
|
|
|
(3,381
|
)
|
|
|
(8,058
|
)
|
|
|
(22,423
|
)
|
Tax provision
|
|
|
1
|
|
|
|
2
|
|
|
|
10
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(774
|
)
|
|
|
(3,383
|
)
|
|
|
(8,068
|
)
|
|
|
(22,548
|
)
|
Charge for accretion of beneficial conversion rights
|
|
|
|
|
|
|
|
|
|
|
(603
|
)
|
|
|
|
|
Deemed dividend warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
|
(774
|
)
|
|
|
(3,383
|
)
|
|
|
(8,671
|
)
|
|
|
(27,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(1.05
|
)
|
|
$
|
(1.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic and diluted
|
|
|
5,313,744
|
|
|
|
6,080,746
|
|
|
|
8,252,113
|
|
|
|
15,354,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
221
|
|
|
$
|
368
|
|
|
$
|
17,539
|
|
|
$
|
80,022
|
|
Working capital (deficit)
|
|
|
194
|
|
|
|
(98
|
)
|
|
|
15,307
|
|
|
|
75,244
|
|
Total assets
|
|
|
611
|
|
|
|
1,195
|
|
|
|
18,659
|
|
|
|
82,506
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit accumulated during the development stage
|
|
|
(774
|
)
|
|
|
(4,157
|
)
|
|
|
(12,828
|
)
|
|
|
(39,833
|
)
|
Total stockholders equity
|
|
|
581
|
|
|
|
654
|
|
|
|
16,348
|
|
|
|
77,223
|
|
42
|
|
ITEM 7.
|
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 and other financial
information included elsewhere in this
Form 10-K.
Some of the information in this discussion and analysis or set
forth elsewhere in this
Form 10-K,
including our plans and strategies for our business, includes
forward-looking statements which involve risks and
uncertainties. Please review the Forward-Looking
Statements and the Risk Factors sections of
this
Form 10-K
for a discussion of important factors that could cause actual
results to materially differ from those anticipated or implied
by the forward-looking statements contained in the following
discussion and analysis.
Overview
We are a specialty biopharmaceutical 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 in
the Phase I stage of clinical testing of
VIAtab
tm
in patients with Type 1 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 our initial public offering in May 2007 and prior
to that, 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 applicable to common stockholders
was $27.0 million for the year ended September 30,
2007. As of September 30, 2007, we had a deficit
accumulated during the development stage of $39.8 million.
The deficit accumulated during the development stage is
attributable primarily to our research and development
activities and non-cash charges for (1) accretion of
beneficial conversion rights and (2) deemed
dividend-warrants. Research and development and general and
administrative expenses represent approximately 59% and 31%,
respectively, 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.
In April 2007, the Company effected a 0.7085 for one
(0.7085:1) reverse stock split. All references in the
Managements Discussion and Analysis of Financial Condition
and Results of Operations, financial statements and comments on
the units of common stock or per share amounts are reflective of
the reverse split for all periods reported.
In May 2007, we completed our initial public offering of
5,750,000 shares of common stock primarily with
institutional investors at a price to the public of $15.00 per
share, with net proceeds totaling approximately
$78.8 million. The completion of the initial public
offering resulted in the conversion of our
43
Series A and B convertible preferred stock. A total of
6,407,008 shares of common stock were issued upon the
conversion of the preferred stock.
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, manufacturing
development efforts and activities related to regulatory
filings. Our research and development expenses consist of:
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external research and development expenses incurred under
agreements with third-party contract research organizations and
investigative sites, third-party manufacturing organizations and
consultants;
|
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|
employee-related expenses, which include salaries and benefits
for the personnel involved in our preclinical and clinical drug
development and manufacturing activities; and
|
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|
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.
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December 3,
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December 3, 2003
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2003
|
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(Inception) to
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(Inception) to
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September 30,
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Year Ended September 30,
|
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September 30,
|
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2004
|
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2005
|
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2006
|
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2007
|
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2007
|
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|
(In thousands)
|
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|
Research and development expenses:
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
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Pre-clinical expenses
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$
|
495
|
|
|
$
|
1,261
|
|
|
$
|
1,575
|
|
|
$
|
1,983
|
|
|
$
|
5,314
|
|
Manufacturing expenses
|
|
|
13
|
|
|
|
241
|
|
|
|
1,264
|
|
|
|
2,141
|
|
|
|
3,659
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Clinical/regulatory expenses
|
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72
|
|
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1,164
|
|
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|
3,148
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11,815
|
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16,199
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Total
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$
|
580
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|
|
$
|
2,666
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$
|
5,987
|
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|
$
|
15,939
|
|
|
$
|
25,172
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The successful development of our product candidates is highly
uncertain. If our ongoing Phase III clinical trials of
VIAject
tm
are successful, we intend to submit an NDA to the FDA for this
product candidate line by the end of 2008. We are currently in
the Phase I stage of clinical testing of
VIAtab
tm
in patients with Type 1 diabetes. If the Phase I
development is successful, the earliest we plan to initiate
later stage clinical trials of
VIAtab
tm
would be the end of 2008. Development of a full line of
VIAject
tm
insulin products has progressed more rapidly than we originally
anticipated. Given the priority being placed on the development
of our
VIAject
tm
product line, we now expect to submit INDs for
VIAcal
tm
and
VIAmass
tm
no earlier than late 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
44
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
;
|
|
|
|
the progress of the development of the full line of
VIAject
tm
insulin products:
|
|
|
|
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 cost 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 collaborators.
|
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, we could be required to expend significant
additional financial resources and time on the completion of
that clinical development program.
General
and Administrative Expenses
Our general and administrative expenses consist primarily of
salaries, benefits and non-cash stock-based compensation for
administrative, finance, business development, human resources,
legal and information systems support personnel. In addition,
general and administrative expenses include business insurance
and professional services costs.
On July 23, 2007, we entered into a lease agreement,
amended on October 1, 2007, with Mulvaney Properties LLC
for approximately 20,000 square feet located in Danbury,
Connecticut, or the Leased Premises. The lease provides for a
seven year term beginning August 1, 2007 until
July 31, 2014. We have agreed to use the leased premises
only for offices, laboratories, research, development and light
manufacturing. Upon 180 days written notice prior to the
expiration of the lease, we may renew the lease for one
additional seven year term under the same terms and conditions.
Also on July 23, 2007, we entered into an amendment to each
of the following existing agreements between us and Mulvaney:
(1) Lease Agreement, dated February 2, 2004, as
amended, for the premises located at 6 Christopher Columbus
Avenue, Danbury, Connecticut, or the First Lease and
(2) Lease Agreement, dated October 19, 2006, for the
premises located at 8 Christopher Columbus Avenue, Danbury,
Connecticut, or the Second Lease. We have the option to
terminate the First Lease by giving 90 days prior notice to
Mulvaney. We have the option to terminate the Second Lease by
giving 60 days prior notice to Mulvaney.
In September 2007, we gave our notice to terminate the lease on
8 Christopher Columbus Avenue, effective October 31, 2007.
We moved into our new corporate headquarters in the first
quarter of fiscal year 2008. We expect a new full service
laboratory, research and development facility intended to
replace our current facility, will be completed in fiscal 2010.
45
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. 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 related to the entry into
the new leased premises;
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|
we expect to incur additional expenses as we advance discussions
and negotiations in connection with strategic collaborations for
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 relation 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, resulting primarily from the $78.8 million in
net proceeds received from our initial public offering in May
2007. 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, 2007, we had no
interest-bearing indebtedness outstanding.
Exercise
of Warrants
In March 2007, we offered the holders of warrants to purchase an
aggregate of 149,125 shares of our Series B
convertible preferred stock and an aggregate of
3,417,255 shares of our common stock with an exercise price
of $5.56 per share the opportunity to exercise such warrants at
an exercise price of $3.67, representing a 34% discount in the
exercise price. Such holders exercised all of such warrants on a
combination of cashless and cash exercise basis. We issued an
aggregate of 2,636,907 shares of common stock and received
aggregate cash proceeds of approximately $0.4 million in
connection with such exercises.
As a result of the discounted exercise price, in the fiscal
quarter ended March 31, 2007, we recorded a deemed dividend
charge of approximately $4.5 million for the warrants that
were so exercised.
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
46
readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully
described in Note 2 to our financial statements appearing
at the end of this
Form 10-K,
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
Effective October 1, 2005, we adopted
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 385,432 shares of our common stock at an exercise price
of $1.41 per share. Between November 1, 2005 and
November 1, 2006, we granted options to purchase an
aggregate of 603,302 shares of our common stock at an
exercise price of $5.65 per share. In December 2006, we granted
options to purchase an aggregate of 235,375 shares of our
common stock at an exercise price of $12.63 per share. In
January 2007, we granted options to purchase an aggregate of
63,767 shares of our common stock at an exercise price of
$12.63 per share. In May 2007, we granted options to purchase an
aggregate of 200,000 shares of our common stock at an
exercise price of $15.00 per share. In June 2007, we granted
options to purchase an aggregate of 240,000 shares of our
common stock at an exercise price of $18.16 per shares. In July
2007, we granted options to purchase an aggregate of
75,000 shares of our common stock at an exercise price of
$18.76 per share.
Our Board of Directors determined the exercise price for the
shares of common stock underlying options granted between
December 2004 and May 2005 based upon the price per share at
which we intended to offer and which we subsequently offered and
sold our Series A convertible preferred stock to outside
investors. That offering commenced in February 2005. For the
options granted between December 2004 and May 2005, our Board of
Directors also considered that
VIAtab
tm
had just entered into Phase I clinical trials in March 2005 and
VIAject
tm
had just entered into Phase I clinical trials in May 2005. We
had achieved no significant clinical development or regulatory
milestones with respect to these two product candidates. We had
not sufficiently
47
developed our product candidates to be able to reasonably
evaluate the probability of commercial success. Our Board of
Directors recognized that significant additional funding would
be required to continue our product development efforts and our
corporate operations. Our Board of Directors did not know if
those funds would be available to us. Given our stage of
development, our Board of Directors could not reasonably
contemplate a corporate collaboration, the sale of our company
or an initial public offering. Our Board of Directors considered
the high degree of uncertainty considering our future prospects
and relevant economic and market conditions both generally and
based on their experience in the biopharmaceutical industry.
In connection with the preparation for our initial public
offering of our common stock, we reassessed the valuations of
our common stock prior to December 2006 and between December
2006 and January 2007. As a result, we reassessed the fair value
of our common stock as of July 14, 2005, July 19, 2006
and December 19, 2006, respectively.
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 an independent third party
appraiser 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 $0.83 per
share; for options granted between July 15, 2005 and
July 19, 2006, we used a fair market value of $4.69 per
share; for options granted after July 19, 2006, we used a
fair market value of $12.63 per share; for options granted on
May 10, 2007, we used a fair market value of $8.67; for
options granted on June 5, 2007, we used a fair market
value of $10.59; and for options granted on July 24, 2007,
we used a fair market value of $11.59.
Because we lack company-specific historical and implied
volatility information, we based our estimate of expected
volatility on the median historical volatility of a group of
publicly traded companies that we believe are comparable to us
based on the criteria set forth in SFAS No. 123(R),
particularly line of business, stage of development, size and
financial leverage. We will continue to consistently apply this
process using the same comparable companies until sufficient
amount of historical information regarding the volatility of our
share price becomes available. However, we will regularly review
these comparable companies, and may substitute more appropriate
companies if facts and circumstances warrant a change. 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 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 September 30, 2007, we issued to these
non-employees options to purchase an aggregate of
342,111 shares of our common stock. Because we must revalue
these options for accounting purposes each reporting period, the
amount of the non-cash 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 year ended
September 30, 2007, the non-cash stock-based compensation
expense related to these options was $0.6 million, of which
$0.3 million is reflected in research and development
expenses and $0.3 million is reflected in general and
administrative expenses.
