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Filing
[ADVENTRX LETTERHEAD]
Gregory P. Hanson CMA
Senior Vice President and CFO
Senior Vice President and CFO
SENT VIA FACSIMILE: 202-772-9217
AND VIA EDGAR
AND VIA EDGAR
June 11, 2007
Mr. James Rosenberg
Senior Assistant Chief Accountant
United States Securities and Exchange Commission
Mail Stop 6010
Washington, D.C. 20549
Senior Assistant Chief Accountant
United States Securities and Exchange Commission
Mail Stop 6010
Washington, D.C. 20549
Re: ADVENTRX Pharmaceuticals, Inc.
File Number: 001-32157
Form 10-K for the Fiscal Year Ended December 31, 2006
Filed March 15, 2007
Form 10-K for the Fiscal Year Ended December 31, 2006
Filed March 15, 2007
Dear Mr. Rosenberg:
Thank you for your comment letter of May 10, 2007 on our Annual Report on Form 10-K (the Form
10-K) for the year ended December 31, 2006 (the Comment Letter). We submit to you the following
information in response to the Comment Letter. For your convenience, we have repeated each comment
and set forth our response immediately after each comment.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations,
page 43
Critical Accounting Policies and Estimates, page 44
Clinical Trial Expenses, page 45
1. | Please clarify if the 3% variance in your estimate of the work completed is the reasonably likely change in the estimate and if so, please provide to us, using disclosure-type format, a discussion of the reason management believes it is reasonably likely. Otherwise, propose revisions to include the change in estimate that is reasonably likely with a discussion supporting it. |
Response:
In our annual report on Form 10-K in the Section on Managements Discussion and Analysis of
Financial Condition and Results of Operations, we made the statement about a 3% variance in our
estimate of work completed merely as an example of what such a variance could have on our financial
statements. In fact, we had no justification that a 3% variance is the reasonably likely change in
estimate. Therefore, in response to your comment, and to improve our disclosure in future filings,
we will include the following revised disclosure in the critical accounting policies in our Form
10-Q to be filed for the quarter ending June 30, 2007 and subsequent periodic reports:
Our clinical trials are often conducted under contracts with multiple research
institutions and clinical research organizations that conduct and manage clinical trials on
our behalf. The financial terms of these agreements are subject to negotiation and vary
from contract to contract and may result in uneven payment flows. Generally, these
agreements set forth the scope of work to be performed at a fixed fee or unit price or on a
time-and-material basis. Payments under these contracts depend on factors such as the
successful enrollment of patients or the completion of
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other clinical trial milestones. Expenses related to clinical trials are accrued based on
our estimates and/or representations from service providers regarding work performed. Other
incidental costs related to patient enrollment are accrued when reasonably certain. If the
contracted amounts are modified (for instance, as a result of changes in the clinical trial
protocol or scope of work to be performed), we modify our accruals accordingly on a
prospective basis. Revisions are charged to expense in the period in which the facts that
give rise to the revision become reasonably certain. Because of the difficulties of
predicting with reasonable certainty possible changes to the actual level of patient
enrollment, completion of patient studies, clinical trials progress and other events that
may impact our estimate of work completed, we are unable to quantify an estimate of the
reasonably likely effect of any such changes on our consolidated results of operations or
financial position.
Research and Development Expenses, page 45
2. | Please expand your disclosure in Managements Discussion and Analysis by referring to the
Division of Corporation Finance Current Issues and Rulemaking Projects Quarterly Update
under Section VIII Industry Specific Issues Accounting and Disclosure by Companies
Engaged in Research and Development Activities. You can find it at the following website
address: http://www.sec.gov/divisions/corpfin/cfcrq032001.htm#secviii. |
Please disclose the following information for each of your major research and development
projects:
a. | The costs incurred during each period presented and to date on the project; | ||
b. | The nature, timing and estimated costs of the efforts necessary to complete the project; | ||
c. | The anticipated completion dates; | ||
d. | The risks and uncertainties associated with completing development on schedule, and the consequences to operations, financial position and liquidity if the project is not completed timely; and finally | ||
e. | The period in which material net cash inflows from significant projects are expected to commence. |
Regarding a., if you do not maintain any research and development costs by project,
disclose that and explain why management does not maintain and evaluate research and
development costs by project. Provide other quantitative or qualitative disclosure that
indicates the amount of the Companys resources being used on the project.
