UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2009
or
|
|
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission file number: 001-33882
ONCOTHYREON INC.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
26-0868560
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Identification Number)
|
|
|
|
2601 Fourth Ave., Suite 500
|
|
|
Seattle, Washington
|
|
98121
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(206) 801-2100
(Registrants telephone number, including area code)
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, as amended, during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
Non-accelerated filer
þ
|
|
Smaller reporting company
o
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act): Yes
o
No
þ
As of August 12, 2009, the number of outstanding shares of the registrants common stock, par value
$0.0001 per share, was 25,651,927.
ONCOTHYREON INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2009
INDEX
In this Form 10-Q, unless otherwise specified, all monetary amounts are in United States
dollars, all references to $ and U.S. dollars mean U.S. dollars and all references to Cdn. $
mean Canadian dollars.
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ONCOTHYREON INC.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,706
|
|
|
$
|
19,166
|
|
Accounts receivable
|
|
|
1,634
|
|
|
|
1,828
|
|
Government grant receivable
|
|
|
8
|
|
|
|
40
|
|
Note receivable
|
|
|
73
|
|
|
|
|
|
Prepaid expenses
|
|
|
289
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
24,710
|
|
|
|
21,418
|
|
Plant and equipment, net
|
|
|
782
|
|
|
|
867
|
|
Note receivable
|
|
|
147
|
|
|
|
215
|
|
Long term deposit
|
|
|
354
|
|
|
|
354
|
|
Goodwill
|
|
|
2,117
|
|
|
|
2,117
|
|
|
|
|
|
|
|
|
|
|
$
|
28,110
|
|
|
$
|
24,971
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,438
|
|
|
$
|
3,843
|
|
Current portion of deferred revenue
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
2,456
|
|
|
|
3,861
|
|
Notes payable
|
|
|
199
|
|
|
|
199
|
|
Deferred revenue
|
|
|
156
|
|
|
|
164
|
|
Warrant liability
|
|
|
6,720
|
|
|
|
|
|
Class UA preferred stock, 12,500 shares authorized, 12,500 and 12,500 shares issued and outstanding
|
|
|
30
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
9,561
|
|
|
|
4,254
|
|
|
|
|
|
|
|
|
Contingencies, commitments, and guarantees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 100,000,000 shares authorized, 23,371,425 and 19,492,432 shares
issued and outstanding
|
|
|
330,933
|
|
|
|
325,043
|
|
Warrants
|
|
|
64
|
|
|
|
64
|
|
Additional paid-in capital
|
|
|
15,840
|
|
|
|
15,094
|
|
Accumulated deficit
|
|
|
(323,222
|
)
|
|
|
(314,418
|
)
|
Accumulated other comprehensive loss
|
|
|
(5,066
|
)
|
|
|
(5,066
|
)
|
|
|
|
|
|
|
|
|
|
|
18,549
|
|
|
|
20,717
|
|
|
|
|
|
|
|
|
|
|
$
|
28,110
|
|
|
$
|
24,971
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements
3
ONCOTHYREON INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
Six months
|
|
|
|
ended June 30,
|
|
|
ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract manufacturing
|
|
$
|
|
|
|
$
|
802
|
|
|
$
|
|
|
|
$
|
2,520
|
|
Licensing revenue from collaborative agreements
|
|
|
4
|
|
|
|
350
|
|
|
|
8
|
|
|
|
652
|
|
Licensing, royalties, and other revenue
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
1,152
|
|
|
|
35
|
|
|
|
3,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,995
|
|
|
|
2,726
|
|
|
|
2,675
|
|
|
|
5,034
|
|
Manufacturing
|
|
|
|
|
|
|
646
|
|
|
|
|
|
|
|
2,726
|
|
General and administrative
|
|
|
1,745
|
|
|
|
2,661
|
|
|
|
3,496
|
|
|
|
5,364
|
|
Depreciation
|
|
|
67
|
|
|
|
103
|
|
|
|
132
|
|
|
|
206
|
|
Investment and other income, net
|
|
|
54
|
|
|
|
(68
|
)
|
|
|
34
|
|
|
|
(128
|
)
|
Change in fair value of warrant liability
|
|
|
2,502
|
|
|
|
|
|
|
|
2,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,363
|
|
|
|
6,068
|
|
|
|
8,839
|
|
|
|
13,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(6,332
|
)
|
|
|
(4,916
|
)
|
|
|
(8,804
|
)
|
|
|
(10,030
|
)
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(6,332
|
)
|
|
$
|
(4,844
|
)
|
|
$
|
(8,804
|
)
|
|
$
|
(10,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.30
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
20,984,352
|
|
|
|
19,491,641
|
|
|
|
20,242,514
|
|
|
|
19,488,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements
4
ONCOTHYREON INC.
Condensed Consolidated Statements of Stockholders Equity
(in thousands, except shares amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
Balance at January 1, 2008
|
|
|
19,485,889
|
|
|
$
|
324,992
|
|
|
$
|
13,636
|
|
|
$
|
(321,543
|
)
|
|
$
|
(5,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,509
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,125
|
|
|
|
|
|
Conversion of restricted share units
|
|
|
6,543
|
|
|
|
51
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
19,492,432
|
|
|
$
|
325,043
|
|
|
$
|
15,094
|
|
|
$
|
(314,418
|
)
|
|
$
|
(5,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
746
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
3,878,993
|
|
|
|
5,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
23,371,425
|
|
|
$
|
330,933
|
|
|
$
|
15,840
|
|
|
$
|
(323,222
|
)
|
|
$
|
(5,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements
5
ONCOTHYREON INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Operating
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,804
|
)
|
|
$
|
(10,030
|
)
|
Depreciation
|
|
|
132
|
|
|
|
206
|
|
Stock-based compensation expense
|
|
|
746
|
|
|
|
744
|
|
Recognition of unearned revenue
|
|
|
(8
|
)
|
|
|
5
|
|
Proceeds from collaborative arrangements
|
|
|
|
|
|
|
3,000
|
|
Loss on disposal of plant and equipment
|
|
|
5
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
|
2,502
|
|
|
|
|
|
Net change in non-cash working capital balances from operations
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
189
|
|
|
|
664
|
|
Government grant receivable
|
|
|
32
|
|
|
|
439
|
|
Prepaid expenses
|
|
|
95
|
|
|
|
3
|
|
Inventory
|
|
|
|
|
|
|
(2,580
|
)
|
Accounts payable and accrued liabilities
|
|
|
(1,386
|
)
|
|
|
(1,772
|
)
|
Deposits
|
|
|
|
|
|
|
(354
|
)
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(6,497
|
)
|
|
|
(9,675
|
)
|
|
|
|
|
|
|
|
Investing
|
|
|
|
|
|
|
|
|
Purchase of short-term investments
|
|
|
|
|
|
|
(18,971
|
)
|
Redemption of short-term investments
|
|
|
|
|
|
|
26,074
|
|
Collection of notes receivable
|
|
|
|
|
|
|
152
|
|
Purchase of plant and equipment
|
|
|
(71
|
)
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
Net cash provided (used) in investing activities
|
|
|
(71
|
)
|
|
|
6,866
|
|
|
|
|
|
|
|
|
Financing
|
|
|
|
|
|
|
|
|
Proceeds on issuance of common stock and warrants, net
|
|
|
10,108
|
|
|
|
|
|
Repayment of capital lease obligations
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
Net cash provided (used) in financing activities
|
|
|
10,108
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,540
|
|
|
|
(2,865
|
)
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
|
|
|
|
211
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash and cash equivalents
|
|
|
3,540
|
|
|
|
(2,654
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
19,166
|
|
|
|
12,035
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
22,706
|
|
|
$
|
9,381
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Amount of interest paid in the period
|
|
$
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements
6
ONCOTHYREON INC.
Notes to the Condensed Consolidated Financial Statements
Three and Six months ended June 30, 2009 and 2008
(Unaudited)
1. DESCRIPTION OF BUSINESS
Oncothyreon Inc. (the Company or Oncothyreon) is a biotechnology company incorporated in
the State of Delaware on September 7, 2007. Oncothyreon specializes in the development of
innovative therapeutic products for the treatment of cancer. Oncothyreons goal is to develop and
commercialize novel synthetic vaccines and targeted small molecules that have the potential to
improve the lives and outcomes of cancer patients. Oncothyreons operations are not subject to any
seasonality or cyclicality factors.
In December 2008, the Company sold its Stimuvax manufacturing rights and know-how, together
with its existing inventory to Merck KGaA. As part of the sale, the Company also transferred its
Edmonton, Alberta facility and most of its Edmonton-based employees to an affiliate of Merck KGaA.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by
the Company in accordance with accounting principles generally accepted in the United States of
America (U.S. GAAP) for interim financial statements. The accounting principles and methods of
computation adopted in these condensed consolidated financial statements are the same as those of
the audited consolidated financial statements for the year ended December 31, 2008, except as
disclosed in Note 3 below.
Omitted from these statements are certain information and note disclosures normally included
in the annual consolidated financial statements prepared in accordance with U.S. GAAP. The Company
believes all adjustments necessary for a fair statement of the results for the periods presented
have been made. The financial results for the three and six months ended June 30, 2009 are not
necessarily indicative of financial results for the full year. The condensed consolidated financial
statements and notes presented should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 2008 filed with our annual report on Form 10-K
with the U.S. Securities and Exchange Commission (SEC).
3. RECENT ACCOUNTING PRONOUNCEMENTS
Fair Value Measurements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157,
Fair
Value Measurements
(SFAS 157). SFAS 157, which the Company adopted on January 1, 2008, defines
fair value, establishes a framework for measuring fair value and expands the disclosure
requirements regarding fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007 for financial assets and liabilities as well as for non-financial assets
and liabilities that are recognized or disclosed at fair value on a recurring basis in the
financial statements. In accordance with FASB Staff Position (FSP) FSP No. 157-2,
Effective Date
of FASB Statement No. 157
(FSP 157-2), for all other non-financial assets and liabilities, SFAS
157 is effective for fiscal years beginning after November 15, 2008. In October 2008, the FASB
issued FSP No. 157-3,
Determining the Fair Value of a Financial Asset When the Market for That
Asset is Not Active
(FSP 157-3), that clarifies the application of SFAS 157 for financial assets
in a market that is not active and provides an example to illustrate key considerations in
determining the fair value of a financial asset when the market for that financial asset is not
active.
On January 1, 2009, in accordance with FSP 157-2, the Company adopted the provisions of SFAS
157 on a prospective basis for its non-financial assets and liabilities that are not recognized or
disclosed at fair value on a recurring basis. SFAS 157 requires that the Company determine the fair
value of financial and non-financial assets and liabilities using the fair value hierarchy
established in SFAS 157. The adoption of FSP 157-2 did not have any impact on the Companys
financial position or results of operations.
Business Combinations
In December 2007, the FASB issued SFAS No. 141 (Revised),
Business Combinations
(SFAS 141R).
SFAS 141R requires most identifiable assets, liabilities, non-controlling interests, and goodwill
acquired in a business combination to be recorded at full fair value. SFAS 141R applies to all
business combinations, including combinations among mutual entities and combinations by contract
7
alone. Under SFAS 141R, all business combinations will be accounted for by applying the
acquisition method. The adoption of SFAS 141R had no impact on the Companys financial position or
results of operation.
Collaborative Arrangements
Effective January 1, 2009 the Company adopted Emerging Issues Task Force (EITF) Issue No.
07-1,
Collaborative Arrangements
(EITF 07-1). EITF 07-1 addresses the accounting for arrangements
in which two companies work together to achieve a commercial objective, without forming a separate
legal entity. The nature and purpose of a companys collaborative arrangements are required to be
disclosed, along with the accounting policies applied and the classification and amounts for
significant financial activities related to the arrangements. The adoption of EITF 07-1 had no
impact on the Companys consolidated financial statements.
Instruments Indexed to an Entitys Own Stock
In June 2008, the FASB ratified the consensus reached on EITF Issue No. 07-5,
Determining
Whether an Instrument (or an Embedded Feature) is Indexed to an Entitys Own Stock
(EITF 07-5).
This EITF provides guidance for determining whether an equity-linked financial instrument (or
embedded feature) is indexed to an entitys own stock. The EITF applies to any freestanding
financial instrument or embedded feature that has all the characteristics of a derivative under
paragraphs 6-9 of SFAS 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS
No. 133), for purposes of determining whether that instrument or embedded feature qualifies for
the first part of the scope exception under paragraph 11(a) of SFAS No. 133. The EITF also applies
to any freestanding financial instrument that is potentially settled in an entitys own stock,
regardless of whether the instrument has all the characteristics of a derivative under paragraphs
6-9 of SFAS No. 133, for purposes of determining whether the instrument is within the scope of EITF
No. 00-19
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock
(EITF 00-19). EITF No. 07-5 was effective beginning first quarter of fiscal
2009. The Company applied EITF 07-5 in its accounting for the warrants issued in May 2009. See Note
7 for further discussion.
New Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168,
FASB Accounting Standards Codification
and the
Hierarchy of Generally Accepted Accounting Principles (SFAS 168). This standard replaces SFAS
No. 162,
The Hierarchy of Generally Accepted Accounting Principles
, and establishes only two levels
of U.S. GAAP, authoritative and nonauthoritative. The FASB Accounting Standards Codification (the
Codification) will become the source of authoritative, GAAP for nongovernmental entities, except
for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC
registrants. All other non-grandfathered, non-SEC accounting literature not included in the
Codification will become nonauthoritative. SFAS 168 is effective for financial statements for
interim or annual reporting periods ending after September 15, 2009. The Company anticipates using
the new guidelines and numbering system prescribed by the Codification when referring to GAAP in
the third quarter of 2009. As the Codification was not intended to change or alter existing GAAP,
it should not have any impact on the Companys consolidated financial statements.
On January 1, 2009, in accordance with FSP 157-2, the Company adopted the provisions of SFAS
157 on a prospective basis for its non-financial assets and liabilities that are not recognized or
disclosed at fair value on a recurring basis. SFAS 157 requires that the Company determine the fair
value of financial and non-financial assets and liabilities using the fair value hierarchy
established in SFAS 157. The adoption of FSP 157-2 did not have any impact on the Companys
financial position or results of operations.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events
(SFAS 165). SFAS 165
establishes general standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. SFAS 165 is effective for interim or
annual financial periods ending after June 15, 2009. As of this date, the Company has adopted SFAS
165. In an evaluation of subsequent events through the date of this filing with the SEC, the
Company does not believe there are any material subsequent events which would require further
disclosure other than that discussed in Note 12.
4. FAIR VALUE MEASUREMENTS
The Company measures at fair value certain financial assets and liabilities. SFAS 157,
Fair
Value Measurements
(SFAS 157) establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs which reflect market data obtained from independent sources
and minimize the use of unobservable inputs which reflect the Companys market assumptions when
measuring fair value. SFAS 157 describes three levels of inputs that may be used to measure fair
value:
|
|
|
Level 1 quoted prices in active markets for identical assets or liabilities;
|
8
|
|
|
Level 2 observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that
are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities; and
|
|
|
|
|
Level 3 unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
|
The Companys financial assets and liabilities measured at fair value consisted of the following as
of June 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Significant other
|
|
Significant
|
|
|
|
|
|
|
Quoted prices in
|
|
observable
|
|
unobservable
|
|
|
Total carrying
|
|
active markets
|
|
inputs
|
|
inputs
|
|
|
value
|
|
(Level -1)
|
|
(Level 2)
|
|
(Level 3)
|
Money market accounts
|
|
$
|
20,037
|
|
|
$
|
20,037
|
|
|
$
|
|
|
|
$
|
|
|
Warrant Liability
|
|
|
6,720
|
|
|
|
|
|
|
|
|
|
|
|
6,720
|
|
5. RESEARCH AND DEVELOPMENT
Government grant funding of $21,000 (2008 $523,000) and $436,000 (2008 $807,000) was
credited against research and development costs during the three and six months ended June 30,
2009, respectively.
6. SHARE CAPITAL
Stock Transactions
(a) Loss Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Numerator:
|
|
Net loss (in thousands)
|
|
$
|
6,332
|
|
|
$
|
4,916
|
|
|
$
|
8,804
|
|
|
$
|
10,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding used to compute earnings
per share basic
|
|
|
20,984,352
|
|
|
|
19,491,461
|
|
|
|
20,242,514
|
|
|
|
19,488,801
|
|
Effective of dilutive options and RSUs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
and dilutive securities used to
compute earnings per share diluted
|
|
|
20,984,352
|
|
|
|
19,491,461
|
|
|
|
20,242,514
|
|
|
|
19,488,801
|
|
For
the three and six months ended June 30, 2009, shares potentially issuable upon the
exercise or conversion of director and employee stock options and non-employee director restricted
share units of 1,267,599 (2008 1,389,448) and 165,261 (2008 89,258) of common shares
respectively have been excluded from the calculation of diluted loss per share because the effect
would have been anti-dilutive.
(b) Registration Statement
On March 20, 2008, the Company filed a shelf registration statement on Form S-3 to issue up to
$50 million in common stock, preferred stock, debt securities, depositary shares, warrants, units
and guarantees. On July 29, 2008, the Company filed a post-effective amendment to such registration
statement to give it the flexibility to offer and sell its common stock and preferred stock through
the issuance of subscription rights to its stockholders on a pro rata basis.
(c) Equity financing
9
On May 26, 2009, the Company closed the sale of 3,878,993 shares of its common stock at $2.85
per share for gross proceeds of approximately $11.1 million. Each common stock had associated with
it a warrant to purchase 0.75 shares of its common stock for a total of 2,909,244 shares. The
exercise price of the warrants is $3.92 per share. The warrants are exercisable at any time on or
after November 26, 2009 and on or prior to May 26, 2014. Upon exercise, holders of the warrants are
required to deliver the aggregate exercise price with respect to the number of underlying shares;
provided that if a registration statement is not available with respect to the issuance of such
shares upon exercise, under certain circumstances, holders may exercise warrants on a net basis.
If holders exercise warrants on a net basis, we would not receive any cash in respect of the
shares issued upon exercise. At the election of the warrant holder, upon certain transactions,
including a merger, tender offer or sale of substantially all of the assets of the company, the
holder may receive cash in exchange for the warrant, in an amount determined by application of the
Black-Scholes option valuation model. The warrants issued in May 2009 have been classified as a
liability as discussed in Note 7.