For the year ended September 30, 2007, the stock-based
compensation expense was $4.2 million, of which
$0.7 million is reflected in research and development
expenses and $3.5 million is reflected in general and
administrative expenses. For the year ended September 30,
2006, the stock-based compensation expense related to these
options was $1.1 million, of which $0.2 million is
reflected in research and development expenses and
$0.9 million is reflected in general and administrative
expenses.
48
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, 2007, we had federal net operating loss
carryforwards of $30.5 million, Connecticut state net
operating loss carryforwards of $30.4 million and federal
research and development tax credit carryovers of approximately
$1.0 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, 2007, we recorded a 100% valuation
allowance against our net deferred tax asset of approximately
$13.8 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.
Results
of Operations
Year
Ended September 30, 2007 Compared to Year Ended
September 30, 2006
Revenue.
We did not recognize any revenue
during the years ended September 30, 2007 or 2006.
Research and Development Expenses.
Research
and development expenses were $15.9 million for the year
ended September 30, 2007, an increase of $9.9 million,
or 166%, from $6.0 million for the year ended
September 30, 2006. This increase was primarily
attributable to increased research and development costs related
to our continuing two pivotal Phase III clinical trials for
VIAject
tm
that we commenced in September 2006. Specific increases
in research and development expenses included $8.3 million
related to increased clinical trial expenses in 2007;
$0.6 million related to increased manufacturing expenses in
2007 for the process development,
scale-up
and
manufacture of commercial batches of
VIAject
tm
to support our clinical trials and regulatory submissions; and
$1.1 million related to increased personnel costs, non-cash
stock-based compensation expenses and consulting fees. Research
and development expenses for the year ended September 30,
2007 include $0.4 million in stock-based compensation
expense related to options granted to employees and
$0.3 million 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 $8.4 million for the year
ended September 30, 2007, an increase of $6.9 million,
or 442%, from $1.5 million for the year ended
September 30, 2006. This increase is primarily attributable
to a $3.8 million increase in personnel expense. The
balance of the increase was attributable to increases in
insurance expenses, depreciation expenses, and higher legal and
consulting fees associated with becoming a public company.
General and administrative expenses for the year ended
September 30, 2007 include $3.2 million in non-cash
stock-based compensation
49
expense related to options granted to employees and
$0.3 million in non-cash stock-based compensation expense
related to options granted to non-employees.
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 and Other Income.
Interest and other
income increased to $1.9 million for the year ended
September 30, 2007 from $0.2 million for the year
ended September 30, 2006. The increase was due to higher
balances of cash and cash equivalents in 2007, resulting
primarily from the $78.8 million in net proceeds received
from our initial public offering in May 2007.
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. For the
year ended September 30, 2007, we had no interest expense.
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 charge to stockholders was
incurred in the year ended September 30, 2007.
Charge for Accretion of Beneficial Conversion
Rights.
We recorded a beneficial conversion
charge related to the issuance of our Series B convertible
preferred stock and the conversion option embedded therein. In
accordance with EITF
No. 98-5,
Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion
Ratios
, we accreted the charge immediately and have shown a
$0.6 million charge for accretion of beneficial conversion
rights in the year ended September 30, 2006. No equivalent
expense was incurred in the year ended September 30, 2007.
Deemed Dividend Warrants.
On
March 20, 2007, we offered the holders of warrants to
purchase an aggregate of 78,183 shares of Series B
convertible preferred stock and an aggregate of
2,558,724 shares of common stock with an exercise price of
$5.56 per share the opportunity to exercise such warrants at an
exercise price of $3.67, representing a 34% discount in the
exercise price. Such holders exercised all such warrants on a
combination of cashless and cash exercise basis. We issued
2,636,907 shares of common stock and received aggregate
cash proceeds of $0.4 million in connection with such
exercises. As a result of the discounted exercise price, we
recorded a non-cash deemed dividend of approximately
$4.5 million for the warrants that were exercised in the
year ended September 30, 2007. No equivalent charge to
stockholders was incurred in the year ended September 30,
2006.
Net Loss Applicable to Common Stockholders and Net Loss per
Share.
Net loss applicable to common stockholders
was $27.0 million, or $(1.76) per share, for the year ended
September 30, 2007 compared to $8.7 million, or
$(1.05) per share, for the year ended September 30, 2006.
The increase in net loss was primarily attributable to the
increased expenses described above and the non-cash deemed
dividend charge of $4.5 million related to the discounted
exercise price of our warrants. 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.
50
Research and Development Expenses.
Research
and development expenses were $6.0 million for the year
ended September 30, 2006, an increase of $3.3 million,
or 124.6%, from $2.7 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 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 $36,000 in stock-based
compensation expense related to options granted to employees and
$187,000 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 $0.8 million,
or 113.8%, from $0.7 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 $0.2 million in stock-based compensation
expense related to options granted to employees and
$0.7 million in stock-based compensation expense related to
options granted to non-employees.
Interest and Other Income.
Interest and other
income increased to $0.2 million 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.
Charge for Accretion of Beneficial Conversion
Rights.
We recorded a beneficial conversion
charge related to the issuance of our Series B convertible
preferred stock and the conversion option embedded therein. In
accordance with EITF
No. 98-5,
Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion
Ratios
, we accreted the charge immediately and have shown a
$603,000 charge for accretion of beneficial conversion rights in
the year ended September 30, 2006.
Net Loss Applicable to Common Stockholders and Net Loss per
Share.
Net loss applicable to common stockholders
was $8.7 million, or $(1.05) per share, for the year ended
September 30, 2006 compared to $3.4 million, or
$(0.56) per share, for the year ended September 30, 2005.
The increase in net loss was primarily attributable to the
increased expenses described above.
51
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. In May 2007, we completed our initial public
offering and received proceeds, after deducting underwriting
commissions and discounts of $78.8 million.
At September 30, 2007, we had cash and cash equivalents
totaling approximately $80.0 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 cash equivalents
(including the net proceeds we received from our initial public
offering in accordance with our approved investment policy
guidelines, which set forth our policy to hold investments
securities to maturity.
Net cash used in operating activities was $15.5 million for
the year ended September 30, 2007, $3.9 million for
the year ended September 30, 2006 and $2.4 million for
the year ended September 30, 2005. Net cash used in
operating activities for the year ended September 30, 2007
primarily reflects the net loss for the period, offset in part
by non-cash stock-based compensation, depreciation and
amortization expenses and increases in accrued expenses and
accounts payable and a decrease in deferred compensation
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 $1.4 million for
the year ended September 30, 2007, $0.3 million for
the year ended September 30, 2006 and $0.6 million for
the year ended September 30, 2005. Net cash used in
investing activities in each period primarily reflects purchases
of property and equipment and leasehold improvement costs for
our new corporate headquarters. The decrease from 2005 to 2006
was primarily related to reduced purchases of property and
equipment.
Net cash provided by financing activities was $79.4 million
for the year ended September 30, 2007, $21.4 million
for the year ended September 30, 2006 and $3.1 million
for the year ended September 30, 2005. Net cash provided by
financing activities in 2007 primarily reflects the proceeds
from our initial public offering. 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.
On May 16, 2007, we completed an initial public offering of
5,750,000 shares of our common stock at a price to the
public of $15.00 per share. The offering resulted in gross
proceeds of $86.3 million. We received net proceeds from
the offering of approximately $78.8 million after deducting
underwriting discounts and commissions and additional offering
expenses. The remaining net proceeds were invested in cash, cash
equivalents and short-term investments, in accordance with our
investment policy.
Funding
Requirements
We believe that our existing cash and cash equivalents will be
sufficient to fund our anticipated operating expenses and
capital expenditures for at least the next eighteen months. 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.
52
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 progress of the development of the full line of
VIAject
tm
insulin products;
|
|
|
|
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;
|
|
|
|
the costs, timing and outcome of regulatory reviews 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 those collaborations, including the timing
and amount of payments that we might receive from potential
strategic collaborators.
|
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 some or all
of 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,
2007 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Operating lease obligations
|
|
$
|
3,561
|
|
|
$
|
532
|
|
|
$
|
1,544
|
|
|
$
|
1,029
|
|
|
$
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed contractual obligations
|
|
$
|
3,561
|
|
|
$
|
532
|
|
|
$
|
1,544
|
|
|
$
|
1,029
|
|
|
$
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent
Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards
No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities
, which
53
permits entities to choose to measure many financial instruments
and certain other items at fair value. SFAS No. 159
also includes an amendment to SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities
, which applies to all entities with
available-for-sale and trading securities.
SFAS No. 159 is effective as of the beginning of an
entitys first fiscal year that begins after
November 15, 2007. We are assessing the impact of
SFAS No. 159 and anticipate that the adoption of this
accounting pronouncement will not have a material effect on our
financial statements.
In September 2006, 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, however, the FASB has agreed to defer
for one year the effective date for certain non-financial assets
and liabilities. 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 SFAS 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 us beginning October 1, 2007. We are in the process of
evaluating the effect that FIN 48 will have on our
financial statements.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
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 highly liquid money market investments. 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.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Refer to
page F-1.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Our management, with the participation of our chief executive
officer and chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures as of
September 30, 2007. The term disclosure controls and
procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to
be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the
companys management, including its principal executive and
principal
54
financial officers, as appropriate to allow timely decisions
regarding required disclosure. Management recognizes that any
controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment
in evaluating the cost-benefit relationship of possible controls
and procedures.
As previously reported in Amendment No. 1 to our Quarterly
Report on
Form 10-Q
for the quarterly period ended June 30, 2007, our Chief
Executive Officer and former Chief Financial Officer determined
that, as of June 30, 2007, we had a material weakness in
our internal control over financial reporting, as defined in the
standards established by the Public Company Accounting Oversight
Board. Specifically, as of June 30, 2007, we had a material
weakness relating to our controls over accounting for stock
options in that our procedures did not operate effectively to
detect errors in the calculation of non-cash share-based
compensation expense arising from the granting of stock options.
To remedy the material weakness, we have implemented enhanced
procedures that are designed to provide for additional
management oversight of our accounting activities to ensure that
we will properly record non-cash share-based expense in the
future.
As a result of that material weakness and because the period
ended September 30, 2007 represents the first accounting
period in which we were able to evaluate the steps we
implemented to remedy the material weakness, our Chief Executive
Officer and Chief Financial Officer have concluded, that as of
the end of the period covered by this report, our disclosure
controls and procedures were not effective. However,
notwithstanding the material weakness discussed above, our Chief
Executive Officer and Chief Financial Officer have concluded
that the financial statements included in this
Form 10-K
present fairly, in all material respects, our financial
position, results of operations and cash flows for the periods
presented in conformity with generally accepted accounting
principles.
Except for the enhanced procedures implemented as noted above,
no change in our internal control over financial reporting
occurred during the fiscal quarter ended September 30, 2007
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
55
Certain information required by Part III is omitted from
this Annual Report on
Form 10-K
because we will file a definitive proxy statement within
120 days after the end of our fiscal year for our 2008
annual meeting of stockholders (the Proxy
Statement), and the information included in the proxy
statement is incorporated herein by reference.