Regarding b. and c., disclose the amount or range of estimated costs and timing to complete
the phase in process and each future phase. To the extent that information is not estimable,
disclose those facts and circumstances indicating the uncertainties that preclude you from
making a reasonable estimate.
Response:
We maintain and evaluate research and development costs by type of cost incurred rather than by
project, primarily because we out-source a substantial portion of our work and our research and
development personnel work across multiple research and development programs rather than dedicating
their time to any one particular program. We began tracking research and development costs by type
on January 1, 2005; therefore, we will not be able to provide research and development costs by
type for the period from inception through December 31, 2004. Per your request, we will expand our
disclosure in Managements Discussion and Analysis for our research and development programs in our
future filings as follows:
Drug development in the United States and most countries throughout the world is a process
that includes several steps defined by the United States Food and Drug Administration, or
FDA, and similar regulatory authorities in foreign countries. The FDA approval processes
relating to new drugs differ, depending on the nature of the particular drug for which
approval is sought. With respect to any drug product with active ingredients not previously
approved by the FDA, a prospective drug manufacturer is required to submit a New Drug
Application, or NDA, which
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includes complete reports of pre-clinical, clinical and laboratory studies to prove such
products safety and efficacy. The NDA process generally requires, before the submission of
the NDA, submission of an Investigational New Drug application, or IND, pursuant to which
permission is sought to begin preliminary clinical testing of the new drug. An NDA, based
on published safety and efficacy studies conducted by others, may also be required to be
submitted for a drug product with a previously approved active ingredient if the method of
delivery, strength or dosage form is changed. Development of new formulations of
pharmaceutical products, including formulation, testing and obtaining marketing approval,
under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA, may have
shorter timelines than those associated with developing new chemical entities.
Our clinical research and development, or R&D, activities are currently focused on the
development of our product candidates, ANX-510, or CoFactor, for the treatment of
metastatic colorectal cancer and treatment of advanced breast cancer and ANX-530
(vinorelbine emulsion). We also conduct preclinical R&D activities in a variety of areas
that could lead to other product candidates and research activities. We are currently
responsible for all costs incurred for these product candidates. We expect our R&D costs to
be substantial and to increase as we continue the development of our current and future
product candidates, as well as continue to advance our other research programs.
Expenditures on R&D programs are subject to many uncertainties, including whether we
develop our product candidates with a partner or independently. At this time, due to such
uncertainties and the risks inherent in the clinical trial process and given the early
stage of development of many of our product candidates, and uncertainties as to whether we
develop our product candidates with a partner or independently, we cannot estimate with
reasonable certainty the duration of or costs to complete our R&D programs or whether or
when or to what extend we will generate revenues from the commercialization and sale of any
of our product candidates. The duration and cost of clinical trials may vary
significantly over the life of a program as a result of unanticipated events arising during
clinical development and a variety of factors, including:
| the number of patients who participate in the trials; | ||
| the number of sites included in the trials and rate of site approval for the trial; | ||
| the rates of patient recruitment and enrollment; | ||
| the duration of patient treatment and follow-up; | ||
| the costs of manufacturing our drug candidates; and | ||
| the costs, requirements, timing of, and the ability to secure regulatory approvals. |
Generally, Phase 1 clinical trials can be expected to last from 6 to 18 months, Phase 2
clinical trials can be expected to last from 12 to 24 months and Phase 3 clinical trials
can be expected to last from 18 to 36 months. However, clinical development timelines vary
widely, as do the total costs of clinical trials and the likelihood of success. Although we
are currently focused on advancing ANX-510 and ANX-530 through clinical development, we
anticipate that we will make determinations as to which R&D programs to pursue and how much
funding to direct to each program on an ongoing basis in response to the scientific and
clinical success of each product candidate, our ongoing assessment of its market potential
and considering our available financial resources.
The lengthy process of seeking regulatory approvals for our product candidates, and the
compliance with applicable regulations, require the expenditure of substantial resources.