7. WARRANTS
Due to certain adjustments that may be made to the terms of the warrants if the Company issues
or sell shares below the exercise price and the potential cash settlement upon the occurrence of a
fundamental transaction as defined in the warrant agreement related to the warrants, the warrants
have been classified as a liability as opposed to equity in accordance with SFAS 133 and EITF
07-5
.
The fair market value of these warrants is determined on the date of closing and marked to
market at each financial reporting period. The change in fair value of the warrants is recorded in
the statement of operations as a gain (loss) and is estimated using the Black-Scholes
option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Market value of stock on issue date
|
|
$
|
2.57
|
|
|
$
|
|
|
|
$
|
2.57
|
|
|
$
|
|
|
Market value of stock at end of period
|
|
$
|
3.74
|
|
|
$
|
|
|
|
$
|
3.74
|
|
|
$
|
|
|
Expected dividend rate
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
Expected volatility
|
|
|
89
|
%
|
|
|
N/A
|
|
|
|
89
|
%
|
|
|
N/A
|
|
Risk-free interest rate
|
|
|
2.3
|
%
|
|
|
N/A
|
|
|
|
2.3
|
%
|
|
|
N/A
|
|
Expected life in years
|
|
|
5.0
|
|
|
|
N/A
|
|
|
|
5.0
|
|
|
|
N/A
|
|
Warrants classified as liabilities
|
|
|
2,909,244
|
|
|
|
|
|
|
|
2,909,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants classified as equity
|
|
|
795,150
|
|
|
|
795,150
|
|
|
|
795,150
|
|
|
|
795,150
|
|
Warrants issued prior to 2009 are classified as equity.
The changes in fair value of the warrant liability during the three and six month period ended
June 30, 2009 were as follows (in thousands):
|
|
|
|
|
Initial measurement at May 26, 2009
|
|
$
|
4,218
|
|
Revaluation of warrant liability at June 30, 2009
|
|
|
2,502
|
|
|
|
|
|
Balance at June 30, 2009
|
|
$
|
6,720
|
|
|
|
|
|
8. STOCK-BASED COMPENSATION
Stock Option Plan
The Company sponsors a Stock Option Plan under which a maximum fixed reloading percentage of
10% of the issued and outstanding common stock of the Company may be granted to employees,
directors, and service providers. Prior to April 1, 2008 the exercise price of each option equals
the closing market value at the date immediately preceding the date of the grant in Canadian
dollars as quoted on the Toronto Stock Exchange. The exercise price of options granted subsequent
to April 1, 2008 equals the closing price of the Companys shares of common stock on the NASDAQ
Global Market on the day of the option grant. In general, options issued under the plan vest in
equal amounts over four years on the anniversary date of the grant, and expire eight years
following the date of the initial grant.
During the three and six months ended June 30, 2009, the Company granted 2,000 (2008
142,600) and 178,000 (2008 150,600) stock options, respectively.
10
The Company uses the Black-Scholes option pricing model to value the options at each grant
date, using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
CDN$ Weighted average
grant-date fair value for stock
options granted in CDN$
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.84
|
|
US$ Weighted average
grant-date fair value for stock
options granted in US$
|
|
$
|
2.05
|
|
|
$
|
2.93
|
|
|
$
|
0.88
|
|
|
$
|
2.93
|
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
97.8
|
%
|
|
|
114.46
|
%
|
|
|
98.64
|
%
|
|
|
114.46
|
%
|
Risk-free interest rate
|
|
|
3.14
|
%
|
|
|
3.09
|
%
|
|
|
2.27
|
%
|
|
|
3.09
|
%
|
Expected life of options in years
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
Restricted Share Unit Plan
The Company also sponsors a Restricted Share Unit Plan (the RSU Plan) for non-employee
directors that was established in 2005. The RSU Plan provides for grants to be made from time to
time by the board of directors or a committee thereof. Each grant is to be made in accordance with
the RSU Plan and terms specific to that grant and will be converted into one common share of common
stock at the end of the grant period (not to exceed five years) without any further consideration
payable to the Company in respect thereof. The current maximum number of common shares of the
Company reserved for issuance pursuant to the RSU Plan is 456,957.
During the three and six months ended June 30, 2009, the Company granted 8,304 (2008 zero)
and 85,712 (2008 zero) restricted share units with a fair value of $22,000 (2008 zero) and
$106,000 (2008 zero) respectively. As of the date of this report, 291,696 shares of common stock
remain available for future grants of restricted stock units under the RSU.
Before June 12, 2009, the RSU Plan provided that the fair value of a restricted share unit were
equal to the Companys common shares closing trading price on the date immediately prior to the
grant as quoted in Canadian dollars on the Toronto Stock Exchange. On June 12, 2009, the RSU Plan
was amended to provide that the fair value of a restricted share unit be the last sale price on the
NASDAQ Global Market on the date of grant.
9. INVESTMENT AND OTHER (INCOME) EXPENSE, NET
Included in investment and other (income) expense, net, of $54,000 (2008 income of $68,000)
and $34,000 (2008 income of $128,000) for the three and six month periods ended June 30, 2009,
are net foreign exchange losses of $64,000 (2008 $11,000) and $82,000 (2008 $157,000).
10. CONTINGENCIES, COMMITMENTS, AND GUARANTEES
Royalties
In connection with the issuance of the Class UA preferred stock, the Company has agreed to pay
a royalty in the amount of 3% of the net proceeds of sale of any products sold by the Company
employing technology acquired in exchange for the shares. None of the Companys products currently
under development employ the technology acquired.
Pursuant to various license agreements, the Company is obligated to make payments based both
on the achievement of certain milestones and a percentage of revenues derived from the sublicensed
technology and royalties on net sales.
Guarantees
The Company is contingently liable under a mutual undertaking of indemnification with Merck
KGaA for any withholding tax liability that may arise from payments under the collaborative
agreements.
In the normal course of operations, the Company indemnifies counterparties in transactions
such as purchase and sale contracts for assets or shares, service agreements, director/officer
contracts and leasing transactions. These indemnification agreements may require the Company to
compensate the counterparties for costs incurred as a result of various events, including
environmental liabilities, changes in (or in the interpretation of) laws and regulations, or as a
result of litigation claims or statutory sanctions that may be suffered by the counterparties as a
consequence of the transaction. The terms of these indemnification agreements vary based upon the
11
contract, the nature of which prevents the Company from making a reasonable estimate of the
maximum potential amount that could be required to pay to counterparties. Historically, the Company
has not made any significant payments under such indemnification agreements and no amounts have
been accrued in the accompanying condensed consolidated financial statements with respect to these
indemnification guarantees.
Under the Agreement and Plan of Reorganization between Oncothyreon, Biomira Acquisition
Corporation, ProlX and two of the principal stockholders of ProlX, the Company has indemnified the
former ProlX stockholders against certain liabilities, including with respect to certain tax
liabilities that may arise as a result of actions taken by the Company through 2011. The estimated
maximum potential amount of future payments that could potentially result from hypothetical future
claims is $15 million. The Company believes the risk of having to make any payments under this
agreement to be remote and therefore no amounts have been recorded thereon.
11. FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents, accounts receivable, government
grant receivable and notes receivable that will result in future cash receipts, as well as accounts
payable and accrued liabilities, notes payable, Class UA preferred stock and warrants that require
or may require future cash outlays.
Foreign Exchange Risk
Historically, the Company has purchased goods and services denominated primarily in U.S. and
Canadian currencies and, to a lesser extent, in certain European currencies. Since the Company
disposed of its Canadian operations in 2008, expenditures have been incurred primarily in U.S.
dollars. The Company does not utilize derivative instruments.
As a result of the December 2008 transaction with Merck KGaA, at June 30, 2009, the Company
has a $1.6 million receivable from the German tax authorities which is denominated in Euros and a
minimal amount of Canadian dollar denominated cash and cash equivalents and, as a result, for the
foreseeable future, exchange rate fluctuations should not have a material effect on our results of
operations.
Accounts Receivable, Government Grant Receivable and Accounts Payable and Accrued Liabilities
The carrying amounts of accounts receivable, government grant receivable and accounts payable
and accrued liabilities approximate their fair values due to the short-term nature of these
financial instruments.
Notes Receivable
The fair value of notes receivable are assumed to be equal to their carrying value as the
interest rate charged approximates market.
Notes Payable and Class UA Preferred Stock
The fair values of notes payable and class UA preferred stock are assumed to be equal to
their carrying value as the amounts that will be paid and the timing of the payments cannot be
determined with any certainty.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment; therefore, they cannot be
determined with precision. Changes in assumptions could significantly affect the estimates.
12. SUBSEQUENT EVENTS
On August 7, 2009, the Company closed the sale of 2,280,502 shares of its common stock at
$6.5775 per share for gross proceeds of approximately $15 million. Each common stock had associated
with it a warrant to purchase 0.30 shares of its common stock for a total of 684,150 shares. The
exercise price of the warrants is $6.5775 per share. The warrants are exercisable any time on or
after August 7, 2009 and on or prior to August 6, 2011.
12
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The information in this Item 2 Managements Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our condensed consolidated financial
statements and related notes included in Part I, Item 1 of this quarterly report. This discussion
contains forward-looking statements based on current expectations that involve risks and
uncertainties, such as our plans, objectives, expectations and intentions. These forward-looking
statements are subject to certain risks and uncertainties that could cause actual results to differ
materially from those anticipated in the forward-looking statements. Factors that might cause such
a difference include, but are not limited to, those discussed in this quarterly report in Part II,
Item 1A Risk Factors, and elsewhere in this quarterly report
.
These statements, like all
statements in this quarterly report, speak only as of their date, and we undertake no obligation to
update or revise these statements in light of future developments.
Overview
We are a clinical-stage biopharmaceutical company focused primarily on the development of
therapeutic products for the treatment of cancer. Our goal is to develop and commercialize novel
synthetic vaccines and targeted small molecules that have the potential to improve the lives and
outcomes of cancer patients. Our cancer vaccines are designed to stimulate the immune system to
attack cancer cells, while our small molecule compounds are designed to inhibit the activity of
specific cancer-related proteins. We are advancing our product candidates through in-house
development efforts and strategic collaborations.
We believe the quality and breadth of our product candidate pipeline, strategic collaborations
and scientific team will enable us to become an integrated biopharmaceutical company with a
diversified portfolio of novel, commercialized therapeutics for major diseases.
Our lead product candidate is Stimuvax, which is a cancer vaccine currently in Phase 3
development for non-small cell lung cancer, or NSCLC, and breast cancer. We have granted an
exclusive, worldwide license to Merck KGaA of Darmstadt, Germany, or Merck KGaA, for the
development, manufacture and commercialization of Stimuvax. Our pipeline of clinical and
pre-clinical stage proprietary small molecule product candidates was acquired by us in October 2006
from ProlX Pharmaceuticals Corporation, or ProlX. We are currently focusing our internal
development efforts on PX-478, for which we initiated a Phase 1 trial in advanced metastatic cancer
in August 2007, and PX-866, for which we initiated a Phase 1 trial in advanced metastatic cancer in
June 2008. We are completing a Phase 2 trial for PX-12 in pancreatic cancer and have announced our
intention to seek a partner for further development. As of the date of this report, we have not
licensed any rights to our small molecules to any third party and retain all development,
commercialization and manufacturing rights. In addition to our product candidates, we have
developed novel vaccine technology we may develop ourselves and/or license to others.
In 2001, we entered into exclusive supply and collaboration agreements with Merck KGaA to
develop and market Stimuvax, subject to certain development and co-promotion rights we retained. In
connection with entering into these agreements, Merck KGaA made an equity investment in us in 2001,
was obligated to make additional cash payments, generally contingent on satisfaction of specified
milestones, and to pay us a royalty on Stimuvax sales, if any.
In August 2007, we restructured our agreements with Merck KGaA such that Merck KGaA would
fully assume responsibility for the further clinical development and marketing of Stimuvax. Under
the restated agreements, we converted the U.S. and Canadian co-promotion interest to a specified
royalty rate, which is higher than the rate Merck KGaA had agreed to pay in markets outside of
North America under the original agreements. Merck KGaA would exclusively purchase Stimuvax from us
and with respect to purchases for commercial sales, the purchase price would be subtracted from our
royalty. The restated agreements also contained development and sales-based milestone payments as
well as revised payments related to manufacturing scale-up and process transfer. Under the revised
agreements, we retained the right to manufacture Stimuvax, including process development and
scale-up for commercial manufacturing. The signing of the amended agreements also triggered a
milestone payment to us of $2.5 million, before associated payments to third parties of $0.1
million, which was received in September 2007. In December 2007, we announced that we had completed
the transfer of certain assays and methodology related to Stimuvax to Merck KGaA triggering a
payment to us of $5.0 million. In May 2008 we completed the transfer of certain additional assays
and manufacturing technology related to Stimuvax which triggered a payment to us of $3.0 million.
On December 18, 2008, we entered into a new license agreement with Merck KGaA pursuant to
which the amended and restated collaboration and supply agreements were replaced. Under the new
license agreement, among other things, we licensed to Merck KGaA the right to manufacture Stimuvax
and transferred certain manufacturing know-how to Merck KGaA in return for an upfront payment of
approximately $10.5 million. The royalty rates on net sales to which we are entitled if Stimuvax is
commercialized were reduced by a specified amount which we believe is consistent with our estimate
of costs of goods, manufacturing scale up costs and certain other expenses assumed by Merck KGaA.
All other milestone payments remained the same and we expect to receive a milestone payment in 2009
related to process development.
13
In connection with this transaction, we also entered into an asset purchase agreement pursuant
to which we sold to Merck KGaA certain assets related to the manufacture of, and inventory of,
Stimuvax, placebo and raw materials, and Merck KGaA agreed to assume certain liabilities related to
the manufacture of Stimuvax and our obligations related to the lease of our Edmonton, Alberta,
Canada facility. The aggregate purchase price paid by the buyers under the asset purchase
agreement was approximately $2.5 million, which, taken together with the aggregate up-front
consideration payable to us in connection with the new license agreement, was approximately $13.0
million. In addition, 43 employees at our former Edmonton facility were transferred to an
affiliate of Merck KGaA, which will significantly reduce our operating expenses in future periods.
We have not developed a therapeutic product to the commercial stage. As a result, with the
exception of the unusual effects of the transaction with Merck KGaA in December 2008, our revenue
has been limited to date, and we do not expect to recognize any material revenue for the
foreseeable future. In particular, our ability to generate revenue in future periods will depend
substantially on the progress of ongoing clinical trials for Stimuvax and our small molecule
compounds, our ability to obtain development and commercialization partners for our small molecule
compounds, Merck KGaAs success in obtaining regulatory approval for Stimuvax, our success in
obtaining regulatory approval for our small molecule compounds, and Merck KGaAs and our respective
abilities to establish commercial markets for these drugs.
Any adverse clinical results relating to Stimuvax or any decision by Merck KGaA to discontinue
its efforts to develop and commercialize the product would have a material and adverse effect on
our future revenues and results of operations and would be expected to have a material adverse
effect on the trading price of our common stock. Our small molecule compounds are much earlier in
the development stage than Stimuvax, and we do not expect to realize any revenues associated with
the commercialization of our products for the foreseeable future.
The continued research and development of our product candidates will require significant
additional expenditures, including preclinical studies, clinical trials, manufacturing costs and
the expenses of seeking regulatory approval. We rely on third parties to conduct a portion of our
preclinical studies, all of our clinical trials and all of the manufacturing of cGMP material. We
expect expenditures associated with these activities to increase in future years as we continue the
development of our small molecule product candidates.
We have incurred substantial losses since our inception. As of June 30, 2009, our accumulated
deficit totaled $323.2 million. Financial results for the six months ended June 30, 2009 reflect a
consolidated net loss from operations of $8.8 million or ($0.43) per share compared to $10.1
million or ($0.51) per share for the same period in 2008. We expect to continue to incur net losses
as we expand our research and development activities with respect to our small molecules and
processes for commercial scale manufacturing of our products. To date we have funded our operations
principally through the sale of our equity securities, cash received through our strategic alliance
with Merck KGaA, government grants, debt financings, and equipment financings. For example, on May
26, 2009, we sold 3,878,993 shares of our common stock and warrants to
purchase 2,909,244 shares of our common stock for gross proceeds of approximately $11.1 million and
on August 7, 2009 we sold 2,280,502 shares of our common stock and warrants
to purchase 684,150 shares of our common stock for gross proceeds of approximately $15.0 million.
Because we have limited revenues and substantial research and development and operating expenses,
we expect that we will in the future seek additional working capital funding from the sale of
equity or debt securities.
Key Financial Metrics
Revenue
Historically, our revenue has been derived from our contract research and development
activities, payments under our collaborative agreements, and miscellaneous licensing, royalty and
other revenues from ancillary business and operating activities. Our collaboration with Merck KGaA
on the development of Stimuvax has contributed the substantial majority of our revenue. Prior to
August 2007, revenue from our lead product candidate, Stimuvax, was reported under contract
research and development revenue. From August 2007, when we entered into the amended and restated
supply agreement with Merck KGaA to December 18, 2008, when we entered into the new license
agreement with Merck KGaA, we retained the right to manufacture Stimuvax and Merck KGaA was
obligated to purchase Stimuvax exclusively from us. As a result, revenue generated during that
period was reported as contract manufacturing revenue. As a result of the entry into the December
2008 agreements with Merck KGaA, we will no longer generate revenues from the manufacture of
Stimuvax in future periods.
Contract Research and Development
. Contract research and development revenue represents Merck
KGaAs contribution toward shared costs associated with Stimuvax clinical trials and clinical trial
material provided to Merck KGaA related to Stimuvax. Effective March 1, 2006, we transitioned
responsibility for all Stimuvax clinical development and regulatory activities and the related
costs thereon to Merck KGaA. In January 2007, Merck KGaA initiated a global Phase 3 clinical trial
under our collaboration
14
assessing the efficacy and safety of Stimuvax as a potential treatment for inoperable NSCLC.
We expect the clinical trial to include approximately 1,300 patients in approximately 30 countries.
Because of the change in our responsibilities for Stimuvax clinical trials, our contract research
and development revenue was reduced as we no longer receive reimbursements for shared clinical
trial costs.