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Certain information required by this Item is contained under the
heading Executive Officers of the Registrant in
Part I of this Annual Report on
Form 10-K.
Other information required by this Item will appear under the
headings Election of Directors,
Section 16(a) Beneficial Ownership Reporting
Compliance and Corporate Governance in our
Proxy Statement, which sections are incorporated herein by
reference.
We have adopted a written code of business conduct and ethics
that applies to our principal executive officer, principal
financial officer, and principal accounting officer or
controller, or persons performing similar functions. Our code of
business conduct and ethics, which also applies to our directors
and all of our officers and employees, can be found on our
website, which is located at
www.biodel.com
. We intend to
disclose any amendments to, or waivers from, our code of
business conduct and ethics that are required to be publicly
disclosed pursuant to rules of the Securities and Exchange
Commission and the NASDAQ Global Market by filing such amendment
or waiver with the Securities and Exchange Commission and by
posting it on our website.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this Item will appear under the
heading Executive Compensation including
Compensation Discussion and Analysis, Director
Compensation, Compensation Committee Interlocks and
Insider Participation and Compensation Committee
Report in our Proxy Statement, which sections are
incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this Item will appear under the
headings Security Ownership of Certain Beneficial Owners
and Management and Securities Authorized for
Issuance under Equity Compensation Plans in our Proxy
Statement, which sections are incorporated herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIP AND RELATED TRANSACTIONS
|
The information required by this Item will appear under the
headings Certain Relationships and Related
Transactions and Corporate Governance in our
Proxy Statement, which sections are incorporated herein by
reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this Item will appear under the
heading Auditors Fees in our Proxy Statement,
which section is incorporated herein by reference.
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(1) Financial Statements: See Index to Financial Statements
and Schedules.
(2) Financial Statement Schedules: Not applicable.
(3) Exhibits: The Exhibit Index annexed to this report
is incorporated by reference.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIODEL INC.
|
|
|
|
By:
|
/s/
Solomon
S. Steiner
|
Dr. Solomon S. Steiner
President and Chief Executive Officer
Date: December 21, 2007
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/
Solomon
S. Steiner
Solomon
S. Steiner
|
|
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
|
|
December 21, 2007
|
|
|
|
|
|
/s/
Gerard
Michel
Gerard
Michel
|
|
Chief Financial Officer, Vice President, Corporate Development
and Treasurer (Principal Financial and Accounting Officer)
|
|
December 21, 2007
|
|
|
|
|
|
/s/
Albert
Cha
Albert
Cha
|
|
Director
|
|
December 21, 2007
|
|
|
|
|
|
/s/
David
Kroin
David
Kroin
|
|
Director
|
|
December 21, 2007
|
|
|
|
|
|
/s/
Ira
W. Lieberman
Ira
W. Lieberman
|
|
Director
|
|
December 21, 2007
|
|
|
|
|
|
/s/
Daniel
Lorber
Daniel
Lorber
|
|
Director
|
|
December 21, 2007
|
|
|
|
|
|
/s/
Brian J.G. Pereira
Brian J.G. Pereira
|
|
Director
|
|
December 21, 2007
|
|
|
|
|
|
/s/
Charles
Sanders
Charles
Sanders
|
|
Director
|
|
December 21, 2007
|
|
|
|
|
|
/s/
Samuel
Wertheimer
Samuel
Wertheimer
|
|
Director
|
|
December 21, 2007
|
|
|
|
|
|
/s/
Scott
A. Weisman
Scott
A. Weisman
|
|
Director
|
|
December 21, 2007
|
57
Exhibits Index
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
3
|
.1
|
|
Registrants Second Amended and Restated Certificate of
Incorporation (Incorporated by reference to the exhibits to the
Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
3
|
.2
|
|
Registrants Amended and Restated Bylaws (Incorporated by
reference to the exhibits to the Registrants Registration
Statement on
Form S-1
(333-140504)).
|
|
4
|
.1
|
|
Specimen Common Stock Certificate (Incorporated by reference to
the exhibits to the Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
4
|
.2
|
|
Form of Warrant issued to Scott Weisman and McGinn Smith
Holdings LLC to Purchase Shares of Series A convertible
preferred stock (Incorporated by reference to the exhibits to
the Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
4
|
.3
|
|
Form of Subscription and Rights Agreement by and among the
registrant and the holders of the Series A convertible
preferred stock (Incorporated by reference to the exhibits to
the Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
4
|
.4
|
|
Amended and Restated Registration Rights Agreement, dated
September 19, 2006, by and among the registrant and other
parties named therein (Incorporated by reference to the exhibits
to the Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
10
|
.1
|
|
Form of Indemnity Agreement entered into between the registrant
and each of Albert Cha, Robert Feldstein, David Kroin, Daniel
Lorber, Ira Lieberman, Charles Sanders, Roderike Pohl, and
Solomon Steiner, Paul Sekhri, Erik Steiner, Samuel Wertheimer,
R. Timmis Ware, Andreas Pfützner, and Scott Weisman
(Incorporated by reference to the exhibits to the
Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
10
|
.2
|
|
Amended and Restated 2004 Stock Incentive Plan (Incorporated by
reference to the exhibits to the Registrants Registration
Statement on
Form S-1
(333-140504)).
|
|
10
|
.3
|
|
2005 Employee Stock Purchase Plan (Incorporated by reference to
the exhibits to the Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
10
|
.4
|
|
2005 Non-Employee Directors Stock Option Plan
(Incorporated by reference to the exhibits to the
Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
10
|
.5
|
|
Amended and Restated Employment Agreement, dated March 20,
2007, as amended November 20, 2007, between the registrant
and Solomon S. Steiner (Incorporated by reference to the
Registrants Current Report on
Form 8-K
filed on November 20, 2007).
|
|
10
|
.6
|
|
Amended and Restated Employment Agreement, dated March 20,
2007, between the registrant and Roderike Pohl (Incorporated by
reference to the exhibits to the Registrants Registration
Statement on
Form S-1
(333-140504))
|
|
10
|
.7
|
|
Amended and Restated Employment Agreement, dated
November 1, 2006, between registrant and F. Scott
Reding (Incorporated by reference to the exhibits to the
Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
10
|
.8
|
|
Amended and Restated Consulting Agreement entered into on
November 13, 2007, effective June 5, 2007, between the
Company and Dr. Andreas Pfützner (Incorporated by
reference to the Registrants Current Report on
Form 8-K
filed on November 14, 2007).
|
|
10
|
.9
|
|
Supply Agreement made on April 4, 2005 by and between
Diosynth B.V. and the registrant (Incorporated by reference to
the exhibits to the Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
10
|
.10
|
|
Manufacturing Agreement, dated December 20, 2005 between
the registrant and Cardinal Health PTS, LLC
(Incorporated by reference to the exhibits to the
Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
10
|
.11
|
|
Change of Control Agreement entered into between the registrant
and certain of its executive officers (Incorporated by reference
to the exhibits to the Registrants Registration Statement
on
Form S-1
(333-140504)).
|
58
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.12
|
|
Executive Severance Agreement entered into between the
registrant and certain of its executive officers (Incorporated
by reference to the exhibits to the Registrants
Registration Statement on
Form S-1
(333-140504)).
|
|
10
|
.13
|
|
Lease Agreement, dated February 2, 2004, between the
registrant and Mulvaney Properties, LLC and amendment thereto
dated September 29, 2006 (Incorporated by reference to the
exhibits to the Registrants Registration Statement on
Form S-1
(333-140504)).
|
|
10
|
.14
|
|
Commercial Lease, dated July 23, 2007, by and between the
Registrants and Mulvaney Properties LLC. (Incorporated by
reference to the Registrants Current Report on
Form 8-K
filed on July 27, 2007).
|
|
10
|
.15
|
|
Lease Amendment, dated October 1, 2007, between the
registrant and Mulvaney Properties LLC (Incorporated by
reference to the Registrants Current Report on
Form 8-K
filed on October 4, 2007).
|
|
10
|
.16
|
|
Amendment to Lease Agreement, dated February 2, 2004, as
amended, by and between the registrant and Mulvaney Properties
LLC. (Incorporated by reference to the Registrants Current
Report on
Form 8-K
filed on July 27, 2007).
|
|
10
|
.17
|
|
Severance Agreement, dated November 14, 2007, by and
between the registrant and F. Scott Reding (Incorporated by
reference to the Registrants Current Report on
Form 8-K
filed on November 14, 2007).
|
|
10
|
.18
|
|
Offer Letter, dated November 12, 2007, by and between the
registrant and Gerard J. Michel (Incorporated by reference to
the Registrants Current Report on
Form 8-K
filed on November 14, 2007).
|
|
10
|
.19
|
|
Form of Incentive Stock Option Agreement for 2004 Amended and
Restated Stock Incentive Plan.
|
|
10
|
.20
|
|
Form of Option Agreement for 2005 Non-Employee Directors
Stock Option Plan.
|
|
10
|
.21
|
|
Executive Officer Compensation Summary.
|
|
10
|
.22
|
|
Non-employee Director Compensation Summary.
|
|
23
|
.1
|
|
Consent of BDO Seidman, LLP, Independent Registered Public
Accounting Firm.
|
|
24
|
.1
|
|
Powers of Attorney (included on signature page).
|
|
31
|
.01
|
|
Chief Executive Officer Certification pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.02
|
|
Chief Financial Officer Certification pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.01
|
|
Chief Executive Officer and Chief Financial Officer
Certification pursuant to
Rule 13a-14(b)
or
Rule 15d-14(b)
of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Confidential treatment granted with respect to certain portions
of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
|
59
BIODEL
INC.
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
F-1
Report
of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Biodel Inc.
Danbury, Connecticut
We have audited the accompanying balance sheets of Biodel Inc.
(a development stage company) as of September 30, 2006 and
2007, and the related statements of operations,
stockholders equity and cash flows for each of the three
years in the period ended September 30, 2007 and for the
period from December 3, 2003 (inception) to
September 30, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Biodel Inc. at September 30, 2006 and 2007, and the
results of its operations and its cash flows for each of the
three years in the period ended September 30, 2007 and for
the period from December 3, 2003 (inception) to
September 30, 2007, in conformity with accounting
principles generally accepted in the United States.
New York, New York
December 11, 2007
F-2
Biodel
Inc.
(A Development Stage Company)
Balance Sheets
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
ASSETS
|
Current:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,539
|
|
|
$
|
80,022
|
|
Prepaid and other assets
|
|
|
79
|
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17,618
|
|
|
|
80,527
|
|
Property and equipment, net
|
|
|
644
|
|
|
|
1,717
|
|
Intellectual property, net
|
|
|
208
|
|
|
|
262
|
|
Deferred public offering costs
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,659
|
|
|
$
|
82,506
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,357
|
|
|
$
|
2,187
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
Clinical trial expenses
|
|
|
|
|
|
|
1,164
|
|
Payroll and related
|
|
|
186
|
|
|
|
822
|
|
Accounting and legal fees
|
|
|
|
|
|
|
335
|
|
Other
|
|
|
255
|
|
|
|
680
|
|
Income taxes payable
|
|
|
13
|
|
|
|
95
|
|
Due to related party
|
|
|
250
|
|
|
|
|
|
Deferred compensation
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,311
|
|
|
|
5,283
|
|
Commitments
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 50,000,000 shares
authorized:
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock, 1,050,000 shares
authorized, 569,000 and 0 shares issued and outstanding,
respectively, with a liquidation preference of $2,845 and an 8%
non-cumulative dividend
|
|
|
6
|
|
|
|
|
|
Series B convertible preferred stock, 6,500,000 shares
authorized, 6,198,179 and 0 shares issued and outstanding,
respectively, with a liquidation preference of $24,421
|
|
|
62
|
|
|
|
|
|
Common stock, $.01 par value; 100,000,000 shares
authorized; 5,360,430 and 20,160,836 issued and outstanding,
respectively
|
|
|
54
|
|
|
|
202
|
|
Additional paid-in capital
|
|
|
29,054
|
|
|
|
116,854
|
|
Deficit accumulated during the development stage
|
|
|
(12,828
|
)
|
|
|
(39,833
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
16,348
|
|
|
|
77,223
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
18,659
|
|
|
$
|
82,506
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-3
Biodel
Inc.