Any failure by us to obtain, or any delay in obtaining regulatory approvals could cause our
R&D expenditures to increase and, in turn, have a material unfavorable effect on our
results of operations. We cannot be certain when or if any net cash inflow due to sales of
any of our current product candidates will commence.
We maintain and evaluate our R&D expenses by the type of cost incurred; rather than by
project, primarily because of the aforementioned uncertainties, as well as because we
out-source a
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substantial portion of our work and our R&D personnel work across multiple programs rather
than dedicating their time to one particular program. We began maintaining such expenses by
type on January 1, 2005. The following table summarizes our consolidated R&D expenses by
type for each of the periods listed and since January 1, 2005 (unaudited):
January 1, 2005 | ||||||||||||||||||||
Quarter ended June 30, | Six months ended June 30, | through | ||||||||||||||||||
2007 | 2006 | 2007 | 2006 | June 30, 2007 | ||||||||||||||||
External
preclinical study
fees and expenses |
$XXX | $XXX | $XXXX | $XXXX | $XXXXX | |||||||||||||||
External clinical
study fees and
expenses |
XXX | XXX | XXXX | XXXX | XXXXX | |||||||||||||||
Manufacturing costs |
XXX | XXX | XXXX | XXXX | XXXXX | |||||||||||||||
Personnel costs |
XXX | XXX | XXXX | XXXX | XXXXX | |||||||||||||||
Share-based
compensation
expense |
XXX | XXX | XXXX | XXXX | XXXXX | |||||||||||||||
Total |
$XXX | $XXX | $XXXX | $XXXX | $XXXXX | |||||||||||||||
Index to Consolidated Financial Statements, page F-1
Report of Independent Registered Public Accounting Firm, page F-2
Report of Independent Registered Public Accounting Firm, page F-2
3. | As your auditor has relied on the report of another auditor, please provide us a copy of the manually signed report of the other auditor provided to you as part of your preparation of your December 31, 2006 Form 10-K, as it should have been included in your filing. Please refer to Rule 2-05 of Regulation S-X. Further, please ensure that it makes reference to the standards of the Public Company Oversight Board of the United States as the basis for the audits performed as the reports will have been reissued subsequent to the issuance of PCAOB Auditing Standard No. 1. |
Response:
In connection with Rule 2-05 of Regulation S-X and your comment, we have requested a waiver from
the Division of the Chief Accountants Office regarding the requirement under Rule 2-05 that we
file a separate report of our predecessor accountant. We respectfully request that the Commission
allow us to pursue such a course of action. For your convenience, we have attached a copy of our
letter to the Division of the Chief Accountants Office.
Note 3, Acquisition of SDP, page F-18
4. | Please disclose the following information relating to the purchase of $10 million in-process research and development: |
a. | Disclose the specific nature and fair value of each significant in-process research and development project acquired. | ||
b. | Disclose the completeness, complexity and uniqueness of the projects at the acquisition date. | ||
c. | Disclose the nature and timing of the efforts necessary to complete the projects, and the anticipated completion dates at the acquisition date. | ||
d. | Disclose the significant appraisal assumptions, such as: |
i. | The period in which material net cash inflows from significant projects are expected to commence; | ||
ii. | Material anticipated changes from historical pricing, margins and expense levels |
e. | In periods subsequent to the purchase of the in-process research and development, discuss the status of efforts to complete the projects, and the impact of any delays on your expected investment return, results of operations and financial condition. |
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Response:
The following disclosure will be added to Note 3, Acquisition of SDP, in our Form 10-K for the year
ending December 31, 2007:
Acquired in-process research and development, or IPR&D, represents the cost of acquired
SDP product candidates for which (a) technological feasibility had not been established at
the acquisition date, (b) the product candidate had not been approved by the FDA for
marketing at the acquisition date, (c) there was no alternative future use, and (d) the
fair value was estimable based on reasonable assumptions. The acquired IPR&D was valued at
approximately $10.4 million and expensed on the acquisition date, and included in the
accompanying consolidated statements of operations for the year ended December 31, 2006.