Contract Manufacturing
. As described above, as a result of the entry into the new license
agreement with Merck KGaA in December 2008, we will not realize revenue from the manufacture of
Stimuvax in future periods.
Licensing Revenue from Collaborative Agreements
. For periods presented until December 18,
2008 (when we entered into the new license agreement with Merck KGaA) licensing revenue consisted
of upfront payments received and other payments made upon achievement of certain development
milestones relating to transfers of know-how, clinical trials, regulatory approvals, and commercial
development of Stimuvax under our agreements with Merck KGaA. Such revenue is amortized over the
life of the relevant patents that had been subject to the former collaboration agreement. As a
result of the entry into the new license agreement, the future performance obligations that
required the payments to be amortized have been eliminated. Therefore, all existing deferred
revenue relating to Stimuvax has been recognized in income as we have no continuing involvement in
the development of Stimuvax. Future milestone payments will be recognized in income as they are
received.
Expenses
Research and Development/Manufacturing
. Research and development/manufacturing expense
consists of costs associated with research activities as well as costs associated with our product
development efforts, conducting preclinical studies, and sale of clinical trial material. These
expenses include external research and development expenses incurred pursuant to agreements with
third party manufacturing organizations; technology access and licensing fees related to the use of
proprietary third party technologies; employee and consultant-related expenses, including salaries,
stock-based compensation expense; third party supplier expenses and an allocation of facility
costs.
To date, we have recognized research and development expenses, including those paid to third
parties, as they have been incurred.
We credit funding received from government research and development grants against research
and development expense. These credits totaled $21,000 and $0.5 million in the three months ended
June 30, 2009 and 2008, respectively. These grants were Small Business Innovation Research, or
SBIR, grants that we assumed in connection with our acquisition of ProlX on October 30, 2006.
During 2008 we successfully applied for and received approval for a further $1.0 million grant for
the period ended July 31, 2009.
The majority of our research and development programs are at an early stage and may not result
in any approved products. Product candidates that appear promising at early stages of development
may not reach the market for a variety of reasons. For example, Merck KGaA cancelled our
collaboration relating to Theratope only after receiving Phase 3 clinical trial results. We had
made substantial investments over several years in the development of Theratope and terminated all
development activities following the cancellation of our collaboration. Similarly, any of our
continuing product candidates may be found to be ineffective or cause harmful side effects during
clinical trials, may take longer to complete clinical trials than we have anticipated, may fail to
receive necessary regulatory approvals, and may prove impracticable to manufacture in commercial
quantities at reasonable cost and with acceptable quality. As part of our business strategy, we
may enter into collaboration agreements with larger third party pharmaceutical companies to
complete the development and commercialization of our small molecule or other product candidates,
and it is unknown whether or on what terms we will be able to secure collaboration arrangements for
any candidate. For example, we intend to seek a collaboration partner for PX-12. In addition, it
is difficult to provide the impact of collaboration arrangements, if any, on the development of
product candidates. Establishing collaborative product development relationships with large
pharmaceutical companies may or may not accelerate the time to completion or reduce our costs with
respect to the development and commercialization of any product candidate.
As a result of these uncertainties and the other risks inherent in the drug development
process, we cannot determine the duration and completion costs of current or future clinical stages
of any of our product candidates. Similarly, we cannot determine when, if, or to what extent we may
generate revenue from the commercialization and sale of any product candidate. The timeframe for
development of any product candidate, associated development costs, and the probability of
regulatory and commercial success vary widely. As a result, other than with respect to Stimuvax,
which is subject to our obligations under the agreements with Merck KGaA, we continually evaluate
our product candidates and make determinations as to which programs to pursue and how much funding
to direct to specific candidates. These determinations are typically made based on consideration of
numerous factors, including our evaluation of scientific and clinical trial data and an ongoing
assessment of the product candidates commercial prospects. We anticipate that we will continue to
develop our portfolio of product candidates, which will increase our research and development
expense in future periods. We do not expect any of our current candidates to be commercially
available before 2012, if at all. Prior to the December 2008 agreements with Merck KGaA, we
reported costs associated with the manufacturing and sale of Stimuvax clinical trial material as
manufacturing expenses. As a result of the entry into the new license agreement with Merck KGaA in
December
15
2008, the manufacture of Stimuvax clinical trial materials will be handled by an affiliate of
Merck KGaA and, therefore, we will not incur manufacturing expenses for the foreseeable future.
General and Administrative
. General and administrative expense consists principally of
salaries, benefits, stock-based compensation expense, and related costs for personnel in our
executive, finance, accounting, information technology, and human resource functions. Other general
and administrative expenses include professional fees for legal, consulting, and accounting
services and an allocation of our facility costs.
Depreciation
. Depreciation expense consists of depreciation of the cost of plant and
equipment such as scientific, office, manufacturing and computer equipment as well as depreciation
of leasehold improvements.
Investment and other income
. Investment and other income consists of interest and other income
on our cash and short-term investments and foreign exchange gains and losses. Our short term
investments have typically consisted of Canadian or U.S. federal, state, or provincial debt
securities, investment grade corporate debt securities and commercial paper, and term deposits or
similar instruments of trust companies and banks, all with original maturities of between 90 days
and one year at the time of purchase.
Interest expense
. Interest expense consists of interest payments under capital lease
agreements for computer equipment. As of June 30, 2009, we did not have any long term capital lease
agreements.
Critical Accounting Policies and Significant Judgments and Estimates
We have prepared this Managements Discussion and Analysis of Financial Condition and Results
of Operations based on our condensed consolidated financial statements, which have been included
elsewhere in this report. The preparation of our financial statements in accordance with U.S.
generally accepted accounting principles requires us to make estimates and judgments that can
affect the reported amounts of assets and liabilities as of the dates of our consolidated financial
statements as well as the reported amounts of revenue and expense during the periods presented.
Significant estimates and assumptions are required in the determination of revenue recognition and
to determine stock-based compensation. Some of these judgments can be subjective and complex, and,
consequently, actual results may differ from these estimates. For any given individual estimate or
assumption we make, there may also be other estimates or assumptions that are reasonable. We
believe that the estimates and judgments upon which we rely are reasonable based upon historical
experience and information available to us at the time that we make these estimates and judgments.
To the extent there are material differences between these estimates and actual results, our
consolidated financial statements will be affected. Although we believe that our judgments and
estimates are appropriate, actual results may differ from these estimates.
Our critical accounting policies and significant estimates are detailed in our annual report
on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 30, 2009.
On May 26, 2009, we issued warrants to purchase 2,909,244 shares of our common stock in
connection with a registered direct offering of our common stock. These warrants are classified as
a derivative liability pursuant to Statement of Financial Accounting Standards, or SFAS, No. 133,
Accounting for Derivative Instruments and Hedging Activities
. . Accordingly, the fair value of
the warrants is recorded on our consolidated balance sheet as a liability, and such fair value is
adjusted at each financial reporting date with the adjustment to fair value reflected in our
consolidated statement of operations. The fair value of the warrants is determined using the
Black-Scholes option valuation model. Fluctuations in the assumptions and factors used in the
Black-Scholes model can result in adjustments to the fair value of the warrants reflected on our
balance sheet and, therefore, our statement of operations. If, for example, the market value of
our common stock or its volatility at June 30, 2009 were 10% higher or lower than used in the
valuation of such warrants, our valuation of the warrants would have increased or decreased by up
to $836,000 or $444,000, respectively, with such difference reflected in our statement of
operations.
Results of Operations for the Three and Six Month Periods Ended June 30, 2009 and June 30, 2008
The following table sets forth selected consolidated statements of operations data for each of
the periods indicated.
16
Overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
%
|
|
June 30,
|
|
%
|
|
|
2009
|
|
2008
|
|
Change
|
|
2009
|
|
2008
|
|
Change
|
|
|
(In millions, except per
|
|
|
|
|
|
(In millions, except per
|
|
|
|
|
|
|
share amounts)
|
|
|
|
|
|
share amounts)
|
|
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
1.2
|
|
|
|
N/M
|
+
|
|
$
|
|
|
|
$
|
3.2
|
|
|
|
N/M
|
+
|
Expenses
|
|
|
3.9
|
|
|
|
6.1
|
|
|
|
(36.1
|
)%
|
|
|
6.3
|
|
|
|
13.2
|
|
|
|
52.3
|
%
|
Change in fair
value of warrant
liability
|
|
|
2.5
|
|
|
|
|
|
|
|
N/M
|
+
|
|
|
2.5
|
|
|
|
|
|
|
|
N/M
|
+
|
Net loss
|
|
$
|
6.3
|
|
|
$
|
4.9
|
|
|
|
28.6
|
%
|
|
$
|
8.8
|
|
|
$
|
10.0
|
|
|
|
(12.0
|
)%
|
Other comprehensive
(income) loss
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
N/M
|
+
|
|
|
|
|
|
|
0.0
|
|
|
|
N/M
|
+
|
Comprehensive loss
|
|
$
|
6.3
|
|
|
$
|
4.8
|
|
|
|
31.3
|
%
|
|
$
|
8.8
|
|
|
$
|
10.0
|
|
|
|
(12.0
|
)%
|
Basic and diluted
loss per share
|
|
$
|
0.30
|
|
|
$
|
0.25
|
|
|
|
20.0
|
%
|
|
$
|
0.43
|
|
|
$
|
0.51
|
|
|
|
(15.7
|
)%
|
As discussed in more detail below, the increase in our net loss for the three months ended
June 30, 2009 compared to the prior year period was primarily attributable to an increase in
expense related to the change in fair value of warrant liability partially offset by a decrease in
net outlays related to the manufacture and sale of clinical trial material to Merck KGaA to support
the Phase 3 trial of Stimuvax.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Contract manufacturing
|
|
$
|
|
|
|
$
|
0.8
|
|
|
|
N/M
|
+
|
|
$
|
|
|
|
$
|
2.5
|
|
|
|
N/M
|
+
|
License revenue from
collaborative agreements
|
|
|
|
|
|
|
0.4
|
|
|
|
N/M
|
+
|
|
|
|
|
|
|
0.7
|
|
|
|
N/M
|
+
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
1.2
|
|
|
|
N/M
|
+
|
|
$
|
|
|
|
$
|
3.2
|
|
|
|
N/M
|
+
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As described under Key Financial Metrics we did not generate any contract manufacturing
revenue in the three months ended June 30, 2009 as a result of the sale of our manufacturing rights
to Merck KGaA in December of 2008. We do not expect to generate contract manufacturing revenue for
the foreseeable future.
Licensing revenue from collaborative agreements represents the amortization of milestone
payments received in prior years. As described under Key Financial MetricsRevenueLicensing
Revenue from Collaborative Agreements, these upfront milestone payments received under our
agreements with Merck KGaA were deferred and recognized over the remaining patent life. The portion
of the milestone payments that had been previously deferred were reported as revenue in December of
2008 as we no longer had future performance obligations under this agreement as a result of the
sale of our manufacturing license rights to Merck KGaA. As a result, we no longer defer licensing
revenue from this agreement but will recognize it as income as it is received. We recognized
$4,000 and $8,000 in licensing revenue from collaborative agreements in the three and six months
ended June 30, 2009.
Research and Development / Manufacturing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Research and development
|
|
$
|
2.0
|
|
|
$
|
2.7
|
|
|
|
(25.9
|
)%
|
|
$
|
2.7
|
|
|
$
|
5.0
|
|
|
|
(46.0
|
)%
|
Manufacturing
|
|
|
|
|
|
|
0.6
|
|
|
|
N/M
|
+
|
|
|
|
|
|
|
2.7
|
|
|
|
N/M
|
+
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.0
|
|
|
$
|
3.3
|
|
|
|
(39.4
|
)%
|
|
$
|
2.7
|
|
|
$
|
7.7
|
|
|
|
(64.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses was lower by $0.7 million in the three months ended June 30,
2009 principally due to the transfer of the Edmonton facility to an affiliate of Merck KGaA
resulting in cost savings of $1.3 million offset by lower grant revenue of $0.5 million and
higher clinical trial costs of $0.2 million relating to higher patient enrollment. Grant revenues,
which are netted against expense, were lower during the current period as related development work
was being completed.
17
We did not incur Manufacturing expenses during the three and six month periods due to our
cessation of the manufacture of Stimuvax.
Research and development expenses was lower by $2.3 million in the six months ended June 30,
2009 due the transfer of the
Edmonton facility resulting in savings of $2.7 million and manufacturing credits from Baxter
of $0.4 million offset by increased clinical trial costs of $0.6 million and lower grant revenue of
$0.4 million.
We expect our research and development costs to increase as we move our existing products
through the development pipeline.
General and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(In millions)
|
|
|
|
|
|
(In millions)
|
|
|
|
|
General and administrative
|
|
$
|
1.7
|
|
|
$
|
2.7
|
|
|
|
(37.0
|
)%
|
|
$
|
3.5
|
|
|
$
|
5.4
|
|
|
|
(35.2
|
)%
|
The $1.0 million decrease in general and administrative expense for the three month period
ended June 30, 2009 relative to the comparable prior year period was attributable to the reduction
in headcount and facility related costs of approximately of $0.7 million as a result of our
December 2008 transaction with Merck KGaA and higher professional fees incurred in the prior year
of $0.3 million relating to ERP implementation and the annual audit.
The $1.9 million decrease in general and administrative expense for the six month period ended
June 30, 2009 relative to the comparable prior year period was attributable to higher professional
fees incurred in the prior year principally for the reincorporation of the Company into the United
States of $1.0 million and a reduction in headcount and facilities related costs as a result of our
December 2008 transaction with Merck KGaA of approximately $0.9 million.
Change in Fair Value of Warrant Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
|
|
2009
|
|
2008
|
|
% Change
|
|
2009
|
|
2008
|
|
% Change
|
|
|
(In millions)
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Change in fair
value of warrant
liability
|
|
$
|
2.5
|
|
|
$
|
|
|
|
|
N/M
|
+
|
|
$
|
2.5
|
|
|
$
|
|
|
|
|
N/M
|
+
|
The $2.5 million increase in Change in fair value of warrant liability for the
three and six month periods ended June 30, 2009 relative to the comparable prior year periods was
attributable to the warrants issued in connection with the 2009 financing. These warrants are
classified as liabilities in accordance with SFAS 133 and EITF 07-5 and accordingly, the fair
market value of the warrants is recorded on the balance sheet at issuance and marked to market at
each financial reporting period. The expense therefore, reflects the change in fair value of the
warrants from the date of issuance to the reporting period and is estimated using the
Black-Scholes option-pricing model.
Liquidity and Capital Resources
Cash, Cash Equivalents, and Working Capital
As of June 30, 2009, our principal sources of liquidity consisted of cash and cash equivalents
of $22.7 million, and accounts receivable of $1.6 million. Our cash equivalents and short-term
investments have historically been invested in money market funds, short-term obligations of the
U.S. Treasury and Government of Canada, and commercial paper. Our accounts receivable primarily
represent tax withholdings in Germany as a result of our sale of manufacturing rights to Merck KGaA
in December 2008, which we expect to recover. Our primary source of cash has historically been
proceeds from the issuance of equity securities, debt and equipment financings, and payments to us
under licensing and collaboration agreements. These proceeds have been used to fund our losses. On
May 26, 2009, we raised net proceeds of $10.1 million from the sale of 3,878,993 shares of our
common stock and warrants to purchase 2,909,244 shares of our common stock from our existing shelf
registration statement.
On August 7, 2009, subsequent to the period covered by this report, we raised
additional net proceeds of approximately $14.0 million from the sale of
2,280,502 shares of our common stock and warrants to purchase 684,150
shares of our common stock.
18
Our cash, cash equivalents and short-term investments were $22.7 million as of June 30, 2009
compared to $19.2 million as of December 31, 2008, an increase of $3.5 million, or 18.2%, which
reflects net proceeds from financing of $10.1 million offset by 6.5 million of operating
expenditures and $0.1 million of investing activities during the period.
As of June 30, 2009, our working capital (defined as current assets less current liabilities)
was $22.3 million compared to $17.6 million as of December 31, 2008, an increase of $4.7 million,
or 26.7%. The increase in working capital was primarily attributable to a $3.5 million increase in
cash and cash equivalents and a $1.4 million decrease in accounts payable and accrued liabilities
offset by a decline in accounts receivable of $0.2 million.
We believe that our currently available cash and cash equivalents, together with milestone
payments we currently anticipate receiving from Merck KGaA under our license agreement, will be
sufficient to finance our operations for at least the next 12 months. Nevertheless, we expect that
we will require additional capital from time to time in the future in order to continue the
development of products in our pipeline and to expand our product portfolio. We would expect to
seek additional financing from the sale and issuance of equity or debt securities, but we cannot
predict that financing will be available when and as we need financing or that, if available, the
financing terms will be commercially reasonable. If we are unable to raise additional financing
when and if we require, it would have a material adverse effect on our business and results of
operations. To the extent we issue additional equity securities, our existing shareholders could
experience substantial dilution.
Our certificate of incorporation provides for the mandatory redemption of shares of our Class
UA preferred stock if we realize net profits in any year. See Note 11 Share Capital
Redemption of the audited financial statements included in our Annual Report on Form 10-K for the
year ended December 31, 2008 and the section of this quarterly report captioned Item 1A Risk
Factors If we are required to redeem the shares of our Class UA preferred stock, our financial
condition may be adversely affected for more information.
Cash Flows From Operating Activities
We used $6.5 million of cash in operating activities for the six months ended June 30, 2009, a
decrease of $3.2 million compared to $9.7 million of cash in operating activities for the six
months ended June 30, 2008. The decrease in cash used in operations is directly attributable to the
sale of our manufacturing rights to Merck KGaA in December 2008 which eliminated all manufacturing
activity, including product inventory. As a result of such transaction, we expect cash used in
operations to be significantly lower for the current year compared to the year ended December 31,
2008.
Cash Flows From Investing Activities
Cash used in investing activities was approximately $71,000 in the six months ended June 30,
2009, compared to cash flow from investing activities of $6.9 million for the six months ended June
30, 2008. The decrease in cash inflows from investing activities was attributable primarily to net
redemptions of short-term investments in the six months ended June 30, 2008.