(A Development Stage Company)
Statements of Operations
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 3,
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
Year Ended September 30,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,666
|
|
|
|
5,987
|
|
|
|
15,939
|
|
|
|
25,172
|
|
General and administrative
|
|
|
724
|
|
|
|
1,548
|
|
|
|
8,386
|
|
|
|
10,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,390
|
|
|
|
7,535
|
|
|
|
24,325
|
|
|
|
36,023
|
|
Other (income) and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
(9
|
)
|
|
|
(182
|
)
|
|
|
(1,902
|
)
|
|
|
(2,093
|
)
|
Interest expense
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
78
|
|
Loss on settlement of debt
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss before tax provision
|
|
|
(3,381
|
)
|
|
|
(8,058
|
)
|
|
|
(22,423
|
)
|
|
|
(34,635
|
)
|
Tax provision
|
|
|
2
|
|
|
|
10
|
|
|
|
125
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,383
|
)
|
|
|
(8,068
|
)
|
|
|
(22,548
|
)
|
|
|
(34,773
|
)
|
Charge for accretion of beneficial conversion rights
|
|
|
|
|
|
|
(603
|
)
|
|
|
|
|
|
|
(603
|
)
|
Deemed dividend warrants
|
|
|
|
|
|
|
|
|
|
|
(4,457
|
)
|
|
|
(4,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(3,383
|
)
|
|
$
|
(8,671
|
)
|
|
$
|
(27,005
|
)
|
|
$
|
(39,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(0.56
|
)
|
|
$
|
(1.05
|
)
|
|
$
|
(1.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic and diluted
|
|
|
6,080,746
|
|
|
|
8,252,113
|
|
|
|
15,354,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-4
Biodel
Inc.
(A Development Stage Company)
Statements
of Stockholders Equity
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Series A Preferred stock
|
|
|
stock
|
|
|
Additional
|
|
|
During the
|
|
|
Total
|
|
|
|
$.01 Par Value
|
|
|
$.01 Par Value
|
|
|
$.01 Par Value
|
|
|
Paid-in
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Equity
|
|
|
Shares issued to employees
|
|
|
732,504
|
|
|
$
|
7
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
|
|
January 2004 Proceeds from sale of common stock
|
|
|
4,581,240
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,308
|
|
|
|
|
|
|
$
|
1,354
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(774
|
)
|
|
|
(774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2004
|
|
|
5,313,744
|
|
|
$
|
53
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
1,301
|
|
|
$
|
(774
|
)
|
|
$
|
580
|
|
Additional stockholder contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
514
|
|
|
|
|
|
|
|
514
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353
|
|
|
|
|
|
|
|
353
|
|
Shares issued to employees and directors for services
|
|
|
42,656
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
61
|
|
July 2005 Private placement Sale of Series A
preferred stock, net of issuance costs of $379
|
|
|
|
|
|
|
|
|
|
|
569,000
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
2,460
|
|
|
|
|
|
|
|
2,466
|
|
Founders compensation contributed
to capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,383
|
)
|
|
|
(3,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2005
|
|
|
5,356,400
|
|
|
|
54
|
|
|
|
569,000
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
4,751
|
|
|
|
(4,157
|
)
|
|
|
654
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,132
|
|
|
|
|
|
|
|
1,132
|
|
July 2006 Private placement Sale of Series B
preferred stock, net of issuance costs of $1,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,380,711
|
|
|
|
54
|
|
|
|
19,351
|
|
|
|
|
|
|
|
19,405
|
|
July 2006 Series B preferred stock units issued
July 2006 to settle debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
817,468
|
|
|
|
8
|
|
|
|
3,194
|
|
|
|
|
|
|
|
3,202
|
|
Shares issued to employees and directors for services
|
|
|
4,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
23
|
|
Accretion of fair value of beneficial conversion charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
603
|
|
|
|
(603
|
)
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,068
|
)
|
|
|
(8,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2006
|
|
|
5,360,430
|
|
|
|
54
|
|
|
|
569,000
|
|
|
|
6
|
|
|
|
6,198,179
|
|
|
|
62
|
|
|
|
29,054
|
|
|
|
(12,828
|
)
|
|
|
16,348
|
|
May 2007 Proceeds from sale of common stock
|
|
|
5,750,000
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,697
|
|
|
|
|
|
|
|
78,755
|
|
Conversion of preferred stock on May 16, 2007
|
|
|
6,407,008
|
|
|
|
64
|
|
|
|
(569,000
|
)
|
|
|
(6
|
)
|
|
|
(6,198,179
|
)
|
|
|
(62
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,224
|
|
|
|
|
|
|
|
4,224
|
|
Shares issued to employees, non-employees and directors for
services
|
|
|
2,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Stock options exercised
|
|
|
3,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
March 2007 Warrants exercised
|
|
|
2,636,907
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
|
|
|
|
|
|
423
|
|
Deemed dividend warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,457
|
|
|
|
(4,457
|
)
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,548
|
)
|
|
|
(22,548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007
|
|
|
20,160,836
|
|
|
$
|
202
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
116,854
|
|
|
$
|
(39,833
|
)
|
|
$
|
77,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-5
Biodel
Inc.
(A Development Stage Company)
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 3,
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,383
|
)
|
|
$
|
(8,068
|
)
|
|
$
|
(22,548
|
)
|
|
$
|
(34,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
189
|
|
|
|
241
|
|
|
|
254
|
|
|
|
705
|
|
Founders compensation contributed to capital
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
271
|
|
Share-based compensation for employees and directors
|
|
|
20
|
|
|
|
213
|
|
|
|
3,567
|
|
|
|
3,800
|
|
Share-based compensation for non-employees
|
|
|
344
|
|
|
|
989
|
|
|
|
657
|
|
|
|
1,990
|
|
Loss on settlement of debt
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
627
|
|
Write-off of loan to related party
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
Increase in prepaid expenses
|
|
|
(22
|
)
|
|
|
|
|
|
|
(430
|
)
|
|
|
(455
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
33
|
|
|
|
1,295
|
|
|
|
830
|
|
|
|
2,188
|
|
Income taxes payable
|
|
|
2
|
|
|
|
10
|
|
|
|
255
|
|
|
|
268
|
|
Deferred compensation
|
|
|
187
|
|
|
|
63
|
|
|
|
(500
|
)
|
|
|
(250
|
)
|
Accrued expenses
|
|
|
134
|
|
|
|
706
|
|
|
|
2,406
|
|
|
|
3,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
991
|
|
|
|
4,144
|
|
|
|
7,039
|
|
|
|
12,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,392
|
)
|
|
|
(3,924
|
)
|
|
|
(15,509
|
)
|
|
|
(22,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(551
|
)
|
|
|
(180
|
)
|
|
|
(1,315
|
)
|
|
|
(2,403
|
)
|
Acquisition of intellectual property
|
|
|
(44
|
)
|
|
|
(161
|
)
|
|
|
(66
|
)
|
|
|
(281
|
)
|
Loan to related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(595
|
)
|
|
|
(341
|
)
|
|
|
(1,381
|
)
|
|
|
(2,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Warrants exercised
|
|
|
|
|
|
|
|
|
|
|
423
|
|
|
|
423
|
|
Loan from Steiner Ventures, LLC
|
|
|
154
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
Deferred public offering costs
|
|
|
|
|
|
|
(190
|
)
|
|
|
(1,268
|
)
|
|
|
(1,458
|
)
|
Stockholder contribution
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
1,660
|
|
Net proceeds from sale of Series A preferred stock
|
|
|
2,466
|
|
|
|
|
|
|
|
|
|
|
|
2,466
|
|
Net proceeds from sale of common stock
|
|
|
|
|
|
|
|
|
|
|
80,213
|
|
|
|
80,213
|
|
Proceeds from bridge financing
|
|
|
|
|
|
|
2,575
|
|
|
|
|
|
|
|
2,575
|
|
Net proceeds from sale of Series B preferred stock
|
|
|
|
|
|
|
19,205
|
|
|
|
|
|
|
|
19,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,134
|
|
|
|
21,436
|
|
|
|
79,373
|
|
|
|
105,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
147
|
|
|
|
17,171
|
|
|
|
62,483
|
|
|
|
80,022
|
|
Cash and cash equivalents, beginning of period
|
|
|
221
|
|
|
|
368
|
|
|
|
17,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
368
|
|
|
$
|
17,539
|
|
|
$
|
80,022
|
|
|
$
|
80,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest and income taxes was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
9
|
|
Income taxes
|
|
|
1
|
|
|
|
2
|
|
|
|
44
|
|
|
|
47
|
|
Non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable due for warrants exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable due for Series B preferred stock issued
|
|
$
|
|
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
50
|
|
Settlement of debt with Series B preferred stock
|
|
|
|
|
|
|
3,202
|
|
|
|
|
|
|
|
3,202
|
|
Accrued expenses settled with Series B preferred stock
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
Deemed dividend warrants
|
|
|
|
|
|
|
|
|
|
|
4,457
|
|
|
|
4,457
|
|
Accretion of fair value of beneficial charge on preferred stock
|
|
|
|
|
|
|
603
|
|
|
|
|
|
|
|
603
|
|
Conversion of convertible preferred stock to common stock
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-6
Biodel
Inc.
(A Development Stage Company)
Notes
to Financial Statements
(In thousands, except share and per share amounts)
|
|
1.
|
Business
and Basis of Presentation
|
Business
Biodel Inc. (Biodel or the Company, and
formerly Global Positioning Group Ltd.) is a development stage
specialty pharmaceutical company located in Danbury,
Connecticut. The Company was incorporated in the State of
Delaware on December 3, 2003 and commenced operations in
January 2004. The Company is focused on the development and
commercialization of innovative treatments for endocrine
disorders, such as diabetes and osteoporosis. The Company
develops product candidates by applying proprietary formulation
technologies to existing drugs in order to improve their
therapeutic results. The Companys initial development
efforts are focused on peptide hormones. The Company has two
insulin product candidates currently in clinical trials for the
treatment of diabetes. Additionally, the Company has two
preclinical product candidates for the treatment of osteoporosis.
The Company has developed all of its product candidates
utilizing its proprietary
VIAdel
tm
technology that allows the Company to study the interaction
between peptide hormones and small molecules.
Basis
of Presentation
The Company is in the development stage, as defined in Statement
of Financial Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage
Enterprises, as its primary activities since incorporation
have been establishing its facilities, recruiting personnel,
conducting research and development, business development,
business and financial planning and raising capital.