Information regarding the SDP product candidates we acquired follows:
1. | ANX-530 (vinorelbine emulsion) was assigned a value of $3.2 million. ANX-530, a novel emulsion formulation of the currently approved generic drug for the treatment of non-small cell lung cancer, vinorelbine tartrate, is designed to reduce the incidence and severity of vein irritation from i.v. delivery of vinorelbine tartrate. Our formulation emulsifies vinorelbine tartrate into a homogeneous suspension of nanoparticles and is designed to protect the venous endothelium during administration into a peripheral vein, thereby reducing associated vein irritation caused by vinorelbine tartrate. |
In December 2006, we initiated a 28-patient bioequivalency clinical trial of ANX-530
comparing it with vinorelbine tartrate. The FDA previously indicated that a single
28-patient clinical trial that demonstrates bioequivalence between our emulsion
formulation of vinorelbine tartrate and the currently marketed product should be
sufficient to support the submission of a new drug application, or NDA, with the FDA.
Patient recruitment in the study began in the first quarter of 2007. We anticipate
completing enrollment and the final data analysis in the second half of 2007. If the
study demonstrates bioequivalence, we expect to submit an NDA for ANX-530 with the FDA
by the end of 2007.
2. | ANX-514 (docetaxel emulsion) was assigned a value of $4.1 million. ANX-514, a novel nano-emulsion formulation of the currently approved chemotherapy product docetaxel, is designed to eliminate the need for multi-day immunosuppressant premedication. ANX-514 is formulated without polysorbate 80 or other detergents and is designed to reduce the severity and/or incidence of hypersensitivity reactions. As a result, the need for multi-day immunosuppressant premedication could be eliminated. Currently, we are conducting additional preclinical pharmacokinetic testing of ANX-514 to compare this product candidate with the approved version of the product and plan to seek guidance from the FDA in 2007 with respect to the appropriateness of a Section 505(b)(2) NDA regulatory path for the product candidate. |
3. | ANX-513 (paclitaxel emulsion) was assigned a value of $2.6 million. ANX-513, a novel formulation of the currently approved chemotherapy product paclitaxel, is intended to be non-allergenic and to reduce the need for immunosuppressant premedication. Our emulsion formulation of paclitaxel is formulated without Cremophor or detergents and is designed to reduce the severity and/or incidence of hypersensitivity reactions. As a result, the need for multi-day immunosuppressant premedication could be eliminated. Currently, we are conducting additional preclinical pharmacokinetic testing of ANX-513 to compare this product candidate with the approved version of the product candidate. | ||
4. | Five secondary product candidates were assigned a combined value of approximately $400,000. We are currently conducting preclinical studies for these product candidates. |
We plan to pursue development and obtain marketing approval of the acquired product candidates,
which are emulsion formulations for currently marketed products, under Section 505(b)(2) of the
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Federal Food, Drug and Cosmetic Act, or FDCA, which typically has shorter timelines than those
associated with developing new chemical entities. Solely for the purpose of estimating the fair
value of SDP product candidates at the time of the acquisition, we assumed that:
| We would incur future research and development costs of approximately $7.75 million for ANX-530, ANX-514 and ANX-513 from the date of acquisition through and including the year when commercialization is expected to occur; and | ||
| The commercialization dates for ANX-530, ANX-514 and ANX-513 ranged from 2009-2016 based on the anticipated timeline for Section 502(b)(2) approvals. |
The estimated fair value of the IPR&D was determined based on the use of a discounted cash flow
model using an income approach for the acquired SDP product candidates. Estimated revenues and
cash flows were adjusted to take into account:
| The stage of completion of each of the SDP product candidates; | ||
| The risks surrounding the successful development and commercialization; | ||
| The assumption of out-licensing the product candidate to a pharmaceutical manufacturer after NDA approval for each product candidate; | ||
| Future milestone and royalty revenues; | ||
| Growth rates of each product candidate; and | ||
| Future operating expenses. |
The estimated after-tax cash flows were then discounted to a present value using a discount
rate of 14%.