Contractual Obligations and Contingencies
In our operations, we have entered into long-term contractual arrangements from time to time
for our facilities, debt financing, the provision of goods and services, and acquisition of
technology access rights, among others. The following table presents contractual obligations
arising from these arrangements as of June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
|
More Than
|
|
|
Total
|
|
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
5 Years
|
|
|
(In thousands)
|
Operating leases premises
|
|
$
|
5,389
|
|
|
$
|
498
|
|
|
$
|
1,000
|
|
|
$
|
1,164
|
|
|
$
|
2,727
|
|
In May 2008, we entered into a sublease for an office facility in Seattle, Washington totaling
approximately 17,000 square feet where we intend to consolidate certain of our operations. The
sublease expires in December 17, 2011. In May 2008, we also entered into a lease directly with the
landlord of the same facility, which will have a six year term beginning at the expiration of the
sublease. The sublease provides for a base rent of $33,324 increasing to $36,354. The lease
provides for a base rent of $47,715 increasing to $52,259 in 2018.
In connection with the acquisition of ProlX, we may become obligated to issue additional
shares of our common stock to the former stockholders of ProlX upon satisfaction of certain
milestones. We may become obligated to issue shares of our common stock
19
with a fair market value
of $5.0 million (determined based on a weighted average trading price at the time of issuance) upon
the initiation of the first Phase 3 clinical trial for a ProlX product. We may become obligated to
issue shares of our common stock with a fair market value of $10.0 million (determined based on a
weighted average trading price at the time of issuance) upon regulatory approval of a ProlX product
in a major market.
Under certain licensing arrangements for technologies incorporated into our product
candidates, we are contractually committed to payment of ongoing licensing fees and royalties, as
well as contingent payments when certain milestones as defined in the agreements have been
achieved.
Guarantees and Indemnification
In the ordinary course of our business, we have entered into agreements with our collaboration
partners, vendors, and other persons and entities that include guarantees or indemnity provisions.
For example, our agreements with Merck KGaA and the former stockholders of ProlX contain certain
tax indemnification provisions, and we have entered into indemnification agreements with our
officers and directors. Based on information known to us as of June 30, 2009, we believe that our
exposure related to these guarantees and indemnification obligations is not material.
Off-Balance Sheet Arrangements
During the periods presented, we did not have any relationships with unconsolidated entities
or financial partnerships, such as entities often referred to as structured finance or special
purpose entities, which would have been established for the purpose of facilitating off-balance
sheet arrangements or for another contractually narrow or limited purpose.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157,
Fair
Value Measurements
(SFAS 157). SFAS 157, which defines fair value, establishes a framework for
measuring fair value in accordance with accounting principles generally accepted in the United
States of America, and expands disclosures about fair value measurements. In February 2008, the
FASB issued FASB Staff Position (FSP) FSP No. 157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2). FSP 157-2 delayed the effective date of SFAS 157 for all non-financial assets and
non-financial liabilities that are not remeasured at fair value on a recurring basis until fiscal
years beginning after November 15, 2008. In October 2008, the FASB issued FSP No. 157-3,
Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active
(FSP
157-3). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and
provides an example to illustrate key considerations in determining the fair value of a financial
asset when the market for that financial asset is not active.
For financial assets and financial liabilities, SFAS 157 was effective for us on January 1,
2008, on a prospective basis. The application of SFAS 157, as amended by FSP 157-3, to the
financial assets and financial liabilities did not have a material effect on our financial
condition or results of operations as of December 31, 2008.
For non-financial assets and non-financial liabilities, SFAS 157 was effective for us on
January 1, 2009, on a prospective basis. The application of SFAS 157, as amended, to the
non-financial assets and non-financial liabilities did not have a material effect on our financial
condition or results of operations.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events
(SFAS 165). SFAS 165
establishes general standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. SFAS 165 is effective for interim or
annual financial periods ending after June 15, 2009. As of this date, the Company has adopted SFAS
165. In an evaluation of subsequent events through the date of this filing with the SEC, the
Company does not believe there are any material subsequent events which would require further
disclosure other than that discussed in Note 12.
20
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk
As of June 30, 2009 and December 31, 2008, approximately $119,000 and $15,000 respectively, of
our cash and cash equivalents were denominated in Canadian dollars. As a result, the impact of
exchange rate fluctuations on the carrying value of our cash and cash equivalents, are minimal.
Prior to December 2008, when we transferred our Canadian operations to Merck KGaA, we purchased
goods and services denominated primarily in U.S. and Canadian currencies and, to a lesser extent,
in certain European currencies. Since January 2009, our Canadian dollar exposure to foreign
exchange risk has diminished significantly.
As a result of the December 2008 transaction with Merck KGaA, at June 30, 2009, the Company
has $1.6 million receivable with the German tax authorities which is denominated in Euros and
therefore, subject to foreign exchange risk. During the three months ended June 30, 2009 and the
comparative periods presented, we did not enter into any foreign exchange forward or other
derivative contracts in order to reduce our exposure to fluctuating foreign currency exchange
rates.
Interest Rate Sensitivity
We had cash and cash equivalents totaling $22.7 million and $19.2 million as of June 30, 2009
and December 31, 2008, respectively. These amounts were invested primarily in money market funds.
We do not enter into investments for trading or speculative purposes. We believe that we do not
have any material exposure to changes in the fair value of these assets as a result of changes in
interest rates due to the short term nature of our cash and cash equivalents. Declines in interest
rates, however, would reduce future investment income. A 100 basis points decline in interest
rates, occurring January 1, 2009 and sustained throughout the period ended June 30, 2009, would
result in a decline in investment income of approximately $105,000 for that same period.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief
executive officer and corporate controller and principal financial officer, we conducted an
evaluation of the effectiveness, as of the end of the period covered by this quarterly report, of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on this evaluation, our
chief executive officer and principal financial officer have concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were effective to provide
reasonable assurance that information we are required to disclose in our filings with the SEC
under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms and (ii) accumulated and communicated to our management,
including our chief executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter
ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting, including ours,
is subject to inherent limitations, including the exercise of judgment in designing, implementing,
operating, and evaluating the controls and procedures, and the inability to eliminate misconduct
completely. Accordingly, any system of internal control over financial reporting, including ours,
no matter how well designed and operated, can only provide reasonable, not absolute assurances. In
addition, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. We intend to continue to monitor and
upgrade our internal controls as necessary or appropriate for our business, but cannot assure you
that such improvements will be sufficient to provide us with effective internal control over
financial reporting.
21
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings with respect to us, our subsidiaries, or
any of our material properties. From time to time, we may become involved in legal proceedings in
the ordinary course of our business.
Item 1A. Risk Factors
Set forth below and elsewhere in this report, and in other documents we file with the SEC are
descriptions of risks and uncertainties that could cause actual results to differ materially from
the results contemplated by the forward-looking statements contained in this report. Because of the
following factors, as well as other variables affecting our operating results, past financial
performance should not be considered a reliable indicator of future performance and investors
should not use historical trends to anticipate results or trends in future periods. The risks and
uncertainties described below are not the only ones facing us. Other events that we do not
currently anticipate or that we currently deem immaterial also affect our results of operations and
financial condition.
Risks Relating to our Business
Our ability to continue as a going concern is dependent on our success at raising additional
capital sufficient to meet our obligations on a timely basis. If we fail to obtain additional
financing when needed, we may be unable to complete the development, regulatory approval and
commercialization of our product candidates.
We have expended and continue to expend substantial funds in connection with our product
development activities and clinical trials and regulatory approvals. Funds generated from our
operations will be insufficient to enable us to bring all of our products currently under
development to commercialization. Accordingly, we need to raise additional funds from the sale of
our securities, partnering arrangements or other financing transactions in order to finance the
commercialization of our product candidates. The current financing environment in the United
States, particularly for biotechnology companies like us, is exceptionally challenging and we can
provide no assurances as to when such environment will improve. For these reasons, among others,
we cannot be certain that additional financing will be available when and as needed or, if
available, that it will be available on acceptable terms. If financing is available, it may be on
terms that adversely affect the interests of our existing stockholders. If adequate financing is
not available, we may need to continue to reduce or eliminate our expenditures for research and
development, testing, production and marketing for some of our product candidates. Our actual
capital requirements will depend on numerous factors, including:
|
|
|
our commercialization activities and arrangements;
|
|
|
|
|
the progress of our research and development programs;
|
|
|
|
|
the progress of our pre-clinical and clinical testing;
|
|
|
|
|
the time and cost involved in obtaining regulatory approvals for our product
candidates;
|
|
|
|
|
the cost of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights with respect to our intellectual property;
|
|
|
|
|
the effect of competing technological and market developments;
|
|
|
|
|
the effect of changes and developments in our existing collaborative, licensing and
other relationships; and
|
|
|
|
|
the terms of any new collaborative, licensing and other arrangements that we may
establish.
|
We may not be able to secure sufficient financing on acceptable terms. If we cannot, we may
need to delay, reduce or eliminate some or all of our research and development programs, any of
which would be expected to have a material adverse effect on our business, operating results, and
financial condition.
Our near-term success is highly dependent on the success of our lead product candidate, Stimuvax,
and we cannot be certain that it will be successfully developed or receive regulatory approval or
be successfully commercialized.
22
Our lead product candidate, Stimuvax, is currently being evaluated in Phase 3 clinical trials
for the treatment of non-small cell lung cancer, or NSCLC, and breast cancer and will require the
successful completion of these and possibly other clinical trials before submission of a biologic
license application, or BLA, or its foreign equivalent for approval. This process can take many
years and require the expenditure of substantial resources. Pursuant to our agreement with Merck
KGaA, Merck KGaA is responsible for the development and the regulatory approval process and any
subsequent commercialization of Stimuvax. We cannot assure you that Merck KGaA will continue to
advance the development and commercialization of Stimuvax as quickly as would be optimal for our
stockholders. Clinical trials involving the number of sites and patients required for Food and
Drug Administration, or FDA, approval of Stimuvax may not be successfully completed. If these
clinical trials fail to demonstrate that Stimuvax is safe and effective, it will not receive
regulatory approval. Even if Stimuvax receives regulatory approval, it may never be successfully
commercialized. If Stimuvax does not receive regulatory approval or is not successfully
commercialized, we may not be able to generate revenue, become profitable or continue our
operations. Any failure of Stimuvax to receive regulatory approval or be successfully
commercialized would have a material adverse effect on our business, operating results, and
financial condition and could result in a substantial decline in the price of our common stock.
Stimuvax and our other vaccine product candidates are based on novel technologies, which may raise
new regulatory issues that could delay or make FDA approval more difficult.
The process of obtaining required FDA and other regulatory approvals, including foreign
approvals, is expensive, often takes many years and can vary substantially based upon the type,
complexity and novelty of the products involved. Stimuvax and our other vaccine therapies are
novel; therefore, regulatory agencies may lack experience with them, which may lengthen the
regulatory review process, increase our development costs and delay or prevent commercialization of
Stimuvax and our other active vaccine products under development.
To date, the FDA has not approved for commercial sale in the United States any active vaccine
designed to stimulate an immune response against cancer. Consequently, there is no precedent for
the successful development or commercialization of products based on our technologies in this area.
We have a history of net losses, we anticipate additional losses and we may never become
profitable.
Other than the year ended December 31, 2008, we have incurred net losses in each fiscal year
since we commenced our research activities in 1985. The net income we realized in 2008 was due
entirely to our December 2008 transactions with Merck KGaA and we do not anticipate realizing net
income again for the foreseeable future. In addition, as of June 30, 2009, our accumulated deficit
was approximately $323.2 million. Our losses have resulted primarily from expenses incurred in
research and development of our product candidates. We do not know when or if we will complete our
product development efforts, receive regulatory approval for any of our product candidates, or
successfully commercialize any approved products. As a result, it is difficult to predict the
extent of any future losses or the time required to achieve profitability, if at all. Any failure
of our products to complete successful clinical trials and obtain regulatory approval and any
failure to become and remain profitable would adversely affect the price of our common stock and
our ability to raise capital and continue operations.
There is no assurance that we will be granted regulatory approval for any of our product
candidates.
Merck KGaA is currently testing our lead product candidate, Stimuvax, in ongoing Phase 3
clinical trials for the treatment of NSCLC and breast cancer. PX-12 is currently in a Phase 2
clinical trial for pancreatic cancer. In addition, we are conducting Phase 1 clinical trials for
PX-478 and PX-866. Our other product candidates remain in the pre-clinical testing stages. The
results from pre-clinical testing and clinical trials that we have completed may not be predictive
of results in future pre-clinical tests and clinical trials, and there can be no assurance that we
will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals. For
example, Stimuvax has not previously been tested in any trial for the treatment of breast cancer. A
number of companies in the biotechnology and pharmaceutical industries, including our company, have
suffered significant setbacks in advanced clinical trials, even after promising results in earlier
trials. Regulatory approval may not be obtained for any of our product candidates. If our product
candidates are not shown to be safe and effective in clinical trials, the resulting delays in
developing other product candidates and conducting related pre-clinical testing and clinical
trials, as well as the potential need for additional financing, would have a material adverse
effect on our business, financial condition and results of operations.
We are dependent upon our collaborative relationship with Merck KGaA to develop and commercialize
our lead product candidate, Stimuvax.
Under our collaboration with Merck KGaA for our lead product candidate, Stimuvax, Merck KGaA
is entirely responsible for the development, manufacture and worldwide commercialization of
Stimuvax and the costs associated with such development,
23
manufacture and commercialization. With one exception, any future payments, including
royalties to us, will depend on the extent to which Merck KGaA advances Stimuvax through
development and commercialization. Merck KGaA has the right to terminate the collaboration
agreement, upon 30 days written notice, if, in Merck KGaAs reasonable judgment, Merck KGaA
determines that there are issues concerning the safety or efficacy of Stimuvax which materially
adversely affect Stimuvaxs medical, economic or competitive viability, provided that if we do not
agree with such determination we have the right to cause the matter to be submitted to binding
arbitration. Our ability to receive any significant revenue from Stimuvax is dependent on the
efforts of Merck KGaA. If Merck KGaA fails to fulfill its obligations under this agreement, we
would need to obtain the capital necessary to fund the development and commercialization of
Stimuvax or enter into alternative arrangements with a third party. We could also become involved
in disputes with Merck KGaA, which could lead to delays in or termination of our development and
commercialization of Stimuvax and time-consuming and expensive litigation or arbitration. If Merck
KGaA terminates or breaches its agreement with us, or otherwise fails to complete its obligations
in a timely manner, the chances of successfully developing or commercializing Stimuvax would be
materially and adversely affected.
We currently rely on third party manufacturers to supply our product candidates, which could delay
or prevent the clinical development and commercialization of our product candidates.
We currently depend on third party manufacturers for the manufacture of our small molecule
product candidates. Any disruption in production, inability of these third party manufacturers to
produce adequate quantities to meet our needs or other impediments with respect to development or
manufacturing could adversely affect our ability to continue our research and development
activities or successfully complete pre-clinical studies and clinical trials, delay submissions of
our regulatory applications or adversely affect our ability to commercialize our product candidates
in a timely manner, or at all.
Merck KGaA currently depends on a single manufacturer, Baxter International Inc., or Baxter,
for the supply of our lead product candidate, Stimuvax, and on Corixa Corp. (now a part of
GlaxoSmithKline plc, or GSK) for the manufacture of the adjuvant in Stimuvax. If Stimuvax is not
approved by 2015, Corixa/GSK may terminate its obligation to supply the adjuvant. In this case, we
would retain the necessary licenses from Corixa/GSK required to have the adjuvant manufactured, but
the transfer of the process to a third party would delay the development and commercialization of
Stimuvax, which would materially harm our business.
Our product candidates have not yet been manufactured on a commercial scale. In order to
commercialize a product candidate, the third party manufacturer may need to increase its
manufacturing capacity, which may require the manufacturer to fund capital improvements to support
the scale up of manufacturing and related activities. With respect to our small molecule product
candidates, we may be required to provide all or a portion of these funds. The third party
manufacturer may not be able to successfully increase its manufacturing capacity for our product
candidate for which we obtain marketing approval in a timely or economic manner, or at all. If any
manufacturer is unable to provide commercial quantities of a product candidate, we (or Merck KGaA,
in the case of Stimuvax) will need to successfully transfer manufacturing technology to a new
manufacturer. Engaging a new manufacturer for a particular product candidate could require us (or
Merck KGaA, in the case of Stimuvax) to conduct comparative studies or utilize other means to
determine equivalence between product candidates manufactured by a new manufacturer and those
previously manufactured by the existing manufacturer, which could delay or prevent
commercialization of our product candidates. If any of these manufacturers is unable or unwilling
to increase its manufacturing capacity or if alternative arrangements are not established on a
timely basis or on acceptable terms, the development and commercialization of our product
candidates may be delayed or there may be a shortage in supply.
Any manufacturer of our products must comply with current Good Manufacturing Practices, or
cGMP, requirements enforced by the FDA through its facilities inspection program or by foreign
regulatory agencies. These requirements include quality control, quality assurance and the
maintenance of records and documentation. Manufacturers of our products may be unable to comply
with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We
have little control over our manufacturers compliance with these regulations and standards. A
failure to comply with these requirements may result in fines and civil penalties, suspension of
production, suspension or delay in product approval, product seizure or recall, or withdrawal of
product approval. If the safety of any quantities supplied is compromised due to our
manufacturers failure to adhere to applicable laws or for other reasons, we may not be able to
obtain regulatory approval for or successfully commercialize our products.
Any failure or delay in commencing or completing clinical trials for our product candidates could
severely harm our business.
Each of our product candidates must undergo extensive pre-clinical studies and clinical trials
as a condition to regulatory approval. Pre-clinical studies and clinical trials are expensive and
take many years to complete. The commencement and completion of clinical trials for our product
candidates may be delayed by many factors, including:
|
|
|
our or our collaborators ability to obtain regulatory approval to commence a
clinical trial;
|
24
|
|
|
our or our collaborators ability to manufacture or obtain from third parties
materials sufficient for use in pre-clinical studies and clinical trials;
|
|
|
|
|
delays in patient enrollment and variability in the number and types of patients
available for clinical trials;
|
|
|
|
|
poor effectiveness of product candidates during clinical trials;
|
|
|
|
|
safety issues or side effects;
|
|
|
|
|
governmental or regulatory delays and changes in regulatory requirements, policy and
guidelines; and
|
|
|
|
|
varying interpretation of data by the FDA and similar foreign regulatory agencies.
|
It is possible that none of our product candidates will complete clinical trials in any of the
markets in which we and/or our collaborators intend to sell those product candidates. Accordingly,
we and/or our collaborators may not receive the regulatory approvals necessary to market our
product candidates. Any failure or delay in commencing or completing clinical trials or obtaining
regulatory approvals for product candidates would prevent or delay their commercialization and
severely harm our business and financial condition.