On April 12, 2007 the Company effected a 0.7085 for one
(0.7085:1) reverse stock split (see Note 12). All
references in these financial statements and accompanying notes
to units of common stock or per share amounts are reflective of
the reverse split for all periods reported.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Research
and Development Costs
The Company is in the business of research and development and,
therefore, research and development costs include, but are not
limited to, salaries and benefits, lab supplies, preclinical
fees, clinical trial and related clinical manufacturing costs,
allocated overhead costs and professional service providers.
Research and development costs are expensed when incurred.
Research and development costs aggregated $2,666, $5,987 and
$15,939 for the years ended September 30, 2005, 2006 and
2007, respectively.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. On an ongoing basis, the Company evaluates its estimates
and assumptions including, but not limited to, accruals, income
taxes payable, and deferred tax assets. Actual results may
differ from those estimates.
Cash
and Cash Equivalents
The Company considers currency on hand, demand deposits and all
highly liquid investments with an original maturity of three
months or less at the date of purchase to be cash and cash
equivalents. At September 30, 2007, cash equivalents of
$79.6 million are primarily held in money market accounts.
F-7
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
Fair
Value of Financial Instruments
The carrying amounts of the Companys financial
instruments, which include cash and cash equivalents, accounts
payable, and accrued expenses approximate their fair values due
to their short maturities.
Intellectual
Property
The intangible asset consists primarily of costs associated with
prosecuting patents for the Companys technology and is
amortized using the straight-line method over twenty years. If
the Company determines that a patent will not be granted or will
not result in future revenues, the costs related to such patent
will be expensed in full on the date of that determination. In
addition, the Company amortizes expenses for the useful life of
its patents over 20 years because its patents are used in
the United States and overseas (20 year life). The Company
expects the patented technology to generate revenues for at
least 20 years. Amortization expense for the years ended
September 30, 2005, 2006 and 2007 was $1, $6 and $13,
respectively.
Property
and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation or amortization. Major improvements are
capitalized, while maintenance and repairs are expensed in the
period the cost is incurred. Property and equipment are
depreciated over their estimated useful lives using the
straight-line method. Leasehold improvements are amortized using
the straight-line method over their estimated useful lives, or
the remaining term of the lease, whichever is less. When assets
are retired or otherwise disposed of, the assets and related
accumulated depreciation are removed from the accounts and
resulting gains or losses are included in other income (expense)
in the statement of operations. Estimated useful life for each
asset category is as follows: Furniture &
Fixture 7 years, Leasehold
improvements life of lease, Laboratory
equipment 7 years, Manufacturing equipment
5 years, Computer equipment 5 years and
Computer software 3 years.
Impairment
of Long-Lived Assets
Whenever events or changes in circumstances indicate that the
carrying amounts of a long-lived asset may not be recoverable,
the Company reviews these assets for impairment and determines
whether adjustments are needed to carrying values. There were no
adjustments to the carrying value of long-lived assets at
September 30, 2006 and 2007.
Income
Taxes
The Company uses the asset and liability method of accounting
for deferred income taxes. The provision for income taxes
includes income taxes currently payable and those deferred as a
result of temporary differences between the financial statement
and tax bases of assets and liabilities. A valuation allowance
is provided to reduce deferred tax assets to the amount of
future tax benefit when it is more likely than not that some
portion of the deferred tax assets will not be realized.
Projected future taxable income and ongoing tax planning
strategies are considered and evaluated when assessing the need
for a valuation allowance. Any increase or decrease in a
valuation allowance could have a material adverse or beneficial
impact on the Companys income tax provision and net income
or loss in the period which the determination is made.
Concentration
of Risks and Uncertainties
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash
equivalents. The Company deposits excess cash with major
financial institutions in the United States. Balances may
exceed the amount of insurance provided on such deposits. The
Company
F-8
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
believes that its investment policy guideline for its excess
cash maintains safety and liquidity through its policies on
credit requirements, diversification and investment maturity.
The Company has experienced significant operating losses since
inception. At September 30, 2007, the Company had a deficit
accumulated during the development stage of approximately
$39,800. The Company has generated no revenue to date. The
Company has funded its operations to date principally from the
sale of securities. The Company expects to incur substantial
additional operating losses for the next several years and will
need to obtain additional financing in order to complete the
clinical development of
VIAject
tm
and three other product candidates, launch and commercialize the
product candidates, if it receives regulatory approval, and
continue research and development programs. There can be no
assurance that such financing will be available or will be at
terms acceptable to the Company.
The Company is currently developing its first product candidates
and has no products that have received regulatory approval. Any
products developed by the Company will require approval from the
U.S. Food and Drug Administration (FDA) or
foreign regulatory agencies prior to commercial sales. There can
be no assurance that the Companys products will receive
the necessary approvals. If the Company is denied such approvals
or such approvals are delayed, it would have a material adverse
effect on the Companys future operating results.
To achieve profitable operations, the Company must successfully
develop, test, manufacture and market products, as well as
secure the necessary regulatory approvals. There can be no
assurance that any such products can be developed successfully
or manufactured at an acceptable cost and with appropriate
performance characteristics, or that such products will be
successfully marketed. These factors would have a material
adverse effect on the Companys future financial results.
Share-Based
Compensation
Effective October 1, 2005, the Company adopted Statement of
Financial Accounting Standards No. 123(R),
Share-Based
Payment
, or SFAS No. 123 (Revised 2004)
(SFAS 123(R)), Share-Based Payments
on a retrospective basis, to account for awards granted under
the Companys Stock Incentive Plan. SFAS 123(R)
requires the Company to recognize share-based compensation
arising from compensatory share-based transactions using the
fair value at the grant date of the award. Determining the fair
value of share-based awards at the grant date requires judgment.
The Company uses an option-pricing model (Black-Scholes pricing
model) to assist in the calculation of fair value. Due to its
limited history, the Company uses the calculated value
method which relies on comparable company historical
volatility and uses the average of i) the weighted average
vesting period and ii) the contractual life of the option,
or eight years, as the estimated term of the option. The Company
bases its estimates of expected volatility on the median
historical volatility of a group of publicly traded companies
that it believes are comparable to the Company based on the
criteria set forth in SFAS 123(R), particularly line of
business, stage of development, size and financial leverage.
The risk free rate of interest for periods within the
contractual life of the stock option award is based on the yield
of U.S. Treasury strips on the date the award is granted
with a maturity equal to the expected term of the award. The
Company estimates forfeitures based on actual forfeitures during
its limited history. Additionally, the Company has assumed that
dividends will not be paid.
For warrants or stock options granted to non-employees, the
Company measures fair value of the equity instruments utilizing
the Black-Scholes model, if that value is more reliably
measurable than the fair value of the consideration or service
received. The fair value of these instruments are periodically
revalued as the options vest, and are recognized as expense over
the related period of service or vesting period, whichever is
F-9
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
longer. The total cost expensed for options granted to
non-employees for the years ended September 30, 2005, 2006
and 2007 was $344, $989 and $657, respectively.
The Company expenses ratably over the vesting period the cost of
the stock options granted to employees and directors. The total
compensation cost expensed for the years ended
September 30, 2005, 2006 and 2007 was $20, $213 and $3,567,
respectively. At September 30, 2007, the total compensation
cost related to non-vested options not yet recognized is $8,640
which will be recognized over the next three years assuming the
employees complete their service period for vesting of the
options. The Black-Scholes pricing model assumptions are as
follows and were determined as discussed above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Expected life (in years)
|
|
|
5.25
|
|
|
|
5.25
|
|
|
|
5.25
|
|
Expected volatility
|
|
|
60%
|
|
|
|
60%
|
|
|
|
60-70%
|
|
Expected dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
Risk-free interest rate
|
|
|
3.62% - 3.88%
|
|
|
|
3.77% - 4.90%
|
|
|
|
4.23% - 4.96%
|
|
Weighted-average grant date fair value
|
|
$
|
0.42
|
|
|
$
|
2.67
|
|
|
$
|
11.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent
Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board, (the
FASB), issued Statement of Financial Accounting
Standards No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities,
or
SFAS No. 159, which permits entities to choose to
measure many financial instruments and certain other items at
fair value. SFAS No. 159 also includes an amendment to
SFAS No. 115,
Accounting for Certain Investments in
Debt and Equity Securities
, which applies to all entities
with available-for-sale and trading securities.
SFAS No. 159 is effective as of the beginning of an
entitys first fiscal year that begins after
November 15, 2007. The Company is assessing the impact of
SFAS No. 159 and anticipates that the adoption of this
accounting pronouncement will not have a material effect on its
financial statements.
In September 2006, the FASB issued SFAS 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, however, the FASB has
agreed to defer for one year the effective date for certain
non-financial assets and liabilities. The Company anticipates
the adoption of this accounting pronouncement will not have a
material effect on its financial statements.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
,
(FIN 48). This interpretation clarifies the
accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109,
Accounting for Income
Taxes.
This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken on a tax return. This Interpretation also provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosures and
transition. FIN 48 is effective for the Company beginning
October 1, 2007. The Company is in the process of
evaluating the effect this pronouncement will have on its
financial statements.
F-10
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
Basic and diluted net loss per share has been calculated by
dividing net loss by the weighted average number of common
shares outstanding during the period. All potentially dilutive
common shares have been excluded from the calculation of
weighted average common shares outstanding since their inclusion
would be antidilutive.
The amount of options and warrants excluded are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Warrants for Common Stock
|
|
|
|
|
|
|
3,417,254
|
|
|
|
|
|
Common shares underlying warrants for Series A Preferred
Stock
|
|
|
198,025
|
|
|
|
198,025
|
|
|
|
198,025
|
|
Common shares underlying warrants for Series B Preferred
Stock
|
|
|
|
|
|
|
111,406
|
|
|
|
|
|
Stock options
|
|
|
385,432
|
|
|
|
786,812
|
|
|
|
1,685,974
|
|
|
|
4.
|
Property
and equipment
|
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
Furniture and fixtures
|
|
$
|
77
|
|
|
$
|
108
|
|
Leasehold improvements
|
|
|
539
|
|
|
|
466
|
|
Construction-in-progress
|
|
|
|
|
|
|
526
|
|
Laboratory equipment
|
|
|
352
|
|
|
|
854
|
|
Manufacturing equipment
|
|
|
|
|
|
|
102
|
|
Computer equipment and other
|
|
|
120
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,088
|
|
|
|
2,402
|
|
Less: Accumulated depreciation and amortization
|
|
|
444
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
644
|
|
|
$
|
1,717
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended September 30,
2005, 2006 and 2007 was $188, $235 and $543, respectively.
|
|
5.
|
Related
Party Transactions
|
The following is a description of material transactions, other
than compensation arrangements, since the Companys
incorporation on December 3, 2003 to which the Company has
been a party and in which any of its directors, executive
officers or persons who it knows held more than five percent of
any class of capital stock, including their immediate family
members who had or will have a direct or indirect material
interest. The Company believes that the terms obtained or
consideration paid or received, as applicable, in connection
with the transactions described below were comparable to terms
available or the amounts that would have been paid or received,
as applicable, in arms-length transactions.
F-11
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
Issuance
of Series A Convertible Preferred Stock
Between March and July 2005, the Company issued and sold an
aggregate of 35,000 shares of its Series A convertible
preferred stock (see Note 8) to two executive officers
and one director.