Note 7, Warrant Liability, page F-21
5. | Please tell us why it is appropriate to record negative additional paid in capital in connection with the 10 million shares of stock issued so that essentially none of the proceeds are allocated to the common stock. |
Response:
As disclosed in our critical accounting policies and Note 7, Warrant Liability, we accounted for
the registration payment arrangement associated with our July 2005 financing (the Registration
Payment Arrangement) in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed To, and Potentially Settled in a Companys Own Stock (EITF 00-19). Pursuant
to Paragraph 8 of EITF 00-19, the contingent obligation to make future payments related to the
Registration Payment Arrangement was classified as a liability at the closing date of the
transaction, because the Registration Payment Arrangement requires liquidated damage payments to be
made in cash in the event we fail to meet the requirements for filing, effectiveness or maintaining
effectiveness of the underlying registration statement, which is outside of our control. In
accordance with Paragraph 9 of EITF D-98, the failure to have a registration statement declared
effective by the SEC by a certain date is considered to be outside of the issuers control.
Accordingly, we assessed the value of the contingent obligation related to the Registration Payment
Arrangement at the closing date and classified the value of the contingent obligation as a
liability. The estimated value of the contingent obligation was based on the fair value of the
warrants, which was $19,439,185 at the closing date. The par value of the 10,810,809 shares issued
in connection with the transaction was $10,811, or $0.001 per share. Since the fair value of the
contingent obligation was greater than the net proceeds from the financing, we reclassified the
entire net proceeds of $18,116,751, received at the closing date, from additional paid-in capital
to current liabilities and recognized the excess of $1,322,434 between the fair value of the
contingent obligation and the net proceeds as a loss on the July
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2005 financing transaction in our consolidated statement of operations. In accounting for the
transaction, the par value of $10,811 for shares issued in connection with the transaction was
offset by the reduction to additional paid-in capital, such that the impact of the financing
transaction on stockholders equity at the closing date was zero. The following table summarizes
the accounting entries related to the July 2005 financing and contingent obligation liability:
Common stock (par | Additional paid-in | |||||||||||||||||||||||
Cash | value) | capital | Liability | (Gain) loss on fair | ||||||||||||||||||||
Date | Description | Debit (credit) | Debit (credit) | Debit (credit) | Debit (credit) | value of liability | ||||||||||||||||||
7/21/2005 | Net proceeds received |
$ | 18,116,751 | $ | (10,811 | ) | $ | (18,105,940 | ) | $ | | $ | | |||||||||||
Record contingent |
||||||||||||||||||||||||
7/21/2005 | obligation liability |
| | 18,116,751 | (19,439,185 | ) | 1,322,434 | |||||||||||||||||
7/31/2005 | Balance |
18,116,751 | (10,811 | ) | 10,811 | (19,439,185 | ) | 1,322,434 | ||||||||||||||||
Adjust liability to |
||||||||||||||||||||||||
12/31/2005 | value at 12/31/2005 |
| | | (10,257,226 | ) | 10,257,226 | |||||||||||||||||
Balance |
$ | 18,116,751 | $ | (10,811 | ) | $ | 10,811 | $ | (29,696,411 | ) | $ | (11,579,660 | ) | |||||||||||
Furthermore, effective January 1, 2007, we adopted the provisions of FASB Staff Position on
No. EITF 00-19-2, Accounting for Registration Payment Arrangements (FSP EITF 00-19-2), to account
for the Registration Payment Arrangement. FSP EITF 00-19-2 provides that the contingent
obligation to make future payments or otherwise transfer consideration under a registration payment
arrangement should be separately recognized and measured in accordance with Statement of Financial
Accounting Standards (FAS) No. 5, Accounting for Contingencies, which provides that loss
contingencies should be recognized as liabilities if they are probable and reasonably estimable.
As reported in our Form 10-Q for the quarter ended March 31, 2007, management determined that it
was not probable that we would have any payment obligation under the Registration Payment
Arrangement as of January 1, 2007 and March 31, 2007; therefore, no accrual for the contingent
obligation was required under the provisions of FSP EITF 00-19-2. In accordance with FSP
EITF 00-19-2, the carrying amount of warrant liability account at January 1, 2007 was eliminated
and the comparative condensed consolidated financial statements of prior periods and as of December
31, 2006 were adjusted to apply the new method retrospectively.