The failure to enroll patients for clinical trials may cause delays in developing our product
candidates.
We may encounter delays if we or our collaboration partners are unable to enroll enough
patients to complete clinical trials. Patient enrollment depends on many factors, including, the
size of the patient population, the nature of the protocol, the proximity of patients to clinical
sites and the eligibility criteria for the trial. Moreover, when one product candidate is
evaluated in multiple clinical trials simultaneously, patient enrollment in ongoing trials can be
adversely affected by negative results from completed trials. Our product candidates are focused
in oncology, which can be a difficult patient population to recruit.
We rely on third parties to conduct our clinical trials. If these third parties do not
perform as contractually required or otherwise expected, we may not be able to obtain regulatory
approval for or be able to commercialize our product candidates.
We rely on third parties, such as contract research organizations, medical institutions,
clinical investigators and contract laboratories, to assist in conducting our clinical trials. We
have, in the ordinary course of business, entered into agreements with these third parties.
Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in
accordance with its general investigational plan and protocol. Moreover, the FDA and foreign
regulatory agencies require us to comply with regulations and standards, commonly referred to as
good clinical practices, for conducting, recording and reporting the results of clinical trials to
assure that data and reported results are credible and accurate and that the trial participants are
adequately protected. Our reliance on third parties does not relieve us of these responsibilities
and requirements. If these third parties do not successfully carry out their contractual duties or
regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if
the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our
clinical protocols or regulatory requirements or for other reasons, our pre-clinical development
activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be
able to obtain regulatory approval for our product candidates.
Even if regulatory approval is received for our product candidates, the later discovery of
previously unknown problems with a product, manufacturer or facility may result in restrictions,
including withdrawal of the product from the market.
Approval of a product candidate may be conditioned upon certain limitations and restrictions
as to the drugs use, or upon the conduct of further studies, and may be subject to continuous
review. After approval of a product, if any, there will be significant ongoing regulatory
compliance obligations, and if we or our collaborators fail to comply with these requirements, we
and/or our collaborators could be subject to penalties, including:
|
|
|
warning letters;
|
|
|
|
|
fines;
|
|
|
|
|
product recalls;
|
|
|
|
|
withdrawal of regulatory approval;
|
25
|
|
|
operating restrictions;
|
|
|
|
|
disgorgement of profits;
|
|
|
|
|
injunctions; and
|
|
|
|
|
criminal prosecution.
|
Regulatory agencies may require us or our collaborators to delay, restrict or discontinue
clinical trials on various grounds, including a finding that the subjects or patients are being
exposed to an unacceptable health risk. In addition, we or our collaborators may be unable to
submit applications to regulatory agencies within the time frame we currently expect. Once
submitted, applications must be approved by various regulatory agencies before we or our
collaborators can commercialize the product described in the application. All statutes and
regulations governing the conduct of clinical trials are subject to change in the future, which
could affect the cost of such clinical trials. Any unanticipated costs or delays in our clinical
studies could delay our ability to generate revenues and harm our financial condition and results
of operations.
Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our
products internationally.
We intend to have our product candidates marketed outside the United States. In order to
market our products in the European Union and many other non-U.S. jurisdictions, we must obtain
separate regulatory approvals and comply with numerous and varying regulatory requirements. To
date, we have not filed for marketing approval for any of our product candidates and may not
receive the approvals necessary to commercialize our product candidates in any market. The
approval procedure varies among countries and can involve additional testing and data review. The
time required to obtain foreign regulatory approval may differ from that required to obtain FDA
approval. The foreign regulatory approval process may include all of the risks associated with
obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at
all. Approval by the FDA does not ensure approval by regulatory agencies in other countries, and
approval by one foreign regulatory authority does not ensure approval by regulatory agencies in
other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory
approval in one jurisdiction may have a negative effect on the regulatory approval process in other
jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign
jurisdictions could harm our business.
Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.
Even if we receive regulatory approvals for the commercial sale of our product candidates, the
commercial success of these product candidates will depend on, among other things, their acceptance
by physicians, patients, third party payors such as health insurance companies and other members of
the medical community as a therapeutic and cost-effective alternative to competing products and
treatments. If our product candidates fail to gain market acceptance, we may be unable to earn
sufficient revenue to continue our business. Market acceptance of, and demand for, any product
that we may develop and commercialize will depend on many factors, including:
|
|
|
our ability to provide acceptable evidence of safety and efficacy;
|
|
|
|
|
the prevalence and severity of adverse side effects;
|
|
|
|
|
availability, relative cost and relative efficacy of alternative and competing
treatments;
|
|
|
|
|
the effectiveness of our marketing and distribution strategy;
|
|
|
|
|
publicity concerning our products or competing products and treatments; and
|
|
|
|
|
our ability to obtain sufficient third party insurance coverage or reimbursement.
|
If our product candidates do not become widely accepted by physicians, patients, third party payors
and other members of the medical community, our business, financial condition and results of
operations would be materially and adversely affected.
If we are unable to obtain, maintain and enforce our proprietary rights, we may not be able to
compete effectively or operate profitably.
26
Our success is dependent in part on obtaining, maintaining and enforcing our patents and other
proprietary rights and will depend in large part on our ability to:
|
|
|
obtain patent and other proprietary protection for our technology, processes and
product candidates;
|
|
|
|
|
defend patents once issued;
|
|
|
|
|
preserve trade secrets; and
|
|
|
|
|
operate without infringing the patents and proprietary rights of third parties.
|
As
of June 30, 2009 we owned approximately 13 United States and corresponding foreign patents
and patent applications and held exclusive or partially exclusive licenses to over 16 United States
and corresponding foreign patents and patent applications. The degree of future protection for our
proprietary rights is uncertain. For example:
|
|
|
we might not have been the first to make the inventions covered by any of our
patents, if issued, or our pending patent applications;
|
|
|
|
|
we might not have been the first to file patent applications for these inventions;
|
|
|
|
|
others may independently develop similar or alternative technologies or products
and/or duplicate any of our technologies and/or products;
|
|
|
|
|
it is possible that none of our pending patent applications will result in issued
patents or, if issued, these patents may not be sufficient to protect our technology or
provide us with a basis for commercially-viable products and may not provide us with any
competitive advantages;
|
|
|
|
|
if our pending applications issue as patents, they may be challenged by third parties
as infringed, invalid or unenforceable under U.S. or foreign laws;
|
|
|
|
|
if issued, the patents under which we hold rights may not be valid or enforceable; or
|
|
|
|
|
we may develop additional proprietary technologies that are not patentable and which
may not be adequately protected through trade secrets, if for example a competitor were
to independently develop duplicative, similar or alternative technologies.
|
The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves
many complex legal and technical issues. There is no clear policy involving the breadth of claims
allowed in patents or the degree of protection afforded under patents. Although we believe our
potential rights under patent applications provide a competitive advantage, it is possible that
patent applications owned by or licensed to us will not result in patents being issued, or that, if
issued, the patents will not give us an advantage over competitors with similar products or
technology, nor can we assure you that we can obtain, maintain and enforce all ownership and other
proprietary rights necessary to develop and commercialize our product candidates. For example,
PX-12 was described in a publication over a year before the earliest priority date of a patent
application covering PX-12 in the United States. Therefore, claims to the PX-12 composition cannot
be obtained in the U.S. or in a foreign country. Similarly, claims covering the composition of
PX-478 were only filed in the U.S. and Canada, which will prevent us from being able to obtain
claims covering the composition of PX-478 in other foreign jurisdictions, including Europe.
Even if any or all of our patent applications issue as patents, others may challenge the
validity, inventorship, ownership, enforceability or scope of our patents or other technology used
in or otherwise necessary for the development and commercialization of our product candidates. We
may not be successful in defending against any such challenges. Moreover, the cost of litigation
to uphold the validity of patents to prevent infringement or to otherwise protect our proprietary
rights can be substantial. If the outcome of litigation is adverse to us, third parties may be
able to use the challenged technologies without payment to us. There is no assurance that our
patents, if issued, will not be infringed or successfully avoided through design innovation.
Intellectual property lawsuits are expensive and would consume time and other resources, even if
the outcome were successful. In addition, there is a risk that a court would decide that our
patents, if issued, are not valid and that we do not have the right to stop the other party from
using the inventions. There is also the risk that, even if the validity of a patent were upheld, a
court would refuse to stop the other party from
27
using the inventions, including on the ground that its activities do not infringe that patent.
If any of these events were to occur, our business, financial condition and results of operations
would be materially and adversely effected.
In addition to the intellectual property and other rights described above, we also rely on
unpatented technology, trade secrets, trademarks and confidential information, particularly when we
do not believe that patent protection is appropriate or available. However, trade secrets are
difficult to protect and it is possible that others will independently develop substantially
equivalent information and techniques or otherwise gain access to or disclose our unpatented
technology, trade secrets and confidential information. We require each of our employees,
consultants and advisors to execute a confidentiality and invention assignment agreement at the
commencement of an employment or consulting relationship with us. However, it is possible that
these agreements will not provide effective protection of our confidential information or, in the
event of unauthorized use of our intellectual property or the intellectual property of third
parties, provide adequate or effective remedies or protection.
If our vaccine technology or our product candidates, including Stimuvax, conflict with the
rights of others, we may not be able to manufacture or market our product candidates, which could
have a material and adverse effect on us and on our collaboration with Merck KGaA.
Issued patents held by others may limit our ability to develop commercial products. All
issued patents are entitled to a presumption of validity under the laws of the United States. If
we need licenses to such patents to permit us to develop or market our product candidates, we may
be required to pay significant fees or royalties, and we cannot be certain that we would be able to
obtain such licenses on commercially reasonable terms, if at all. Competitors or third parties may
obtain patents that may cover subject matter we use in developing the technology required to bring
our products to market, that we use in producing our products, or that we use in treating patients
with our products. We know that others have filed patent applications in various jurisdictions
that relate to several areas in which we are developing products. Some of these patent
applications have already resulted in the issuance of patents and some are still pending. We may
be required to alter our processes or product candidates, pay licensing fees or cease activities.
Certain parts of our vaccine technology, including the MUC1 antigen, originated from third party
sources. These third party sources include academic, government and other research laboratories,
as well as the public domain. If use of technology incorporated into or used to produce our
product candidates is challenged, or if our processes or product candidates conflict with patent
rights of others, third parties could bring legal actions against us, in Europe, the United States
and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected
products. Additionally, it is not possible to predict with certainty what patent claims may issue
from pending applications. In the United States, for example, patent prosecution can proceed in
secret prior to issuance of a patent. As a result, third parties may be able to obtain patents
with claims relating to our product candidates which they could attempt to assert against us.
Further, as we develop our products, third parties may assert that we infringe the patents
currently held or licensed by them and it is difficult to provide the outcome of any such action
There has been significant litigation in the biotechnology industry over patents and other
proprietary rights and if we become involved in any litigation, it could consume a substantial
portion of our resources, regardless of the outcome of the litigation. If these legal actions are
successful, in addition to any potential liability for damages, we could be required to obtain a
license, grant cross-licenses and pay substantial royalties in order to continue to manufacture or
market the affected products.
There is no assurance that we would prevail in any legal action or that any license required
under a third party patent would be made available on acceptable terms or at all. Ultimately, we
could be prevented from commercializing a product, or forced to cease some aspect of our business
operations, as a result of claims of patent infringement or violation of other intellectual
property rights, which could have a material and adverse effect on our business, financial
condition and results of operations.
If any products we develop become subject to unfavorable pricing regulations, third party
reimbursement practices or healthcare reform initiatives, our ability to successfully commercialize
our products will be impaired.
Our future revenues, profitability and access to capital will be affected by the continuing
efforts of governmental and private third party payors to contain or reduce the costs of health
care through various means. We expect a number of federal, state and foreign proposals to control
the cost of drugs through government regulation. We are unsure of the form that any health care
reform legislation may take or what actions federal, state, foreign and private payors may take in
response to the proposed reforms. Therefore, it is difficult to provide the effect of any
implemented reform on our business. Our ability to commercialize our products successfully will
depend, in part, on the extent to which reimbursement for the cost of such products and related
treatments will be available from government health administration authorities, such as Medicare
and Medicaid in the United States, private health insurers and other organizations. Significant
uncertainty exists as to the reimbursement status of newly approved health care products,
particularly for indications for which there is no current effective treatment or for which medical
care typically is not sought. Adequate third party coverage may not be available to enable us to
maintain price levels sufficient to realize an appropriate return on our investment in product
research and development. If adequate coverage and reimbursement levels are not provided by
government
and third party payors for use of our products, our products may fail to achieve market
acceptance and our results of operations will be harmed.
28
Governments often impose strict price controls, which may adversely affect our future
profitability.
We intend to seek approval to market our future products in both the United States and foreign
jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to
rules and regulations in those jurisdictions relating to our product. In some foreign countries,
particularly in the European Union, prescription drug pricing is subject to government control. In
these countries, pricing negotiations with governmental authorities can take considerable time
after the receipt of marketing approval for a drug candidate. To obtain reimbursement or pricing
approval in some countries, we may be required to conduct a clinical trial that compares the
cost-effectiveness of our future product to other available therapies. In addition, it is unclear
what impact, if any, current proposals to reform the health care industry in the United States will
have on the price of drugs; however, they may become subject to controls similar to those in other
countries. If reimbursement of our future products is unavailable or limited in scope or amount, or
if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
We face potential product liability exposure, and if successful claims are brought against us, we
may incur substantial liability for a product candidate and may have to limit its
commercialization.
The use of our product candidates in clinical trials and the sale of any products for which we
obtain marketing approval expose us to the risk of product liability claims. Product liability
claims might be brought against us by consumers, health care providers, pharmaceutical companies or
others selling our products. If we cannot successfully defend ourselves against these claims, we
will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may
result in:
|
|
|
decreased demand for our product candidates;
|
|
|
|
|
impairment of our business reputation;
|
|
|
|
|
withdrawal of clinical trial participants;
|
|
|
|
|
costs of related litigation;
|
|
|
|
|
substantial monetary awards to patients or other claimants;
|
|
|
|
|
loss of revenues; and
|
|
|
|
|
the inability to commercialize our product candidates.
|
Although we currently have product liability insurance coverage for our clinical trials for
expenses or losses up to a $10 million aggregate annual limit, our insurance coverage may not
reimburse us or may not be sufficient to reimburse us for any or all expenses or losses we may
suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may
not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect
us against losses due to liability. We intend to expand our insurance coverage to include the sale
of commercial products if we obtain marketing approval for our product candidates in development,
but we may be unable to obtain commercially reasonable product liability insurance for any products
approved for marketing. On occasion, large judgments have been awarded in class action lawsuits
based on products that had unanticipated side effects. A successful product liability claim or
series of claims brought against us could cause our stock price to fall and, if judgments exceed
our insurance coverage, could decrease our cash and adversely affect our business.
We face substantial competition, which may result in others discovering, developing or
commercializing products before, or more successfully, than we do.
Our future success depends on our ability to demonstrate and maintain a competitive advantage
with respect to the design, development and commercialization of our product candidates. We expect
any product candidate that we commercialize with our collaborative partners or on our own will
compete with existing, market-leading products and products in development.
Stimuvax
. Currently, no product has been approved for maintenance therapy following induction
chemotherapy for Stage III NSCLC, which is the indication for which Stimuvax is being developed.
However, it is possible that existing or new agents will be approved for this indication. In
addition, there are other vaccines in development for the treatment of NSCLC, including GSKs
29
MAGE A3 vaccine in Phase 3, NovaRx Corporations Lucanix in Phase 3, IDM Pharma Inc.s
IDM-2101 in Phase 2 and Transgene S.A.s TG-4010, also in Phase 2.
Small Molecule Products
. PX-478 is a HIF-1 alpha inhibitor and we believe that at least one
other company, Enzon Pharmaceutical, Inc., has a HIF-1 alpha anti-sense compound that is currently
in Phase 1. We believe that other HIF 1 alpha inhibitors are in preclinical development. There
are also several approved targeted therapies for cancer and in development against which our small
molecule products might compete. For example, Avastin is a direct inhibitor of vascular
endothelial growth factor, or VEGF, and PX-478 is expected to lower levels of VEGF.
PX-866 is an inhibitor of phosphoinositide 3-kinase (PI3K). We are aware of several companies
that have entered clinical trials with competing compounds targeting the same protein. Among those
are compounds being developed by Novartis (Phase 1/2), Semafore (Phase 1), Exelixis (Phase 1),
Roche (Phase 1), Glaxo Smith Kline (Phase 1) and Calistoga (Phase 1).
Many of our potential competitors have substantially greater financial, technical and
personnel resources than we have. In addition, many of these competitors have significantly
greater commercial infrastructures than we have. Our ability to compete successfully will depend
largely on our ability to:
|
|
|
design and develop products that are superior to other products in the market;
|
|
|
|
|
attract qualified scientific, medical, sales and marketing and commercial personnel;
|
|
|
|
|
obtain patent and/or other proprietary protection for our processes and product
candidates;
|
|
|
|
|
obtain required regulatory approvals; and
|
|
|
|
|
successfully collaborate with others in the design, development and commercialization
of new products.
|
Established competitors may invest heavily to quickly discover and develop novel compounds
that could make our product candidates obsolete. In addition, any new product that competes with a
generic market-leading product must demonstrate compelling advantages in efficacy, convenience,
tolerability and safety in order to overcome severe price competition and to be commercially
successful. If we are not able to compete effectively against our current and future competitors,
our business will not grow and our financial condition and operations will suffer.
If we are unable to enter into collaborations with partners to perform sales and marketing
functions, or build these functions ourselves, we will not be able to commercialize our product
candidates.