McGinnSmith & Company, Inc. (MSI) served
as placement agent in connection with the offering of the
Series A convertible preferred stock pursuant to a letter
agreement (the Letter Agreement), for which MSI
received $280 (excluding $15 reimbursement for expenses) and
warrants to purchase 55,900 shares of Series A
convertible preferred stock at $5.00 per share. The fair value
of the warrants was $121 and was computed using the
Black-Scholes pricing model using the following assumptions:
term of 7 years; volatility rate of 90%; risk free rate of
3.65% and a dividend yield of 0.0%, which was treated as cost of
raising capital. A member of the Board of Directors of the
Company was a managing director of MSI until May 2007.
In July 2005, Steiner Ventures LLC, (SV), an entity
controlled by Dr. Solomon S. Steiner, Chairman and Chief
Executive Officer, entered into a subscription agreement with
the Company to purchase 60,000 shares of the Series A
convertible preferred stock at a price of $5.00 per share which
could be accepted by the Company at any time until July 2006. At
a meeting of the Board of Directors held on October 24,
2005, the Board of Directors approved, with the agreement of SV,
the amendment of that subscription agreement into a subscription
to purchase 12 Units in the Bridge Financing (see
Note 9) for $300. The Company accepted this
subscription and SV purchased the Units.
Since all securities contemplated to be issued pursuant to the
SV subscription agreement were to be issued at fair value, no
value was ascribed to the subscription agreement or amendment.
Bridge
Financing
Between February and May 2006, the Company completed a Bridge
Financing (see Note 9). Four executive officers and one
director purchased an aggregate of 23 units, or $575, as
part of the financing. These units were subsequently settled
with 182,540 shares of Series B convertible preferred
stock (see Note 8) and warrants to purchase
98,275 shares of common stock.
In connection with the sales of units in the Bridge Financing,
the Company paid MSI an aggregate commission of $70 and issued
to MSI additional warrants to purchase 22,222 shares of
Series B convertible preferred stock and a warrant to
purchase 11,963 shares of common stock. The fair value of
the warrants was $22 as computed using the Black-Scholes pricing
model using the following assumptions: term of 3.5 years;
volatility rate of 50%; risk free rate of 5.05% and a dividend
yield of 0.0%.
Issuance
of Series B Convertible Preferred Stock
On July 19, 2006, the Company issued and sold
38,071 shares of Series B convertible preferred stock
(see Note 8) and a warrant to purchase
20,496 shares of common stock to its Chief Executive
Officer in exchange for a $150 bonus that was earned by him
during the calendar year ended December 31, 2005 but
voluntarily deferred. At September 30, 2005, the Company
accrued $113 of the bonus and the balance of $37 was expensed in
fiscal 2006. The full amount of the accrued bonus was exchanged
for Series B convertible preferred stock on July 19,
2006.
In connection with the issuance of the Series B convertible
preferred stock, the Company retained MSI to serve as placement
agent pursuant to an amendment to the Letter Agreement. MSI was
paid (a) an aggregate commission of $350 from the sale of
the Series B convertible preferred stock, (b) a
warrant to purchase 126,903 shares of Series B
convertible preferred stock and (c) a warrant to purchase
68,322 shares of common stock. On July 19, 2006, the
Company also sold and issued to a director 12,690 shares of
Series B convertible
F-12
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
preferred stock and a warrant to purchase 6,832 shares of
common stock. At the completion of the Series B preferred
stock financing, the lead investor remitted the monies for its
investment in the Series B Round net of offering-related
expenses incurred by the investor group for which Biodel was
responsible. Total offering expenses were approximately $2,000,
of which $1,470 was commissions for the placement of the
offering. A director of the Company had arranged to pay for an
investment in the Series B preferred stock financing (the
Investment) utilizing a portion of commissions due.
Since the monies due for the commission were not received by
Biodel, the purchase price of the Investment could not be
deducted from the monies received. The fair values of the
warrants for common stock were $126 and $13 and were computed
using the Black-Scholes pricing model using the following
assumptions: term of 3.5 years; volatility rate of 50%;
risk free rate of 5.05% and a dividend yield of 0.0%. The fair
value of the warrants for preferred stock was $167 and was
computed using the Black-Scholes pricing model using the
following assumptions: term of 3.5 years; volatility rate
of 50%; risk free rate of 4.70% and a dividend yield of 0.0%.
These amounts were treated as cost of raising capital.
The director paid the monies due for the Investment; however the
payment was received after September 30, 2006. Therefore,
the $50 amount due has been accounted for as a receivable at
September 30, 2006 and has been included in prepaid and
other assets on the balance sheet.
Deferred
Compensation
On December 15, 2005, the Board of Directors authorized a
bonus to be paid to SV, if the Chairman and Chief Executive
Officer directed the completion of a successful financing in
excess of $10,000. Pursuant to that board resolution, the
Company owes SV $250 because of the issuance of the
Series B convertible preferred stock during the year ended
September 30, 2006 but payment was deferred by
Dr. Steiner. The Company recorded compensation expense for
this bonus and has reflected the balance as due to related party
at September 30, 2006. The balance was paid in July 2007.
Separately, Dr. Steiner voluntarily deferred his calendar
year compensation of $250. The Company recorded compensation
expense for this salary and has reflected the balance as
deferred compensation at September 30, 2006. The balance
was paid in July 2007.
Related
Party Loans
In 2004, the Company issued a non-collateralized loan to an
executive officer for $41. The loan and accrued interest were
forgiven in November 2004 and the Company recorded a general and
administrative expense for this amount in the year ended
September 30, 2005. In December 2004, the Board of
Directors adopted a policy prohibiting extending loans to the
Companys officers and directors.
In 2004, SV loaned $150 to the Company which was repaid in July
2006 with interest.
Employment
Agreements
The Company entered into two employment agreements with the
Chief Executive Officer and the Vice President of
Research & Development for a term of three years,
effective December 31, 2004.
The total base salaries for both employees agreements are
$575. Bonuses are at the discretion of, and awarded by, the
Board of Directors.
F-13
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
In November 2006, the Company entered into an employment
agreement with its Chief Financial Officer and Treasurer and in
March 2007 revised the agreement for a term of two years. In
November 2007, that Chief Financial Officer and Treasurer
resigned to pursue other interests.
Leases
As of September 30, 2007, the Company leased three
facilities in Danbury, Connecticut with Mulvaney Properties,
LLC, controlled by a non-affiliated stockholder of the Company.
The first two lease agreements dated February 2, 2004 and
October 19, 2006 were under a three-year and thirty-eight
month operating agreements. These two leases provide for annual
basic lease payments of $87, plus operating expenses. On
September 28, 2006, the Company elected to renew the
February 2, 2004 lease through January 31, 2010. In
September 2007, the Company gave its 60 day notice, on the
October 19, 2006 lease, to terminate its lease effective
October 31, 2007 and rent was paid through October 31,
2007.
In July 2007, the Company entered into a lease agreement, with
Mulvaney Properties LLC, controlled by a non-affiliated
stockholder of the Company, for approximately 20,000 square
feet located in Danbury, Connecticut, and on October 1,
2007 amended the agreement to increase the term from a five year
to a seven year term beginning August 1, 2007 until
July 31, 2014. The renewal option was also amended from a
five year to a seven year term.
Lease expense for the years ended September 30, 2005, 2006
and 2007 were $73, $79 and $195, respectively.
Minimum lease payments under these agreements as of
September 30, 2007, as well as equipment leases
subsequently entered into, are as follows:
|
|
|
|
|
Years Ending September 30,
|
|
|
|
|
2008
|
|
$
|
532
|
|
2009
|
|
|
550
|
|
2010
|
|
|
508
|
|
2011
|
|
|
486
|
|
2012
|
|
|
504
|
|
2013 and each year thereafter
|
|
|
981
|
|
|
|
|
|
|
Total
|
|
$
|
3,561
|
|
|
|
|
|
|
Purchase
Commitments
As of September 30, 2007, the Company had leasehold
improvements, computer equipment and furniture purchase
commitments of approximately $1.5 million associated with
renovations to its new corporate headquarters.
F-14
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
Taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Current expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
2
|
|
|
|
10
|
|
|
|
125
|
|
Deferred expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax provision
|
|
$
|
2
|
|
|
$
|
10
|
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2007, the Company had available federal
net operating loss carryforwards of approximately $30,500 which
expire commencing in fiscal 2024 through 2027 and $30,400 of
state net operating loss carryforwards, which expire commencing
in 2024 through 2027. The Company also has federal and state
research and development credit carryovers of approximately
$1,000 , which expire commencing in fiscal 2024.
Under Section 382 of the Internal Revenue Code, if a
corporation undergoes an ownership change (generally
defined as a greater than 50% change (by value) in its equity
ownership over a three-year period), the Companys ability
to use its pre-change of control net operating loss carry
forward and other pre-change tax attributes against its
post-change income may be limited.
Due to the cumulative impact of the Companys equity
issuances over the past two years, a change of ownership
occurred upon the issuance of the Companys Series B
convertible preferred stock in July 2006. As a result, the total
net operating losses will be subject to an annual base
limitation. The amounts above are shown gross of the limitation.
F-15
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
The major components of deferred tax assets and valuation
allowances and deferred tax liabilities at September 30,
2006 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
4,824
|
|
|
$
|
12,664
|
|
Research and development credit
|
|
|
313
|
|
|
|
953
|
|
Depreciation of fixed assets
|
|
|
55
|
|
|
|
126
|
|
Deferred compensation
|
|
|
100
|
|
|
|
|
|
Accrued vacation
|
|
|
|
|
|
|
19
|
|
Accrued severance
|
|
|
|
|
|
|
31
|
|
Amortization
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
5,293
|
|
|
|
13,793
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
$
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset
|
|
$
|
5,293
|
|
|
$
|
13,791
|
|
Valuation allowance
|
|
$
|
(5,293
|
)
|
|
$
|
(13,791
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The entire gross deferred tax asset is offset by a valuation
allowance. During the current fiscal year, the Company performed
a
book-to-tax
reconciliation that adjusted the deferred tax assets and
valuation allowance by approximately $800. As the Company
has not yet achieved profitable operations, management believes
the tax benefits as of September 30, 2007 did not satisfy
the realization criteria set forth in SFAS 109 and
therefore has recorded a valuation allowance for the entire
deferred tax asset.
The Company files its tax returns on a calendar year basis. For
the years ended September 30, 2005, 2006 and 2007, the
Company only had to pay state taxes.
The following reconciles the amount of tax expense at the
federal statutory rate and taxes on loss as reflected in
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Federal statutory rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
Federal taxes at statutory rate
|
|
$
|
(1,150
|
)
|
|
$
|
(2,942
|
)
|
|
$
|
(9,080
|
)
|
Tax expense on permanent differences
|
|
|
36
|
|
|
|
1,159
|
|
|
|
2,958
|
|
Tax benefit on research and business credits
|
|
|
(85
|
)
|
|
|
(217
|
)
|
|
|
(186
|
)
|
State taxes, net of federal tax effect
|
|
|
1
|
|
|
|
8
|
|
|
|
33
|
|
State benefit on net operating losses
|
|
|
(226
|
)
|
|
|
(383
|
)
|
|
|
(1,350
|
)
|
Valuation allowance increase
|
|
|
1,441
|
|
|
|
2,401
|
|
|
|
7,672
|
|
Other
|
|
|
(15
|
)
|
|
|
(16
|
)
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax provision
|
|
$
|
2
|
|
|
$
|
10
|
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
Common
Stock
The Companys authorized common stock consists of
100,000,000 shares of a single class of common stock,
having a par value of $0.01 per share. The holders of the common
stock are entitled to one vote for each share and have no
cumulative voting rights or preemptive rights.