In our Form 10-K for the year ending December 31, 2007, we will disclose that management determined
that it was not probable that we would have any payment obligation under the Registration Payment
Arrangement as of December 31, 2005; therefore, no accrual for the contingent obligation was
required at December 31, 2005. Accordingly, the $18,116,751 amount previously reclassified from
additional paid-in capital to warrant liability in the year ended December 31, 2005 will be
retrospectively restated as follows:
Consolidated Stockholders Equity as
of December 31, 2005
As Originally | ||||||||||||
Reported | As Adjusted | Effect of Change | ||||||||||
Warrant liability |
$ | 29,696,411 | $ | | $ | (29,696,411 | ) | |||||
Total liabilities |
31,450,389 | 1,753,978 | (29,696,411 | ) | ||||||||
Common stock |
67,364 | 67,364 | | |||||||||
Additional paid-in capital |
52,105,329 | 70,222,080 | 18,116,751 | |||||||||
Deficit accumulated
during the development
stage |
(59,964,840 | ) | (48,385,180 | ) | 11,579,660 | |||||||
Total stockholders equity |
23,621,773 | 53,318,184 | 29,696,411 |
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Reference to Accounting Literature:
EITF 00-19, paragraph 8:
8. Accordingly, unless the economic substance indicates otherwise, contracts would be
initially classified as equity or as either assets or liabilities, in the following
situations [Note: See paragraphs 7177 of the STATUS section.] :
Equity
| Contracts that require physical settlement or net-share settlement | ||
| Contracts that give the company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement), assuming that all the criteria set forth in paragraphs 12-32 have been met. |
Assets or liabilities
| Contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the company) | ||
| Contracts that give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). |
EITF D-98, paragraph 9:
9. Securities with provisions that allow the holders to be paid upon the occurrence of
events that are not solely within the issuers control should be classified outside of
permanent equity. Such events include:
| The failure to have a registration statement declared effective by the SEC by a designated date | ||
| The failure to maintain compliance with debt covenants | ||
| The failure to achieve specified earnings targets | ||
| A reduction in the issuers credit rating. |
FSP EITF 00-19-2, Paragraph 17 & 18:
17. For registration payment arrangements and financial instruments subject to those
arrangements that were entered into prior to the issuance of this FSP and that continue to
be outstanding at the beginning of the period of adoption, transition shall be achieved by
reporting a change in accounting principle through a cumulative-effect adjustment to the
opening balance of retained earnings, or other appropriate components of equity or net
assets in the statement of financial position, as of the first interim period for the
fiscal year in which this FSP is initially applied. However, an entity shall not apply the
guidance in this FSP to registration payment arrangements that are no longer outstanding
upon adoption of this FSP.
18. For purposes of measuring the component of the cumulative-effect adjustment relating to
the recognition of a contingent liability under Statement 5, an entity shall evaluate
whether the
8
transfer of consideration under a registration payment arrangement is probable and can be
reasonably estimated as of the adoption date of this FSP. If prior to adoption of this FSP
a registration payment arrangement was separately recognized at its fair value, the
cumulative-effect adjustment shall be the difference between (a) the carrying amount of the
registration payment arrangement immediately prior to adoption of this FSP and (b) the
measurement of the contingent liability, if any, that must be recognized under Statement 5
upon adoption. The carrying amounts of other instruments that were originally issued
together with a registration payment arrangement that was separately recognized and
measured at fair value prior to adoption of this FSP shall not be adjusted upon adoption.
Additionally, per the Comment Letter, the Company acknowledges:
| the Company is responsible for the adequacy and accuracy of the disclosure in its filings with the SEC; | ||
| staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filings; and | ||
| the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
If you have any further questions or wish to discuss the responses we have provided above, please
call me at 858-552-0866 at your convenience.