We currently do not have any internal sales, marketing or distribution capabilities. In order
to commercialize any of our product candidates, we must either acquire or internally develop a
sales, marketing and distribution infrastructure or enter into collaborations with partners to
perform these services for us. Under our agreements with Merck KGaA, Merck KGaA is responsible for
developing and commercializing Stimuvax, and any problems with that relationship could delay the
development and commercialization of Stimuvax. Additionally, we may not be able to enter into
collaborations with respect to our product candidates not covered by the Merck KGaA agreements on
commercially acceptable terms, if at all. Factors that may inhibit our efforts to commercialize
our product candidates without collaboration partners include:
|
|
|
our inability to recruit and retain adequate numbers of effective sales and marketing
personnel;
|
|
|
|
|
the inability of sales personnel to obtain access to or persuade adequate numbers of
physicians to prescribe our products;
|
|
|
|
|
the lack of complementary products to be offered by sales personnel, which may put us
at a competitive disadvantage relative to companies with more extensive product lines;
and
|
|
|
|
|
unforeseen costs and expenses associated with creating a sales and marketing
organization.
|
If we are not able to partner with a third party and are not successful in recruiting sales
and marketing personnel or in building a sales and marketing and distribution infrastructure, we
will have difficulty commercializing our product candidates, which would adversely affect our
business and financial condition.
30
If we lose key personnel, or we are unable to attract and retain highly-qualified personnel on
a cost-effective basis, it would be more difficult for us to manage our existing business
operations and to identify and pursue new growth opportunities.
Our success depends in large part upon our ability to attract and retain highly qualified
scientific, clinical, manufacturing, and management personnel. In addition, any difficulties
retaining key personnel or managing this growth could disrupt our operations. Future growth will
require us to continue to implement and improve our managerial, operational and financial systems,
and continue to retain, recruit and train additional qualified personnel, which may impose a strain
on our administrative and operational infrastructure. The competition for qualified personnel in
the biopharmaceutical field is intense. We are highly dependent on our continued ability to
attract, retain and motivate highly-qualified management, clinical and scientific personnel. Due
to our limited resources, we may not be able to effectively recruit, train and retain additional
qualified personnel. If we are unable to retain key personnel or manage our growth effectively, we
may not be able to implement our business plan.
Furthermore, we have not entered into non-competition agreements with all of our key
employees. In addition, we do not maintain key person life insurance on any of our officers,
employees or consultants. The loss of the services of existing personnel, the failure to recruit
additional key scientific, technical and managerial personnel in a timely manner, and the loss of
our employees to our competitors would harm our research and development programs and our business.
Our business is subject to increasingly complex environmental legislation that has increased both
our costs and the risk of noncompliance.
Our business may involve the use of hazardous material, which will require us to comply with
environmental regulations. We face increasing complexity in our product development as we adjust
to new and upcoming requirements relating to the materials composition of many of our product
candidates. If we use biological and hazardous materials in a manner that causes contamination or
injury or violates laws, we may be liable for damages. Environmental regulations could have a
material adverse effect on the results of our operations and our financial position. We maintain
insurance under our general liability policy for any liability associated with our hazardous
materials activities, and it is possible in the future that our coverage would be insufficient if
we incurred a material environmental liability.
If we fail to establish and maintain proper and effective internal controls, our ability to produce
accurate financial statements on a timely basis could be impaired, which would adversely affect our
consolidated operating results, our ability to operate our business, and our stock price.
Ensuring that we have adequate internal financial and accounting controls and procedures in
place to produce accurate financial statements on a timely basis is a costly and time-consuming
effort that needs to be re-evaluated frequently. Failure on our part to have effective internal
financial and accounting controls would cause our financial reporting to be unreliable, could have
a material adverse effect on our business, operating results, and financial condition, and could
cause the trading price of our common stock to fall dramatically. We and our independent registered
public accounting firm have recently identified certain significant deficiencies in our internal
controls.
Remedying these significant deficiencies and maintaining proper and effective internal
controls will require substantial management time and attention and may result in our incurring
substantial incremental expenses, including with respect to increasing the breadth and depth of our
finance organization to ensure that we have personnel with the appropriate qualifications and
training in certain key accounting roles and adherence to certain control disciplines within the
accounting and reporting function.
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting to provide reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for external purposes in accordance with U.S.
GAAP. Our management does not expect that our internal control over financial reporting will
prevent or detect all errors and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control systems objectives
will be met. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the company will have been detected. As
discussed in this report, our management, together with our independent registered chartered
accountants, identified a material weakness in our controls for the year ended December 31, 2007
and may identify additional deficiencies in the future.
We are expending significant resources in maintaining and improving the necessary
documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act. We cannot
be certain that the actions we are taking to improve our internal controls over financial reporting
will be sufficient or that we will be able to implement our planned processes and procedures in a
timely manner. In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act
reveals any material weaknesses or further significant deficiencies, the correction of any such
material weaknesses or significant deficiencies could require additional remedial measures
31
which could be costly and time-consuming. In addition, we may be unable to produce accurate
financial statements on a timely basis. Any of the foregoing could cause investors to lose
confidence in the reliability of our consolidated financial statements, which could cause the
market price of our common stock to decline and make it more difficult for us to finance our
operations and growth.
If we are required to redeem the shares of our Class UA preferred stock, our financial condition
may be adversely affected.
Our certificate of incorporation provides for the mandatory redemption of shares of our Class
UA preferred stock if the Company realizes net profits in any year. See Note 11Share
CapitalRedemption of the audited financial statements included elsewhere in our annual report on
Form 10-K for the year ended December 31, 2008. For this purpose, net profits ... means the after
tax profits determined in accordance with generally accepted accounting principles, where relevant,
consistently applied.
The certificate of incorporation does not specify the jurisdiction whose generally accepted
accounting principles would apply for the redemption provision. At the time of the original
issuance of the shares, we were a corporation organized under the federal laws of Canada, and our
principal operations were located in Canada. In addition, the original purchaser and current
holder of the Class UA preferred stock is a Canadian entity. In connection with our reincorporation
in Delaware, we disclosed that the rights, preferences and privileges of the shares would remain
unchanged except as required by Delaware law, and the mandatory redemption provisions were not
changed. In addition, the formula for determining the price at which such shares would be redeemed
is expressed in Canadian dollars. Although, if challenged, we believe that a Delaware court would
determine that net profits be interpreted in accordance with Canadian GAAP, we cannot provide
assurances that a Delaware court would agree with such interpretation.
As a result of the December 2008 Merck KGaA transaction, we recognized on a one-time basis all
deferred revenue relating to Stimuvax, under both U.S. GAAP and Canadian GAAP. Under U.S. GAAP this
resulted in net income. However, under Canadian GAAP we were required to recognize an impairment on
intangible assets which resulted in a net loss for 2008 and therefore do not intend to redeem any
shares of Class UA preferred stock in 2009. If in the future we recognize net income under Canadian
GAAP, or any successor to such principles, or if the holder of Class UA preferred stock were to
challenge, and prevail in a dispute involving, the interpretation of the mandatory redemption
provision, we may be required to redeem such shares which would have an adverse effect on our cash
position. The maximum aggregate amount that we would be required to pay to redeem such shares is
CAN $1.25 million.
The holder of the Class UA preferred stock has declined to sign an acknowledgement that
Canadian GAAP applies to the redemption provision and has indicated that it believes US GAAP should
apply. As of the date of this report, the holder has not initiated a proceeding to challenge this
interpretation; however, it may do so. If they do dispute this interpretation, although we believe
a Delaware court would agree with the interpretation described above, we can provide no assurances
that we would prevail in such a dispute. Further, any dispute regarding this matter, even if we
were ultimately successful, could require significant resources which may adversely affect our
results of operations.
We may expand our business through the acquisition of companies or businesses or in-licensing
product candidates that could disrupt our business and harm our financial condition.
We may in the future seek to expand our products and capabilities by acquiring one or more
companies or businesses or in-licensing one or more product candidates. Acquisitions and
in-licenses involve numerous risks, including:
|
|
|
substantial cash expenditures;
|
|
|
|
|
potentially dilutive issuance of equity securities;
|
|
|
|
|
incurrence of debt and contingent liabilities, some of which may be difficult or
impossible to identify at the time of acquisition;
|
|
|
|
|
difficulties in assimilating the operations of the acquired companies;
|
|
|
|
|
diverting our managements attention away from other business concerns;
|
|
|
|
|
entering markets in which we have limited or no direct experience; and
|
|
|
|
|
potential loss of our key employees or key employees of the acquired companies or
businesses.
|
32
In our recent history, we have not expanded our business through in-licensing and we have
completed only one acquisition; therefore, our experience in making acquisitions and in-licensing
is limited. We cannot assure you that any acquisition or in-license will result in short-term or
long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or
business or in-licensed product candidate. In addition, our future success would depend in part on
our ability to manage the rapid growth associated with some of these acquisitions and in-licenses.
We cannot assure you that we would be able to make the combination of our business with that of
acquired businesses or companies or in-licensed product candidates work or be successful.
Furthermore, the development or expansion of our business or any acquired business or company or
in-licensed product candidate may require a substantial capital investment by us. We may not have
these necessary funds or they might not be available to us on acceptable terms or at all. We may
also seek to raise funds by selling shares of our capital stock, which could dilute our current
stockholders ownership interest, or securities convertible into our capital stock, which could
dilute current stockholders ownership interest upon conversion.
Risks Related to the Ownership of Our Common Stock
Our common stock may become ineligible for listing on The NASDAQ Stock Market, which would
materially adversely affect the liquidity and price of our common stock.
Our common stock is currently listed for trading in the United States on The NASDAQ Global
Market. We have in the past and could in the future be unable to meet The NASDAQ Global Market
continued listing requirements, particularly if (i) the market value of our common stock is not at
least $50 million or, in the alternative, our stockholders equity is not at least $10 million or
(ii) our common stock fails to trade at or above $1.00 per share for an extended period of time.
For example, on August 20, 2008 we disclosed that we had received a letter from The NASDAQ
Stock Market indicating that we did not comply with the requirements for continued listing on The
NASDAQ Global Market because we did not meet the maintenance standard in Marketplace Rule
4450(b)(1)(A) that specifies, among other things, that the market value of our common stock be at
least $50 million or that or stockholders equity was at least $10 million. We were notified on
March 12, 2009 that the NASDAQ Listing Qualifications Panel determined that our common stock could
continue to be listed on The NASDAQ Global Market since we demonstrated, among other things, that
our stockholders equity was at least $10 million as of December 31, 2008. In addition, on
November 2, 2007, we received a letter from NASDAQ notifying Biomira, our predecessor corporation,
that for the 30 consecutive trading days preceding the date of the letter, the bid price of
Biomiras common stock had closed below the $1.00 per share minimum required for continued
inclusion on The NASDAQ Global Market pursuant to NASDAQ Marketplace Rule 4450(a)(5). On January
2, 2008, we were notified by NASDAQ that our common stock had regained compliance with the minimum
bid requirement for continued listing on The NASDAQ Global Market.
We have a history of losses and would expect that, absent the completion of a financing or
other event that would have a positive impact on our stockholders equity, our stockholders equity
would decline over time. Further, in the past year our stock price has traded near, and at times
below, the $1.00 minimum bid price required for continued listing on NASDAQ. Although NASDAQ has
provided relief from the $1.00 minimum bid price requirement as a result of the recent weakness in
the stock market, it may not do so in the future. If we fail to maintain compliance with NASDAQs
listing standards, and our common stock becomes ineligible for listing on The NASDAQ Stock Market
the liquidity and price of our common stock would be adversely affected.
The trading price of our common stock may be volatile.
The market prices for and trading volumes of securities of biotechnology companies, including
our securities, have been historically volatile. The market has from time to time experienced
significant price and volume fluctuations unrelated to the operating performance of particular
companies. The market price of our common shares may fluctuate significantly due to a variety of
factors, including:
|
|
|
the results of pre-clinical testing and clinical trials by us, our collaborators, our
competitors and/or companies that are developing products that are similar to ours
(regardless of whether such products are potentially competitive with ours);
|
|
|
|
|
technological innovations or new therapeutic products;
|
|
|
|
|
governmental regulations;
|
|
|
|
|
developments in patent or other proprietary rights;
|
33
|
|
|
litigation;
|
|
|
|
|
public concern as to the safety of products developed by us or others;
|
|
|
|
|
comments by securities analysts;
|
|
|
|
|
the issuance of additional shares of common stock, or securities convertible into, or
exercisable or exchangeable for, shares of our common stock in connection with
financings, acquisitions or otherwise;
|
|
|
|
|
the perception that shares of our common stock may be delisted from The NASDAQ Stock
Market;
|
|
|
|
|
the incurrence of debt;
|
|
|
|
|
general market conditions in our industry or in the economy as a whole; and
|
|
|
|
|
political instability, natural disasters, war and/or events of terrorism.
|
In addition, the stock market has experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of individual companies.
Broad market and industry factors may seriously affect the market price of companies stock,
including ours, regardless of actual operating performance. In addition, in the past, following
periods of volatility in the overall market and the market price of a particular companys
securities, securities class action litigation has often been instituted against these companies.
This litigation, if instituted against us, could result in substantial costs and a diversion of our
managements attention and resources.
Because we do not expect to pay dividends on our common stock, stockholders will benefit from an
investment in our common stock only if it appreciates in value.
We have never paid cash dividends on our common shares and have no present intention to pay
any dividends in the future. We are not profitable and do not expect to earn any material revenues
for at least several years, if at all. As a result, we intend to use all available cash and liquid
assets in the development of our business. Any future determination about the payment of dividends
will be made at the discretion of our board of directors and will depend upon our earnings, if any,
capital requirements, operating and financial conditions and on such other factors as our board of
directors deems relevant. As a result, the success of an investment in our common stock will
depend upon any future appreciation in its value. There is no guarantee that our common stock will
appreciate in value or even maintain the price at which stockholders have purchased their shares.
Future sales of shares by existing stockholders could cause our stock price to decline.
As of June 30, 2009, we had 23,371,425 shares of common stock outstanding. Of such shares,
2,979,623, or approximately 12.7% , of our outstanding shares, had been issued in connection with
the acquisition of ProlX. A significant number of such shares were issued D. Lynn Kirkpatrick, our
former chief scientific officer and Garth Powis,
Dr. Kirkpatricks husband. On December 31, 2009, Dr.
Kirkpatrick and Dr. Powis ceased to be our affiliates and as
of March 31,
2009, they could sell
shares without complying with the volume restrictions, filing and other requirements applicable to
affiliates under Rule 144. If a substantial amount of our common stock is sold, or if it is
perceived that a substantial amount will be sold, the trading price of our common stock could
decline. Our average trading volume is not large, and sales of large blocks of shares can have an
adverse impact on the trading price of our common stock.
We expect to raise additional capital in the future; however, such capital may not be available to
us on reasonable terms, if at all, when or as we require additional funding. If we issue
additional shares of our common stock or other securities that may be convertible into, or
exercisable or exchangeable for, our common stock, our existing stockholders would experience
further dilution.
We expect that we will seek to raise additional capital from time to time in the future. For
example, in May 2009, we sold 3,878,993 shares of our common stock and warrants to purchase an
additional 2,909,244 shares of our common stock and in August 2009,
we sold an additional 2,280,502 shares of our common stock and
warrants to purchase 684,150 shares of our common stock. Future financings may involve the issuance of
debt, equity and/or securities convertible into or exercisable or exchangeable for our equity
securities. These financings may not be available to us on reasonable terms or at all when and as
we require funding. If we are able to consummate such financings, the trading price of our common
stock could be adversely affected and/or the terms of such financings may adversely affect the
interests of our existing stockholders. Any failure to obtain additional working capital when
required would have a material adverse effect on our business and financial condition and would be
expected to result in a decline in our stock price.
34
Any issuances of our common stock, preferred stock, or securities such as warrants or notes
that are convertible into, exercisable or exchangeable for, our capital stock, would have a
dilutive effect on the voting and economic interest of our existing stockholders.
We can issue shares of preferred stock that may adversely affect the rights of a stockholder of our
common stock.
Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred
stock with designations, rights, and preferences determined from time-to-time by our board of
directors. Accordingly, our board of directors is empowered, without stockholder approval, to
issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to
those of holders of our common stock. For example, an issuance of shares of preferred stock could:
|
|
|
adversely affect the voting power of the holders of our common stock;
|
|
|
|
|
make it more difficult for a third party to gain control of us;
|
|
|
|
|
discourage bids for our common stock at a premium;
|
|
|
|
|
limit or eliminate any payments that the holders of our common stock could expect to
receive upon our liquidation; or
|
|
|
|
|
otherwise adversely affect the market price or our common stock.
|
We have in the past, and we may at any time in the future, issue additional shares of
authorized preferred stock.
We expect our quarterly operating results to fluctuate in future periods, which may cause our stock
price to fluctuate or decline.
Our quarterly operating results have fluctuated in the past, and we believe they will continue
to do so in the future. Some of these fluctuations may be more pronounced than they were in the
past as a result of the issuance by us in May 2009 of warrants to purchase 2,909,244 shares of our
common stock. These warrants are classified as a derivative liability pursuant to SFAS
133. Accordingly, the fair value of the warrants is recorded on our consolidated balance sheet as
a liability, and such fair value is adjusted at each financial reporting date with the adjustment
to fair value reflected in our consolidated statement of operations. The fair value of the
warrants is determined using the Black-Scholes option valuation model. Fluctuations in the
assumptions and factors used in the Black-Scholes model can result in adjustments to the fair value
of the warrants reflected on our balance sheet and, therefore, our statement of operations. Due to
the classification of such warrants and other factors, quarterly results of operations are
difficult to forecast, and period-to-period comparisons of our operating results may not be
predictive of future performance. In one or more future quarters, our results of operations may
fall below the expectations of securities analysts and investors. In that event, the market price
of our common stock could decline. In addition, the market price of our common stock may fluctuate
or decline regardless of our operating performance.
|
|
|
Item 4.
|
|
Submission of Matters to a Vote of Security Holders
|
We held our annual meeting of stockholders on June 12, 2009. The matters voted on at the
annual meeting and votes cast on such matters were as follows:
Proposal 1: The election of two Class II directors to serve until the 2012 annual meeting of
stockholders.
|
|
|
|
|
|
|
|
|
Directors Elected
|
|
For
|
|
Withheld
|
|
Christopher Henney
|
|
|
10,422,701
|
|
|
|
2,488,444
|
|
W. Vickery Stoughton
|
|
|
9,687,895
|
|
|
|
3,223,250
|
|
The terms of the following directors continued after the annual meeting:
Richard Jackson
Robert Kirkman
Daniel Spiegelman
Proposal 2: An amendment to our restricted share unit plan to add 300,000 shares to the total
number of shares reserved for issuance
under the plan.