On May 16, 2007, the Company completed an initial public
offering of 5,750,000 shares of its common stock at a price
to the public of $15.00 per share. The offering resulted in
gross proceeds of $86.3 million. We received net proceeds
from the offering of approximately $78.8 million after
deducting underwriting discounts and commissions and additional
offering expenses. The completion of the initial public offering
resulted in the conversion of the Companys Series A
and B convertible preferred stock. A total of
6,407,008 shares of common stock were issued upon the
conversion of the preferred stock.
Preferred
Stock
The Company is authorized to issue up to 50,000,000 shares
of preferred stock, having a par value of $0.01 per share. The
Companys preferred stock may be issued in one or more
series, the terms of which may be determined at the time of
issuance by the Companys Board of Directors, without
further action by stockholders, and may include voting rights
(including the right to vote as a series on particular matters),
preferences as to dividends and liquidation and conversion,
redemption rights and sinking fund provisions. The issuance of
preferred stock could reduce the rights, including voting
rights, of the holders of common stock and, therefore, could
reduce the value of the common stock. In particular, specific
rights granted to holders of preferred stock could be used to
restrict the Companys ability to merge with or sell the
Companys assets to a third party, thereby preserving
control of the Company by existing management.
Series A
Convertible Preferred Stock
The Company authorized 1,050,000 shares of Series A
convertible preferred stock with certain rights and privileges,
of which 569,000 and 0 shares were issued and outstanding
as of September 30, 2006 and 2007, respectively. In July
2005, the Company completed a private placement of
569,000 shares of its Series A convertible preferred
stock and received proceeds of $2,845. Fees incurred as part of
the private placement totaled $379.
In connection with the Series A convertible preferred stock
issuance, the Company entered into a registration rights
agreement with the purchasers of its stock, which provided,
among other things, for liquidated damages if the Company were
initially unable to register and obtain an effective
registration of the securities within the allotted time. The
stockholders could not demand registration until one hundred and
eighty (180) days after the Company had effected a
qualified initial public offering. The penalties were
(i) one and three quarters
(1
3
/
4
%)
percent of the aggregate number of shares of underlying common
stock for each month, or part thereof, after a ninety
(90) day period that a registration statement was not filed
with the SEC or (ii) one (1%) percent of the aggregate
number of shares of underlying common stock for each month if
the forgoing filed registration statement was not declared
effective by the SEC within one hundred and twenty
(120) days.
Each share of Series A convertible preferred stock was
automatically convertible into a number of shares of common
stock equal to the quotient of $3.54 divided by $1.00
immediately subsequent to the date of the initial public
offering.
F-17
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
As part of the compensation agreement, the placement agent
received 279,500 Series A Warrants. Each warrant consists
of the right to purchase one share of fully paid and
non-assessable common stock for a period of seven years which
expires on July 12, 2012. The exercise price of each
warrant is $1.00 per share. The exercise price may be paid in
cash or by tendering common stock. The warrants are transferable
and provide for anti-dilution protection. The Company evaluated
the warrants in accordance with Emerging Issues Task Force
(EITF)
00-19,
Accounting for Derivative Financial Instruments Indexed to
and Potentially Settled in a Companys Own Stock
(EITF 00-19),
and concluded they should be classified as equity on the balance
sheet.
As a result of the conversion option, the Company considered
(EITF)
No. 98-5
Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion
Ratios
(EITF 98-5)
and EITF
No. 00-27,
Application of Issue
No. 98-5
to Certain Convertible Instruments
(EITF 00-27).
The Company determined that the issuance of the Series A
convertible preferred stock did not result in a beneficial
conversion feature calculated in accordance with EITF Issue
98-5.
Series B
Convertible Preferred Stock
The Company authorized 6,500,000 shares of Series B
convertible preferred stock (Series B Preferred
Stock) of which 6,198,179 and 0 shares were issued
and outstanding as of September 30, 2006 and 2007,
respectively. In July 2006, the Company completed a private
placement of 5,380,711 shares of its Series B
preferred stock and received gross proceeds of $21,200 and as
part of the private placement, fees incurred totaled $1,795.
Additionally in July 2006, 817,468 shares of Series B
preferred stock and 440,105 common stock warrants were issued to
repay the Companys Bridge Financing units (see
Note 9).
Each share of Series B convertible preferred stock was
automatically convertible into a number of shares of common
stock equal to the quotient of $3.94 divided by $1.00
immediately subsequent to the date of the initial public
offering.
As part of the compensation agreement relating to the
Series B Preferred Stock transaction, the placement agent
received 126,903 Agent Series B Preferred Warrants and
68,322 common stock warrants. Each such warrant consisted of the
right to purchase one share of Series B Preferred Stock for
a period of seven years which expires on July 19, 2013. The
exercise price of each warrant was $5.56 per share. The exercise
price was payable in cash or by tendering common stock. In the
event the Company issued common stock or rights to purchase
common stock below the then conversion price, then the price per
share at which the Series B preferred stock was to be
converted would be reduced to the weighted average of the
existing conversion price per share and the price per share of
the newly-issued stock or rights.
Also, as part of the compensation agreement relating to the
bridge financing transaction, the placement agent received an
aggregate of 22,222 Series B Preferred warrants and 11,963
common stock warrants. Each warrant consisted of the right to
purchase one share of fully paid and non-assessable common stock
for a period of seven years which expires on July 19, 2012.
The exercise price of each warrant was $5.56 per share. The
exercise price was payable in cash or by tendering common stock.
In the event the Company issued common stock or rights to
purchase common stock below the then conversion price, then the
price per share at which the Series B preferred stock was
to be converted would be reduced to the weighted average of the
existing conversion price per share and the price per share of
the newly-issued stock or rights.
The Company evaluated all the warrants in accordance with
EITF 00-19
and concluded they should be classified as equity on the balance
sheet.
As a result of the conversion option, the Company considered
EITF 98-5
and determined that the issuance of the Series B
convertible preferred stock resulted in a beneficial conversion
feature in the amount of $603.
F-18
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
The completion of the Companys initial public offering in
May 2007 resulted in the conversion of 6,407,008 shares of
the Companys Series A and B convertible preferred
stock.
Shares
Reserved for Future Issuance
As of September 30, 2007, the Company reserved shares of
common stock for future issuance as follows:
|
|
|
|
|
2004 stock incentive plan
|
|
|
4,700,000
|
|
2005 employee stock purchase plan
|
|
|
1,300,000
|
|
2005 Non-employee directors stock option plan
|
|
|
500,000
|
|
Exercise of warrants issued to placement agent
|
|
|
198,025
|
|
|
|
|
|
|
|
|
|
6,698,025
|
|
|
|
|
|
|
2004
Stock Incentive Plan, as amended
The Company established the 2004 Stock Incentive Plan on
October 1, 2004 (the Plan) and as amended in March
2007. The Plan provides for the granting of shares of common
stock or securities convertible into or exercisable for shares
of common stock, including stock options (Incentive Stock
Options) to directors, employees, consultants and advisors
of or to the Company. Incentive Stock Options can be awarded
only to persons who are employees of the Company at the time of
the grant. Stock options are exercisable at the conclusion of
the vesting period. Employees can exercise their vested shares
up to 90 days after termination of services. A total of
4,700,000 options to purchase the equivalent number of shares of
common stock may be issued pursuant to the Stock Incentive Plan.
No awards may be granted under the plan after October 1,
2014.
The Plan shall be administered by either the Board of Directors
of the Company or a Committee thereof, which determines the
terms and conditions of the awards granted under the Plan,
including the recipient of the award, the nature of the award,
the exercise price of the award, the number of shares subject to
the award and the exercisability thereof.
Non-employee directors are not entitled to receive awards other
than the non-qualified stock options the plan directs be issued
to non-employee directors.
2005
Employee Stock Purchase Plan
The Companys 2005 Employee Stock Purchase Plan, or the
Purchase Plan, was adopted by its Board of Directors and
approved by its stockholders on March 20, 2007. The
Purchase Plan became effective upon the closing of the
Companys initial public 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 may contribute up to
15% of their eligible earnings for the period of that offering
withheld for the purchase of common stock under the Purchase
Plan. The employees purchase price is 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 Purchase Plan imposes a limitation upon a
participants right to acquire common stock if immediately
after the purchase, the employee would own 5% or more of the
total combined voting power or value of the Companys
common stock or of any of its affiliates not eligible to
participate in the Purchase Plan. Offering periods are
twenty-seven months in length. The compensation cost in
connection with the plan as of September 30, 2007 was $9,
in accordance with SFAS No. 123(R) and Financial
Accounting Standards Board, Technical
Bulletin No. 97-1
(As Amended)
Accounting under Statement 123 for Certain
Employee
F-19
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
Stock Purchase Plan with a Look-Back Option
FTB
No. 97-1.
The Purchase Plan is considered compensation under
SFAS No. 123(R) and FTB
No. 97-1.
An aggregate of 1,300,000 shares of common stock are
reserved for issuance pursuant to purchase rights to be granted
to the Companys eligible employees under the Purchase
Plan. The Purchase Plan shares are replenished annually on the
first day of each fiscal year by virtue of an evergreen
provision. The provision allows for share replenishment equal to
the lesser of 1% of the total number of shares outstanding on
that date or 100,000 shares. As of September 30, 2007,
a total of 1,300,000 shares were reserved and available for
issuance under this plan. As of September 30, 2007, the
Company had not issued any shares under the Purchase Plan.
Subsequently, the Company issued shares on its first purchase
date of November 9, 2007.
2005
Non-Employee Directors Stock Option Plan
The Companys 2005 Non-Employee Directors Stock
Option Plan, or the Directors Plan, was adopted by its
Board of Directors and approved by its stockholders on
March 20, 2007. The Directors Plan became effective
upon the closing of the Companys initial public offering.
An aggregate of 500,000 shares of common stock are reserved
for issuance under the Directors Plan. Upon the effective
date of the registration statement in connection with the
Companys initial public offering, each of its non-employee
directors automatically received an initial option to purchase
25,000 shares of common stock. Each non-employee director
who is first elected or appointed to the Companys Board of
Directors after the closing of the Companys initial public
offering will receive an initial option to purchase
25,000 shares of common stock on the date of his or her
election or appointment. In addition, each non-employee director
will receive an option to purchase 10,000 shares of common
stock on an annual basis commencing with the first annual
meeting of stockholders held after the completion of the
Companys initial public offering. These shares vest
immediately. However, in the event a non-employee director has
not served since the date of the preceding annual meeting of
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.
From September 30, 2004 through September 30, 2007,
the Company granted stock options with exercise prices as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Number of
|
|
|
Average
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Fair Value
|
|
|
Value per
|
|
Grants Made During Quarter Ended
|
|
Granted
|
|
|
Price
|
|
|
per Share
|
|
|
Share
|
|
|
December 31, 2004
|
|
|
301,828
|
|
|
$
|
1.41
|
|
|
$
|
.83
|
|
|
$
|
|
|
June 30, 2005
|
|
|
83,604
|
|
|
|
1.41
|
|
|
|
.83
|
|
|
|
|
|
December 31, 2005
|
|
|
292,265
|
|
|
|
5.65
|
|
|
|
4.69
|
|
|
|
|
|
March 31, 2006
|
|
|
38,969
|
|
|
|
5.65
|
|
|
|
4.69
|
|
|
|
|
|
September 30, 2006
|
|
|
130,368
|
|
|
|
5.65
|
|
|
|
9.39
|
|
|
|
3.74
|
|
December 31, 2006
|
|
|
377,075
|
|
|
|
10.00
|
|
|
|
12.63
|
|
|
|
2.63
|
|
March 31, 2007
|
|
|
63,767
|
|
|
|
12.63
|
|
|
|
12.63
|
|
|
|
|
|
June 30, 2007
|
|
|
440,000
|
|
|
|
16.72
|
|
|
|
9.51
|
|
|
|
7.21
|
|
September 30, 2007
|
|
|
75,000
|
|
|
|
18.76
|
|
|
|
11.26
|
|
|
|
7.50
|
|
The fair value per share is being recognized as compensation
expense over the applicable vesting period. The fair value per
share for award granted as of June 30, 2007 and
September 30, 2007 were calculated using the Black-Scholes
model.