Sincerely, |
||||
/s/ GREGORY P. HANSON | ||||
Gregory P. Hanson, CMA | ||||
Senior Vice President and Chief Financial Officer | ||||
cc: | Mark N.K. Bagnall, CPA, Audit Committee Chair Patrick Keran, Vice President, Legal and General Counsel. |
Attachment
9
Attachment
Gregory P. Hanson CMA
Senior Vice President and CFO
Senior Vice President and CFO
SENT VIA FACSIMILE: 202-772-9217
June 11, 2007
Mr. Todd E. Hardiman
Associate Chief Accountant
Division of the Chief Accountants Office
U.S. Securities and Exchange Commission
Associate Chief Accountant
Division of the Chief Accountants Office
U.S. Securities and Exchange Commission
Dear Mr. Hardiman:
Subject: | ADVENTRX Pharmaceuticals Request for Waiver of Requirement to Provide Report of Predecessor Accountant under Rule 2-05 of Regulation S-X |
ADVENTRX Pharmaceuticals is a development stage enterprise incorporated in the State of Delaware.
Because of our status as a development stage enterprise, we retain an additional column on our
consolidated statements of operations, stockholders equity and cash flows for the period from
inception (June 12, 1996) through our most recent audited financial statements. In the February
23, 2007 report of the independent registered public accounting firm of J.H. Cohn LLC, that was
filed in connection with our 2006 annual report on Form 10-K, our auditor stated that it relied on
the report of another auditor for the audited financial statements for inception to date through December 31, 2001. The purpose of this letter is
to request a waiver of the requirement under Rule 2-05 of Regulation S-X that specifies that the
separate report of our predecessor accountant be filed. We request a waiver of the requirement due
to the fact that the work performed by the predecessor auditor is over five years old and is not
relevant to or helpful in understanding our audited financial statements for the last five years.
Further, efforts to procure such a report would pose undue cost, time and resources to comply with
current PCAOB standards, and such costs and efforts would significantly outweigh any possibility of
additional protection to our stockholders.
Based on the guidance set forth in Note 1 to Rule 14a-3 promulgated under the Securities Exchange
Act of 1934, the report of our current auditor, dated February 23, 2007, which was provided in
connection with our consolidated balance sheets as of December 31, 2006 and 2005, and the related
consolidated statements of operations, stockholders equity (deficit) and cash flows for each of
the three years in the period ended December 31, 2006 and for the period from June 12, 1996 (date
of inception) to December 31, 2006, properly indicates in the scope paragraph of such report (a)
that the financial statements of the prior period (i.e. the period from inception through December
31, 2001) were examined by other accountants; (b) the date of their report; (c) the type of opinion
expressed by the predecessor accountant; and (d) the substantive reasons therefore, if it was other
than unqualified.
Rule 2-05 of Regulation S-X requires that we provide a report of the predecessor accountant (KPMG),
despite the fact that over five years have passed since the predecessor accountant last audited our
financial statements. Our most recent signed report from our predecessor auditor was provided to
the Commission on April 16, 2003 in connection with the predecessors audit of our financial
statements for the years ended December 31, 2001 and 2000. Subsequent to December 31, 2001, we
changed auditors beginning with the audit of our financial statements for the year ended December
31, 2002, and have retained the same auditor for the last five years.
1
We believe that obtaining a reissued report from our predecessor auditor in 2007 (for our financial
statements for the period from inception through December 31, 2001 that the predecessor audited
over five years ago) would not be relevant to or helpful in understanding our financial statements
for the years ended December 31, 2002 through 2006. Further, we believe that the time and costs
that our company would incur for our predecessor auditor to become current with their prior work
(performed by a partner who has since retired), obtain the
appropriate representation from our current auditor and review our
own filings that are beyond five years from the predecessor auditors own efforts, would be
excessive and would significantly outweigh any possibility of additional protection to our
stockholders by including a more current report by our predecessor auditors.
Based on the facts and circumstances that we have described above, we respectfully request a waiver
of the requirement for us to provide the predecessor auditors report in 2007 (for our financial
statements from the period from inception through December 31, 2001) under Rule 2-05 of Regulation
S-X. If you have any questions, please call me at 858-552-0866 at your convenience.
Sincerely, |
||||
/s/ GREGORY P. HANSON | ||||
Gregory P. Hanson, CMA | ||||
Chief Financial Officer | ||||
cc: | Mark N.K. Bagnall, CPA, Audit Committee Chair Patrick Keran, Vice President, Legal and General Counsel. |
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