35
|
|
|
|
|
|
|
Votes
|
For
|
|
|
2,511,641
|
|
Against
|
|
|
2,200,860
|
|
Broker non-votes
|
|
|
8,140,046
|
|
Abstain
|
|
|
58,598
|
|
Proposal 3: The ratification of the appointment of Deloitte & Touche LLP as our independent
registered public accounting firm for the year ending December 31, 2009.
|
|
|
|
|
|
|
Votes
|
For
|
|
|
12,482,497
|
|
Against
|
|
|
295,377
|
|
Broker non-votes
|
|
|
|
|
Abstain
|
|
|
133,271
|
|
36
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
3.1
|
|
Bylaws of Oncothyreon Inc.
|
|
|
|
12.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
|
|
31.1
|
|
Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer,
pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of Shashi K. Karan, Corporate Controller, pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification of Shashi K. Karan, Corporate Controller, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
ONCOTHYREON INC.
(Registrant)
|
|
Date: August 14, 2009
|
/s/ Shashi K. Karan
|
|
|
Corporate Controller and Corporate Secretary
|
|
|
|
|
38
INDEX OF EXHIBITS
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
3.1
|
|
Bylaws of Oncothyreon Inc.
|
|
|
|
12.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
|
|
31.1
|
|
Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer,
pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of Shashi K. Karan, Corporate Controller, pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification of Robert L. Kirkman, M.D., President and Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification of Shashi K. Karan, Corporate Controller, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
39
Exhibit 3.1
BYLAWS OF
ONCOTHYREON INC.
(As Amended on June 12, 2009)
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
ARTICLE I CORPORATE OFFICES
|
|
|
1
|
|
|
|
|
|
|
1.1 REGISTERED OFFICE
|
|
|
1
|
|
1.2 OTHER OFFICES
|
|
|
1
|
|
|
|
|
|
|
ARTICLE II MEETINGS OF STOCKHOLDERS
|
|
|
1
|
|
|
|
|
|
|
2.1 PLACE OF MEETINGS
|
|
|
1
|
|
2.2 ANNUAL MEETING
|
|
|
1
|
|
2.3 SPECIAL MEETING
|
|
|
1
|
|
2.4 ADVANCE NOTICE PROCEDURES; NOTICE OF STOCKHOLDERS MEETINGS
|
|
|
2
|
|
2.5 QUORUM
|
|
|
4
|
|
2.6 ADJOURNED MEETING; NOTICE
|
|
|
4
|
|
2.7 CONDUCT OF BUSINESS
|
|
|
4
|
|
2.8 VOTING
|
|
|
4
|
|
2.9 NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
|
|
|
5
|
|
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
|
|
|
5
|
|
2.11 PROXIES
|
|
|
5
|
|
2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE
|
|
|
6
|
|
2.13 INSPECTORS OF ELECTION
|
|
|
6
|
|
|
|
|
|
|
ARTICLE III DIRECTORS
|
|
|
7
|
|
|
|
|
|
|
3.1 POWERS
|
|
|
7
|
|
3.2 NUMBER OF DIRECTORS
|
|
|
7
|
|
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
|
|
|
7
|
|
3.4 RESIGNATION AND VACANCIES
|
|
|
8
|
|
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
|
|
|
8
|
|
3.6 REGULAR MEETINGS
|
|
|
9
|
|
3.7 SPECIAL MEETINGS; NOTICE
|
|
|
9
|
|
3.8 QUORUM; VOTING
|
|
|
9
|
|
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
|
|
|
10
|
|
3.10 FEES AND COMPENSATION OF DIRECTORS
|
|
|
10
|
|
3.11 REMOVAL OF DIRECTORS
|
|
|
10
|
|
|
|
|
|
|
ARTICLE IV COMMITTEES
|
|
|
10
|
|
|
|
|
|
|
4.1 COMMITTEES OF DIRECTORS
|
|
|
10
|
|
4.2 COMMITTEE MINUTES
|
|
|
11
|
|
4.3 MEETINGS AND ACTION OF COMMITTEES
|
|
|
11
|
|
4.4 SUBCOMMITTEES
|
|
|
11
|
|
-i-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
ARTICLE V OFFICERS
|
|
|
12
|
|
|
|
|
|
|
5.1 OFFICERS
|
|
|
12
|
|
5.2 APPOINTMENT OF OFFICERS
|
|
|
12
|
|
5.3 SUBORDINATE OFFICERS
|
|
|
12
|
|
5.4 REMOVAL AND RESIGNATION OF OFFICERS
|
|
|
12
|
|
5.5 VACANCIES IN OFFICES
|
|
|
12
|
|
5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
|
|
|
13
|
|
5.7 AUTHORITY AND DUTIES OF OFFICERS
|
|
|
13
|
|
|
|
|
|
|
ARTICLE VI STOCK
|
|
|
13
|
|
|
|
|
|
|
6.1 STOCK CERTIFICATES; PARTLY PAID SHARES
|
|
|
13
|
|
6.2 SPECIAL DESIGNATION ON CERTIFICATES
|
|
|
14
|
|
6.3 LOST CERTIFICATES
|
|
|
14
|
|
6.4 DIVIDENDS
|
|
|
14
|
|
6.5 TRANSFER OF STOCK
|
|
|
14
|
|
6.6 STOCK TRANSFER AGREEMENTS
|
|
|
15
|
|
6.7 RECORD STOCKHOLDERS
|
|
|
15
|
|
|
|
|
|
|
ARTICLE VII MANNER OF GIVING NOTICE AND WAIVER
|
|
|
15
|
|
|
|
|
|
|
7.1 NOTICE OF STOCKHOLDERS MEETINGS
|
|
|
15
|
|
7.2 NOTICE BY ELECTRONIC TRANSMISSION
|
|
|
15
|
|
7.3 NOTICE TO STOCKHOLDERS SHARING AN ADDRESS
|
|
|
16
|
|
7.4 NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL
|
|
|
17
|
|
7.5 WAIVER OF NOTICE
|
|
|
17
|
|
|
|
|
|
|
ARTICLE VIII INDEMNIFICATION
|
|
|
17
|
|
|
|
|
|
|
8.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS
|
|
|
17
|
|
8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT
OF THE CORPORATION
|
|
|
18
|
|
8.3 SUCCESSFUL DEFENSE
|
|
|
18
|
|
8.4 INDEMNIFICATION OF OTHERS
|
|
|
18
|
|
8.5 ADVANCED PAYMENT OF EXPENSES
|
|
|
18
|
|
8.6 LIMITATION ON INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
|
|
|
19
|
|
8.7 DETERMINATION; CLAIM
|
|
|
19
|
|
8.8 NON-EXCLUSIVITY OF RIGHTS
|
|
|
20
|
|
8.9 INSURANCE
|
|
|
20
|
|
-ii-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
8.10 SURVIVAL
|
|
|
20
|
|
8.11 EFFECT OF REPEAL OR MODIFICATION
|
|
|
20
|
|
8.12 CERTAIN DEFINITIONS
|
|
|
20
|
|
|
|
|
|
|
ARTICLE IX GENERAL MATTERS
|
|
|
21
|
|
|
|
|
|
|
9.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
|
|
|
21
|
|
9.2 FISCAL YEAR
|
|
|
21
|
|
9.3 SEAL
|
|
|
21
|
|
9.4 CONSTRUCTION; DEFINITIONS
|
|
|
21
|
|
|
|
|
|
|
ARTICLE X AMENDMENTS
|
|
|
22
|
|
-iii-
BYLAWS OF ONCOTHYREON INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of Oncothyreon Inc. shall be fixed in the corporations certificate of
incorporation, as the same may be amended from time to time.
1.2 OTHER OFFICES
The corporations board of directors (the Board) may at any time establish other offices at
any place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the State of Delaware,
designated by the Board. The Board may, in its sole discretion, determine that a meeting of
stockholders shall not be held at any place, but may instead be held solely by means of remote
communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the
DGCL). In the absence of any such designation or determination, stockholders meetings shall be
held at the corporations principal executive office.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year. The Board shall designate the
date and time of the annual meeting. In the absence of such designation the annual meeting of
stockholders shall be held on the second Tuesday of May of each year at 10:00 a.m. However, if
such day falls on a legal holiday, then the meeting shall be held at the same time and place on the
next succeeding business day. At the annual meeting, directors shall be elected and any other
proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the Board, chairperson of
the Board, chief executive officer or president (in the absence of a chief executive officer), but
such special meetings may not be called by any other person or persons.
No business may be transacted at such special meeting other than the business specified in
such notice to stockholders. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing or affecting the time when a meeting of stockholders called by action
of the Board may be held.
|
2.4
|
|
ADVANCE NOTICE PROCEDURES; NOTICE OF STOCKHOLDERS MEETINGS
|
(i) At an annual meeting of the stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before an annual meeting,
business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (B) otherwise properly brought before the meeting by or at the
direction of the Board or (C) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the secretary of the corporation. To be timely, a
stockholders notice must be delivered to or mailed and received at the principal executive offices
of the corporation not less than one hundred twenty (120) calendar days before the one year
anniversary of the date on which the corporation first mailed its proxy statement to stockholders
in connection with the previous years annual meeting of stockholders; provided, however, that in
the event that no annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than thirty (30) days from the date of the prior years meeting, notice by
the stockholder to be timely must be so received not later than the close of business on the later
of one hundred twenty (120) calendar days in advance of such annual meeting and ten (10) calendar
days following the date on which public announcement of the date of the meeting is first made. A
stockholders notice to the secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting: (a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the corporations books, of the stockholder proposing such
business, (c) the class and number of shares of the corporation that are beneficially owned by the
stockholder, (d) any material interest of the stockholder in such business and (e) any other
information that is required to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the 1934 Act), in the stockholders capacity as a
proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and form of proxy for a
stockholders meeting, stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set forth in this
paragraph (i). The chairperson of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting and in accordance
with the provisions of this paragraph (i), and, if the chairperson should so determine, he or she
shall so declare at the meeting that any such business not properly brought before the meeting
shall not be transacted.
(ii) Only persons who are nominated in accordance with the procedures set forth in this
paragraph (ii) shall be eligible for election as directors. Nominations of persons for
-2-
election to the Board may be made at a meeting of stockholders by or at the direction of the
Board or by any stockholder of the corporation entitled to vote in the election of directors at the
meeting who complies with the notice procedures set forth in this paragraph (ii). Such
nominations, other than those made by or at the direction of the Board, shall be made pursuant to
timely notice in writing to the secretary of the corporation in accordance with the provisions of
paragraph (i) of this Section 2.4. Such stockholders notice shall set forth (a) as to each
person, if any, whom the stockholder proposes to nominate for election or re-election as a
director: (A) the name, age, business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the class and number of shares of the
corporation that are beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nominations are to be made by the stockholder and (E)
any other information relating to such person that is required to be disclosed in solicitations of
proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation
14A under the 1934 Act (including without limitation such persons written consent to being named
in the proxy statement, if any, as a nominee and to serving as a director if elected); and (b) as
to such stockholder giving notice, the information required to be provided pursuant to paragraph
(i) of this Section 2.4. At the request of the Board, any person nominated by a stockholder for
election as a director shall furnish to the secretary of the corporation that information required
to be set forth in the stockholders notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (ii). The chairperson of the meeting shall, if the
facts warrant, determine and declare at the meeting that a nomination was not made in accordance
with the procedures prescribed by these bylaws, and if the chairperson should so determine, he or
she shall so declare at the meeting, and the defective nomination shall be disregarded.
These provisions shall not prevent the consideration and approval or disapproval at an annual
meeting of reports of officers, directors and committees of the Board, but in connection therewith
no new business shall be acted upon at any such meeting unless stated, filed and received as herein
provided. Notwithstanding anything in these bylaws to the contrary, no business brought before a
meeting by a stockholder shall be conducted at an annual meeting except in accordance with
procedures set forth in this Section 2.4.
Whenever stockholders are required or permitted to take any action at a meeting, a written
notice of the meeting shall be given which shall state the place, if any, date and hour of the
meeting, the means of remote communication, if any, by which stockholders and proxy holders may be
deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the
certificate of incorporation or these bylaws, the written notice of any meeting of stockholders
shall be given not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting.
-3-
2.5 QUORUM
The holders of one-third of the stock issued and outstanding and entitled to vote, present in
person or represented by proxy, shall constitute a quorum for the transaction of business at all
meetings of the stockholders. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairperson of the meeting or (ii) the
stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is
present or represented, any business may be transacted that might have been transacted at the
meeting as originally noticed.
2.6 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these bylaws otherwise require,
notice need not be given of the adjourned meeting if the time, place if any thereof, and the means
of remote communications if any by which stockholders and proxy holders may be deemed to be present
in person and vote at such adjourned meeting are announced at the meeting at which the adjournment
is taken. At the adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the meeting.
2.7 CONDUCT OF BUSINESS
The chairperson of any meeting of stockholders shall determine the order of business and the
procedure at the meeting, including such regulation of the manner of voting and the conduct of
business.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be determined in
accordance with the provisions of Section 2.10 of these bylaws, subject to Section 217 (relating to
voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to
voting trusts and other voting agreements) of the DGCL.
Except as may be otherwise provided in the certificate of incorporation or these bylaws, each
stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
Except as otherwise required by law, the certificate of incorporation or these bylaws, in all
matters other than the election of directors, the affirmative vote of a majority of the voting
power of the shares present in person or represented by proxy at the meeting and entitled to vote
on the subject matter shall be the act of the stockholders. Except as otherwise required by law,
the certificate of incorporation or these bylaws, directors shall be elected by a plurality of the
voting power of the shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors.
-4-
|
2.9
|
|
NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
|
Subject to the rights of the holders of the shares of any series of Preferred Stock or any
other class of stock or series thereof having a preference over the Common Stock as dividend or
upon liquidation, any action required or permitted to be taken by the stockholders of the
corporation must be effected at a duly called annual or special meeting of stockholders of the
corporation and may not be effected by any consent in writing by such stockholders.
|
2.10
|
|
RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
|
In order that the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which record date shall not precede the date
on which the resolution fixing the record date is adopted and which shall not be more than 60 nor
less than 10 days before the date of such meeting, nor more than 60 days prior to any other such
action.
If the Board does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the day on which notice
is given or, if notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders for any other purpose shall be at the close
of business on the day on which the Board adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
2.11 PROXIES
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or
persons to act for such stockholder by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established for the meeting,
but no such proxy shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Section 212 of the DGCL.
-5-
2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall prepare and make, at
least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder
and the number of shares registered in the name of each stockholder. The corporation shall not be
required to include electronic mail addresses or other electronic contact information on such list.
Such list shall be open to the examination of any stockholder, for any purpose germane to the
meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible
electronic network, provided that the information required to gain access to such list is provided
with the notice of the meeting or (ii) during ordinary business hours, at the corporations
principal place of business. In the event that the corporation determines to make the list
available on an electronic network, the corporation may take reasonable steps to ensure that such
information is available only to stockholders of the corporation. If the meeting is to be held at
a place, then the list shall be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to
be held solely by means of remote communication, then the list shall also be open to the
examination of any stockholder during the whole time of the meeting on a reasonably accessible
electronic network, and the information required to access such list shall be provided with the
notice of the meeting. Such list shall presumptively determine the identity of the stockholders
entitled to vote at the meeting and the number of shares held by each of them.
2.13 INSPECTORS OF ELECTION
A written proxy may be in the form of a telegram, cablegram or other means of electronic
transmission which sets forth or is submitted with information from which it can be determined that
the telegram, cablegram or other means of electronic transmission was authorized by the person.
Before any meeting of stockholders, the Board shall appoint an inspector or inspectors of
election to act at the meeting or its adjournment. The number of inspectors shall be either one
(1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act,
then the chairperson of the meeting may, and upon the request of any stockholder or a stockholders
proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(i) determine the number of shares outstanding and the voting power of each, the number of
shares represented at the meeting, the existence of a quorum, and the authenticity, validity and
effect of proxies;
(ii) receive votes, ballots or consents;
(iii) hear and determine all challenges and questions in any way arising in connection with
the right to vote;
-6-
(iv) count and tabulate all votes or consents;
(v) determine when the polls shall close;
(vi) determine the result; and
(vii) do any other acts that may be proper to conduct the election or vote with fairness to
all stockholders.
The inspectors of election shall perform their duties impartially, in good faith, to the best
of their ability and as expeditiously as is practical. If there are three (3) inspectors of
election, the decision, act or certificate of a majority is effective in all respects as the
decision, act or certificate of all. Any report or certificate made by the inspectors of election
is prima facie evidence of the facts stated therein.
ARTICLE III
DIRECTORS
3.1 POWERS
The business and affairs of the corporation shall be managed by or under the direction of the
Board, except as may be otherwise provided in the DGCL or the certificate of incorporation.
3.2 NUMBER OF DIRECTORS
The Board shall consist of one or more members, each of whom shall be a natural person.
Unless the certificate of incorporation fixes the number of directors, the number of directors
shall be determined from time to time by resolution of the Board. No reduction of the authorized
number of directors shall have the effect of removing any director before that directors term of
office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, each director, including a director elected
to fill a vacancy, shall hold office until the expiration of the term for which elected and until
such directors successor is elected and qualified or until such directors earlier death,
resignation or removal. Directors need not be stockholders unless so required by the certificate
of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe
other qualifications for directors.
If so provided in the certificate of incorporation, the directors of the corporation shall be
divided into three (3) classes.
-7-
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon notice given in writing or by electronic transmission
to the corporation. A resignation is effective when the resignation is delivered unless the
resignation specifies a later effective date or an effective date determined upon the happening of
an event or events. A resignation which is conditioned upon the director failing to receive a
specified vote for reelection as a director may provide that it is irrevocable. Unless otherwise
provided in the certificate of incorporation or these bylaws, when one or more directors resign
from the Board, effective at a future date, a majority of the directors then in office, including
those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to
take effect when such resignation or resignations shall become effective.
Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and
newly created directorships resulting from any increase in the authorized number of directors
elected by all of the stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a sole remaining
director. If the directors are divided into classes, a person so elected by the directors then in
office to fill a vacancy or newly created directorship shall hold office until the next election of
the class for which such director shall have been chosen and until his or her successor shall have
been duly elected and qualified.
If at any time, by reason of death or resignation or other cause, the corporation should have
no directors in office, then any officer or any stockholder or an executor, administrator, trustee
or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person
or estate of a stockholder, may call a special meeting of stockholders in accordance with the
provisions of the certificate of incorporation or these bylaws, or may apply to the Court of
Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.
If, at the time of filling any vacancy or any newly created directorship, the directors then
in office constitute less than a majority of the whole Board (as constituted immediately prior to
any such increase), the Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the voting stock at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The Board may hold meetings, both regular and special, either within or outside the State of
Delaware.
Unless otherwise restricted by the certificate of incorporation or these bylaws, members of
the Board, or any committee designated by the Board, may participate in a meeting of the Board, or
any committee, by means of conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other, and such participation in a meeting
shall constitute presence in person at the meeting.
-8-
3.6 REGULAR MEETINGS
Regular meetings of the Board may be held without notice at such time and at such place as
shall from time to time be determined by the Board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the Board for any purpose or purposes may be called at any time by the
chairperson of the Board, the chief executive officer, the president, the secretary or a majority
of the authorized number of directors.
Notice of the time and place of special meetings shall be:
(i) delivered personally by hand, by courier or by telephone;
(ii) sent by United States first-class mail, postage prepaid;
(iii) sent by facsimile; or
(iv) sent by electronic mail,
directed to each director at that directors address, telephone number, facsimile number or
electronic mail address, as the case may be, as shown on the corporations records.
If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by
facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before
the time of the holding of the meeting. If the notice is sent by United States mail, it shall be
deposited in the United States mail at least four (4) days before the time of the holding of the
meeting. Any oral notice may be communicated to the director. The notice need not specify the
place of the meeting (if the meeting is to be held at the corporations principal executive office)
nor the purpose of the meeting.
3.8 QUORUM; VOTING
At all meetings of the Board, a majority of the total authorized number of directors shall
constitute a quorum for the transaction of business. If a quorum is not present at any meeting of
the Board, then the directors present there at may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present. A meeting at which a
quorum is initially present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the required quorum for that
meeting.
The vote of a majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board, except as may be otherwise specifically provided by statute, the
certificate of incorporation or these bylaws.
-9-
If the certificate of incorporation provides that one or more directors shall have more or
less than one vote per director on any matter, every reference in these bylaws to a majority or
other proportion of the directors shall refer to a majority or other proportion of the votes of the
directors.
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be
taken without a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing or by electronic transmission and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the Board or committee.
Such filing shall be in paper form if the minutes are maintained in paper form and shall be in
electronic form if the minutes are maintained in electronic form.
3.10 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board
shall have the authority to fix the compensation of directors.
3.11 REMOVAL OF DIRECTORS
Any director may be removed from office by the stockholders of the corporation only for cause.
No reduction of the authorized number of directors shall have the effect of removing any director
prior to the expiration of such directors term of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board may, by resolution passed by a majority of the authorized number of directors,
designate one or more committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board or in these bylaws, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers that may require it; but no such
committee shall have the power or authority to (i) approve or adopt, or recommend to the
stockholders, any action or matter (other than the election or removal of directors) expressly
required by the DGCL to be submitted to stockholders for approval or (ii) adopt, amend or repeal
any bylaw of the corporation.
-10-
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the same to the Board
when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken in accordance
with, the provisions of:
(i) Section 3.5 (place of meetings and meetings by telephone);
(ii) Section 3.6 (regular meetings);
(iii) Section 3.7 (special meetings; notice);
(iv) Section 3.8 (quorum; voting);
(v) Section 3.9 (board action by written consent without a meeting); and
(vi) Section 7.5 (waiver of notice),
with such changes in the context of those bylaws as are necessary to substitute the committee and
its members for the Board and its members. However:
(i) the time of regular meetings of committees may be determined either by resolution of the
Board or by resolution of the committee;
(ii) special meetings of committees may also be called by resolution of the Board; and
(iii) notice of special meetings of committees shall also be given to all alternate members,
who shall have the right to attend all meetings of the committee. The Board may adopt rules for
the government of any committee not inconsistent with the provisions of these bylaws.
4.4 SUBCOMMITTEES
Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions
of the Board designating the committee, a committee may create one or more subcommittees, each
subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any
or all of the powers and authority of the committee.
-11-
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president and a secretary. The corporation may
also have, at the discretion of the Board, a chairperson of the Board, a vice chairperson of the
Board, a chief executive officer, a chief financial officer or treasurer, one or more vice
presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more
assistant secretaries, and any such other officers as may be appointed in accordance with the
provisions of these bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The Board shall appoint the officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 and 5.5 of these bylaws, subject to the
rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The Board may appoint, or empower the chief executive officer or, in the absence of a chief
executive officer, the president, to appoint, such other officers and agents as the business of the
corporation may require. Each of such officers and agents shall hold office for such period, have
such authority, and perform such duties as are provided in these bylaws or as the Board may from
time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment, any officer may
be removed, either with or without cause, by an affirmative vote of the majority of the Board at
any regular or special meeting of the Board or, except in the case of an officer chosen by the
Board, by any officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the corporation. Any
resignation shall take effect at the date of the receipt of that notice or at any later time
specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by the Board or as
provided in Section 5.3.
-12-
5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairperson of the Board, the president, any vice president, the treasurer, the secretary
or assistant secretary of the corporation, or any other person authorized by the Board or the
president or a vice president, is authorized to vote, represent, and exercise on behalf of the
corporation all rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be exercised either by
such person directly or by any other person authorized to do so by proxy or power of attorney duly
executed by such person having the authority.
5.7 AUTHORITY AND DUTIES OF OFFICERS
All officers of the corporation shall respectively have such authority and perform such duties
in the management of the business of the corporation as may be designated from time to time by the
Board or the stockholders and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board.
ARTICLE VI
STOCK
6.1 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates, provided that the Board
may provide by resolution or resolutions that some or all of any or all classes or series of its
stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by
a certificate until such certificate is surrendered to the corporation. Every holder of stock
represented by certificates shall be entitled to have a certificate signed by, or in the name of
the corporation by the chairperson of the Board or vice-chairperson of the Board, or the president
or a vice-president, and by the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue. The corporation shall not have power to
issue a certificate in bearer form.
The corporation may issue the whole or any part of its shares as partly paid and subject to
call for the remainder of the consideration to be paid therefor. Upon the face or back of each
stock certificate issued to represent any such partly paid shares, or upon the books and records of
the corporation in the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated. Upon the
declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon
partly paid shares of the same class, but only upon the basis of the percentage of the
consideration actually paid thereon.
-13-
6.2 SPECIAL DESIGNATION ON CERTIFICATES
The powers, the designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights shall be set forth in full or summarized on the
face or back of the certificate that the corporation shall issue to represent such class or series
of stock; provided, however, that, except as otherwise provided in Section 202 of the DGCL, in lieu
of the foregoing requirements there may be set forth on the face or back of the certificate that
the corporation shall issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests the powers, the
designations, the preferences, and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
6.3 LOST CERTIFICATES
Except as provided in this Section 6.3, no new certificates for shares shall be issued to
replace a previously issued certificate unless the latter is surrendered to the corporation and
cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated
shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the corporation may require the owner of the lost, stolen or destroyed
certificate, or such owners legal representative, to give the corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate or uncertificated
shares.
6.4 DIVIDENDS
The Board, subject to any restrictions contained in the certificate of incorporation or
applicable law, may declare and pay dividends upon the shares of the corporations capital stock.
Dividends may be paid in cash, in property or in shares of the corporations capital stock, subject
to the provisions of the certificate of incorporation.
The Board may set apart out of any of the funds of the corporation available for dividends a
reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall
include but not be limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
6.5 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the corporation of a certificate
for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority
to transfer, it shall be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate, and record the transaction in its books.
-14-
6.6 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement with any number of
stockholders of any one or more classes of stock of the corporation to restrict the transfer of
shares of stock of the corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the DGCL.
6.7 RECORD STOCKHOLDERS
The corporation:
(i) shall be entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends and to vote as such owner;
(ii) shall be entitled to hold liable for calls and assessments the person registered on its
books as the owner of shares; and
(iii) shall not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
MANNER OF GIVING NOTICE AND WAIVER
7.1 NOTICE OF STOCKHOLDERS MEETINGS
Notice of any meeting of stockholders, if mailed, is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on
the corporations records. An affidavit of the secretary or an assistant secretary of the
corporation or of the transfer agent or other agent of the corporation that the notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
7.2 NOTICE BY ELECTRONIC TRANSMISSION
Without limiting the manner by which notice otherwise may be given effectively to stockholders
pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders
given by the corporation under any provision of the DGCL, the certificate of incorporation or these
bylaws shall be effective if given by a form of electronic transmission consented to by the
stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by
written notice to the corporation. Any such consent shall be deemed revoked if:
(i) the corporation is unable to deliver by electronic transmission two consecutive notices
given by the corporation in accordance with such consent; and
-15-
(ii) such inability becomes known to the secretary or an assistant secretary of the
corporation or to the transfer agent, or other person responsible for the giving of notice.
However, the inadvertent failure to treat such inability as a revocation shall not invalidate any
meeting or other action.
Any notice given pursuant to the preceding paragraph shall be deemed given:
(i) if by facsimile telecommunication, when directed to a number at which the stockholder has
consented to receive notice;
(ii) if by electronic mail, when directed to an electronic mail address at which the
stockholder has consented to receive notice;
(iii) if by a posting on an electronic network together with separate notice to the
stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such
separate notice; and
(iv) if by any other form of electronic transmission, when directed to the stockholder.
An affidavit of the secretary or an assistant secretary or of the transfer agent or other
agent of the corporation that the notice has been given by a form of electronic transmission shall,
in the absence of fraud, be prima facie evidence of the facts stated therein.
An electronic transmission means any form of communication, not directly involving the
physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed
by a recipient thereof, and that may be directly reproduced in paper form by such a recipient
through an automated process.
Notice by a form of electronic transmission shall not apply to Sections 164, 296, 311, 312 or
324 of the DGCL.
7.3 NOTICE TO STOCKHOLDERS SHARING AN ADDRESS
Except as otherwise prohibited under the DGCL, without limiting the manner by which notice
otherwise may be given effectively to stockholders, any notice to stockholders given by the
corporation under the provisions of the DGCL, the certificate of incorporation or these bylaws
shall be effective if given by a single written notice to stockholders who share an address if
consented to by the stockholders at that address to whom such notice is given. Any such consent
shall be revocable by the stockholder by written notice to the corporation. Any stockholder who
fails to object in writing to the corporation, within 60 days of having been given written notice
by the corporation of its intention to send the single notice, shall be deemed to have consented to
receiving such single written notice.
-16-
7.4 NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL
Whenever notice is required to be given, under the DGCL, the certificate of incorporation or
these bylaws, to any person with whom communication is unlawful, the giving of such notice to such
person shall not be required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or meeting which
shall be taken or held without notice to any such person with whom communication is unlawful shall
have the same force and effect as if such notice had been duly given. In the event that the action
taken by the corporation is such as to require the filing of a certificate under the DGCL, the
certificate shall state, if such is the fact and if notice is required, that notice was given to
all persons entitled to receive notice except such persons with whom communication is unlawful.
7.5 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the DGCL, the certificate of
incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a
waiver by electronic transmission by the person entitled to notice, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular or special meeting of
the stockholders need be specified in any written waiver of notice or any waiver by electronic
transmission unless so required by the certificate of incorporation or these bylaws.
ARTICLE VIII
INDEMNIFICATION
|
8.1
|
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS
|
Subject to the other provisions of this Article VIII, the corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a
Proceeding) (other than an action by or in the right of the corporation) by reason of the fact
that such person is or was a director or officer of the corporation, or is or was a director or
officer of the corporation serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such Proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such persons conduct was unlawful. The termination of any Proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a
-17-
presumption that the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to believe that such persons
conduct was unlawful.
|
8.2
|
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE
CORPORATION
|
Subject to the other provisions of this Article VIII, the corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person is or was a director or officer of the corporation, or is or
was a director or officer of the corporation serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem
proper.
8.3 SUCCESSFUL DEFENSE
To the extent that a present or former director or officer of the corporation has been
successful on the merits or otherwise in defense of any action, suit or proceeding described in
Section 8.1 or 8.2, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys fees) actually and reasonably incurred by such
person in connection therewith.
8.4 INDEMNIFICATION OF OTHERS
Subject to the other provisions of this Article VIII, the corporation shall have power to
indemnify its employees and agents to the extent not prohibited by the DGCL or other applicable
law. The Board shall have the power to delegate to such person or persons the determination of
whether employees or agents shall be indemnified.
8.5 ADVANCED PAYMENT OF EXPENSES
Expenses (including attorneys fees) incurred by an officer or director of the corporation in
defending any Proceeding shall be paid by the corporation in advance of the final disposition of
such Proceeding upon receipt of an undertaking by or on behalf of the person to repay such amounts
if it shall ultimately be determined that the person is not entitled to be indemnified under this
Article VIII
-18-
or the DGCL. Such expenses (including attorneys fees) incurred by former directors and
officers or other employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
Notwithstanding the foregoing, unless otherwise determined pursuant to Section 8.7, no advance
shall be made by the corporation to an officer of the corporation (except by reason of the fact
that such officer is or was a director of the corporation, in which event this paragraph shall not
apply) in any Proceeding if a determination is reasonably and promptly made (i) by a majority vote
of the directors who are not parties to such Proceeding, even though less than a quorum, (ii) by a
committee of such directors designated by majority vote of such directors, even though less than a
quorum, or (iii) if there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, that facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best interests of the
corporation.
|
8.6
|
|
LIMITATION ON INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
|
Subject to the requirements in Section 8.3 and the DGCL, the corporation shall not be required
to provide indemnification or, with respect to clauses (i), (iii) and (iv) below, advance expenses
to any person pursuant to this Article VIII:
(i) in connection with any Proceeding (or part thereof) initiated by such person except (i) as
otherwise required by law, (ii) in specific cases if the Proceeding was authorized by the Board or
(iii) as is required to be made under Section 8.7;
(ii) on account of any Proceeding (or part thereof) against such person providing for an
accounting or disgorgement of profits pursuant to the provisions of Section 16(b) of the 1934 Act
or similar provisions of any federal, state or local statutory law or common law;
(iii) for expenses (including attorneys fees), judgments, fines and amounts paid in
settlement for which payment has actually been made to or on behalf of such person under any
statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any
excess beyond the amount paid; or
(iv) if prohibited by applicable law.
8.7 DETERMINATION; CLAIM
If a claim for indemnification or advancement of expenses under this Article VIII is not paid
in full within 60 days after a written claim therefor has been received by the corporation, the
claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In any such suit, the
-19-
corporation shall have the burden of proving that the claimant was not entitled to the
requested indemnification or advancement of expenses under applicable law.
8.8 NON-EXCLUSIVITY OF RIGHTS
The indemnification and advancement of expenses provided by, or granted pursuant to, this
Article VIII shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the certificate of incorporation
or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such persons official capacity and as to action in another capacity while
holding such office. The corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting indemnification and
advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.
8.9 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such persons status as such, whether or not
the corporation would have the power to indemnify such person against such liability under the
provisions of the DGCL.
8.10 SURVIVAL
The rights to indemnification and advancement of expenses conferred by this Article VIII shall
continue as to a person who has ceased to be a director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such a person.
8.11 EFFECT OF REPEAL OR MODIFICATION
Any repeal or modification of this Article VIII shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring prior to the time of
such repeal or modification.
8.12 CERTAIN DEFINITIONS
For purposes of this Article VIII, references to the corporation shall include, in addition
to the resulting corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, employees or agents, so
that any person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position
-20-
under the provisions of this Article VIII with respect to the resulting or surviving
corporation as such person would have with respect to such constituent corporation if its separate
existence had continued. For purposes of this Article VIII, references to other enterprises
shall include employee benefit plans; references to fines shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to serving at the request of
the corporation shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner not opposed to the best interests of the corporation as referred to in this Article VIII.
ARTICLE IX
GENERAL MATTERS
9.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
Except as otherwise provided by law, the certificate of incorporation or these bylaws, the
Board may authorize any officer or officers, or agent or agents, to enter into any contract or
execute any document or instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or ratified by the Board or
within the agency power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
9.2 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the Board and may be
changed by the Board.
9.3 SEAL
The corporation may adopt a corporate seal, which shall be adopted and which may be altered by
the Board. The corporation may use the corporate seal by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
9.4 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction, and
definitions in the DGCL shall govern the construction of these bylaws. Without limiting the
generality of this provision, the singular number includes the plural, the plural number includes
the singular, and the term person includes both a corporation and a natural person.
-21-
ARTICLE X
AMENDMENTS
These bylaws may be adopted, amended or repealed by the stockholders entitled to vote.
However, the corporation may, in its certificate of incorporation, confer the power to adopt, amend
or repeal bylaws upon the directors. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or
repeal bylaws. Notwithstanding the foregoing and any provision of law that might otherwise permit
a lesser vote or no vote, the Board acting pursuant to a resolution adopted by a majority of the
Board and the affirmative vote of the holders at least sixty-six and two-thirds percent (662/3%) of
the voting power of the issued and outstanding shares of capital stock of the corporation then
entitled to vote shall be required to amend or repeal Section 2.3, Section 2.4, the last paragraph
of Section 2.8 (relating to no cumulative voting), Section 2.9, Section 3.2, Section 3.3, Section
3.4, Section 3.11 and Section 8.11 of these bylaws, or this sentence of this Article X.
A bylaw amendment adopted by stockholders which specifies the votes that shall be necessary
for the election of directors shall not be further amended or repealed by the Board.
-22-