F-20
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
The fair value of the common stock for the grants from
December 23, 2004 through November 1, 2006 was
determined using a retrospective valuation. The fair value of
the common stock for the grants during December 2006 and
subsequently were determined contemporaneously with the grants.
The following table summarizes the stock option activity through
September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Exercise Price
|
|
|
Intrinsic Value
|
|
|
Balance, September 30, 2004
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
|
385,432
|
|
|
|
1.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance, September 30, 2005
|
|
|
385,432
|
|
|
|
1.41
|
|
|
|
|
|
Granted
|
|
|
461,602
|
|
|
|
5.65
|
|
|
|
|
|
Forfeited, expired
|
|
|
60,222
|
|
|
|
3.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance, September 30, 2006
|
|
|
786,812
|
|
|
|
3.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
955,842
|
|
|
|
13.96
|
|
|
|
|
|
Exercised
|
|
|
3,542
|
|
|
|
1.41
|
|
|
$
|
56
|
|
Forfeited, expired
|
|
|
53,138
|
|
|
|
5.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance, September 30, 2007
|
|
|
1,685,974
|
|
|
$
|
6.80
|
|
|
$
|
17,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable shares, September 30, 2007
|
|
|
583,398
|
|
|
$
|
7.17
|
|
|
$
|
5,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes option data for currently
outstanding and exercisable options as of September 30,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
Range of
|
|
|
|
|
|
Remaining
|
|
|
Weighted Average
|
|
|
Number
|
|
|
Weighted Average
|
|
Exercise Prices
|
|
|
Number Outstanding
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
$
|
1.41
|
|
|
|
350,007
|
|
|
|
64 Months
|
|
|
$
|
1.41
|
|
|
|
231,685
|
|
|
$
|
1.41
|
|
$
|
5.65
|
|
|
|
521,825
|
|
|
|
75 Months
|
|
|
$
|
5.65
|
|
|
|
151,713
|
|
|
$
|
5.65
|
|
$
|
12.63
|
|
|
|
299,142
|
|
|
|
87 Months
|
|
|
$
|
12.63
|
|
|
|
|
|
|
$
|
12.63
|
|
$
|
15.00
|
|
|
|
200,000
|
|
|
|
91 Months
|
|
|
$
|
15.00
|
|
|
|
200,000
|
|
|
$
|
15.00
|
|
$
|
18.16
|
|
|
|
240,000
|
|
|
|
92 Months
|
|
|
$
|
18.16
|
|
|
|
|
|
|
$
|
18.16
|
|
$
|
18.76
|
|
|
|
75,000
|
|
|
|
94 Months
|
|
|
$
|
18.76
|
|
|
|
|
|
|
$
|
18.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
1,685,974
|
|
|
|
84 Months
|
|
|
$
|
6.80
|
|
|
|
583,398
|
|
|
$
|
7.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Bridge
Financing Units
|
Between February and May 2006, the Company completed a Bridge
Financing whereby it issued and sold 103 Units. Each Unit
consisted of an interest-bearing promissory note (the
Note) and a warrant. Gross proceeds received were
$2,575 and fees incurred totaled $227.
The principal amount of each Note was $25 bearing interest at
the rate of 7% per annum payable on the Maturity Date. The
Maturity Date was designated as the date which was
the earliest of (i) twelve months following the issue date
of the Note, (ii) the date of the closing of an initial
public offering of securities of the Company pursuant to a
registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended,
(iii) the date of the closing of a sale (or the closing of
the last of a series of sales) of a separate class of securities
of the Company after the closing of the Bridge Financing, the
net
F-21
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
proceeds of which, in the aggregate, was equal to or exceeded
$10,000, (iv) the date any class of securities of the
Company became subject to registration, or was registered, under
the Securities Exchange Act of 1934, as amended or (v) the
date of first exercise.
Each warrant consisted of the right to purchase for a period of
seven years from the earlier to occur of the (i) Next Round
Closing (defined below) or the (ii) Maturity Date of the
Notes such number of shares of common stock of the Company as
equals the quotient obtained by dividing $13 by the Next Round
Price. The Next Round Closing meant when the net proceeds from a
subsequent financing or series of financings, in the aggregate,
equaled or exceeded $10,000. The Next Round Price meant the
price paid per share of common stock sold at the next
transaction.
At the Next Round Closing, the Company had the right, at its
option, to settle its obligations relating to the Units using
the securities of the Company issued at the Next Round Closing
at a conversion rate that results when $0.80 of the principal
amount of the Notes is deemed to be equivalent to $1.00. Thus,
the investors who purchased the Units would receive a 25%
premium on the principal if the units were to be settled with
equity securities issued at the Next Round. Accrued but unpaid
interest on the Notes was to be paid in cash at the time of the
Next Round Closing.
On July 19, 2006, the Company completed the Series B
Preferred Stock financing (the Next Round Closing). The Company
exercised its right to repay the Bridge Financing Units
utilizing the Series B Preferred Stock and Series B
warrants. As a result of the 25% premium, the Company recorded a
loss on settlement of debt of $627.
The Company evaluated the warrants in accordance with
EITF 00-19
and concluded they should be classified as equity on the balance
sheet. The Company considered that the warrants were not
contractually issuable until the earlier to occur of the
(i) Next Round Closing or the (ii) Maturity Date of
the notes and that the bridge financing was intended to be
settled at the Next Round Closing which was in progress at the
time of issuance of the Bridge Financing Units and was
subsequently completed approximately four months later. As such,
the Company ascribed minimal value to the warrants given the
short expected term of the warrants.
In connection with the Units issuance, the Company entered into
a registration rights agreement with the purchasers of these
Units. After one hundred and eighty (180) days following
the completion of a public offering, the Unit holders may
require the Company, on more than one occasion, to file a
registration statement. The Company is required to use its best
efforts to have the registration statement declared effective.
|
|
10.
|
Employee
Benefit Plan
|
Effective January 1, 2006, the Company established a 401(k)
plan covering substantially all employees. Employees may
contribute up to 100% of their salary per year (subject to
maximum limit prescribed by federal tax law). The Company may
elect to make a discretionary contribution or match a
discretionary percentage of employee contributions. As of
September 30, 2007, the Company had not elected to make any
contributions to the plan.
On March 20, 2007, the Company offered the holders of
warrants to purchase an aggregate of 149,125 shares of its
Series B convertible preferred stock and an aggregate of
3,417,255 shares of its common stock with an exercise price
of $5.56 per share the opportunity to exercise such warrants at
an exercise price of $3.67, representing a 34% discount in the
exercise price. Such holders exercised all of such warrants on a
combination of cashless and cash exercise basis. The Company
issued an aggregate of 2,636,907 shares of common stock and
received aggregate cash proceeds of $423 in connection with such
exercises.
F-22
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
As a result of the discounted exercise price, the Company
recorded a deemed dividend charge of approximately $4,500 for
the warrants that were exercised in the fiscal quarter ended
March 31, 2007.
On April 12, 2007, the Company completed a 0.7085 for one
(0.7085:1) reverse stock split (Reverse Split)
rounding all fractional shares down to the next full share.
Stockholders received cash in lieu of fractional shares. After
the Reverse Split, there are 8,003,828 shares of common
stock outstanding. The Reverse Split did not reduce the number
of authorized shares of common stock, alter the par value or
modify the voting rights or other terms thereof. As a result of
the Reverse Split, the conversion prices
and/or
the
numbers of shares issuable upon the exercise of any outstanding
options and warrants to purchase common stock were
proportionally adjusted pursuant to the respective anti-dilution
terms of the 2004 Stock Incentive Plan and the respective
warrant agreements. All references in these financial statements
and accompanying notes to units of common stock or per share
amounts are reflective of the Reverse Split for all periods
reported.
|
|
13.
|
Summary
Selected Quarterly Financial Data (Unaudited)
|
The following table sets forth certain unaudited consolidated
quarterly statement of operations data for the eight quarters
ended September 30, 2007. This information is unaudited,
but in the opinion of management, it has been prepared
substantially on the same basis as the audited consolidated
financial statements and all necessary adjustments, consisting
only of normal recurring adjustments, have been included in the
amounts stated below to state fairly the unaudited consolidated
quarterly results of operations. The results of operations for
any quarter are not necessarily indicative of the results of
operations for any future period.
Quarter
Ended
(in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Restated)(1)
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,668
|
)
|
|
$
|
(5,215
|
)
|
|
$
|
(5,295
|
)
|
|
$
|
(8,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(3,668
|
)
|
|
$
|
(9,672
|
)
|
|
$
|
(5,295
|
)
|
|
$
|
(8,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.31
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares basic and diluted
|
|
|
11,769,773
|
|
|
|
11,803,228
|
|
|
|
17,669,169
|
|
|
|
20,160,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
Biodel
Inc.
(A Development Stage Company)
Notes to Financial
Statements (Continued)
(In thousands, except share and per share amounts)
Quarter
Ended
(in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,151
|
)
|
|
$
|
(1,344
|
)
|
|
$
|
(2,268
|
)
|
|
$
|
(3,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(1,151
|
)
|
|
$
|
(1,344
|
)
|
|
$
|
(2,268
|
)
|
|
$
|
(3,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.16
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares basic and diluted
|
|
|
7,372,153
|
|
|
|
7,373,433
|
|
|
|
7,374,216
|
|
|
|
10,937,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Company previously restated the quarter ended June 30,
2007 financial statement to properly reflect the accounting for
stock options that the Company granted pursuant to its 2005
Non-Employee Directors Stock Option Plan.
|
Former
Chief Financial Officer Severance Agreement
On November 13, 2007, F. Scott Reding, the Companys
former Chief Financial Officer, Chief Accounting Officer and
Treasurer, resigned from all his positions with the Company. In
connection with Mr. Redings resignation, the Company
and Mr. Reding entered into a severance agreement that
established the terms of Mr. Redings separation of
employment. Pursuant to the severance agreement, Mr. Reding
received a lump sum payment of approximately $91, less taxes and
withholdings, and the Company has reimbursed Mr. Reding for
certain legal fees. In addition, pursuant to the severance
agreement, Mr. Reding will receive a continuation of salary
and certain benefits until November 30, 2009. Furthermore,
the Company accelerated the vesting of options to purchase
54,575 shares of common stock at an exercise price of $5.65
per share and options to purchase an additional
35,425 shares of common stock at an exercise price of $5.65
per share remain exercisable through the original expiration
date. In connection with Mr. Redings resignation,
options to purchase 51,700 shares at an exercise price of
$5.65 and 25,000 shares at an exercise price of $18.16 per
share were forfeited. The estimated charge of $450 for the lump
sum payment, salary and benefit continuation for two years and
option acceleration modification estimated charge of $750 will
be recorded in the first quarter of fiscal 2008.
F-24