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Filing
Table of Contents
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2005
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 001-32157
ADVENTRX Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 84-1318182 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
6725 Mesa Ridge Road, Suite 100
San Diego, California 92121
858-552-0866
(Address of principal executive offices, zip code and telephone number, including area code)
San Diego, California 92121
858-552-0866
(Address of principal executive offices, zip code and 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 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 is an accelerated filer (as defined in Rule 12-b-2 of
the Exchange Act): Yes o No þ
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes o No o
The number
of shares outstanding of the registrants common stock, $.001
par value, as of November 9, 2005 was 67,142,447.
ADVENTRX PHARMACEUTICALS, INC. AND SUBSIDIARY
FORM 10-Q QUARTERLY REPORT
For the Period Ended September 30, 2005
For the Period Ended September 30, 2005
TABLE OF CONTENTS
Page | ||||||||
PART I FINANCIAL INFORMATION | 3 | |||||||
Item 1 | 3 | |||||||
a. | 3 | |||||||
b. | 4 | |||||||
c. | 5 | |||||||
d. | 9 | |||||||
e. | 10 | |||||||
Item 2 | 13 | |||||||
Item 3 | 22 | |||||||
Item 4 | 22 | |||||||
PART II OTHER INFORMATION | 23 | |||||||
Item 1 | 23 | |||||||
Item 2 | 23 | |||||||
Item 6 | 23 | |||||||
SIGNATURES | 24 | |||||||
EXHIBIT 10.14 | ||||||||
EXHIBIT 31.1 | ||||||||
EXHIBIT 31.2 | ||||||||
EXHIBIT 32.1 |
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ADVENTRX PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
September 30, | December 31, | |||||||
2005 | 2004 | |||||||
(unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 18,506,914 | $ | 13,032,263 | ||||
Accrued interest income |
9,365 | 10,808 | ||||||
Prepaid expenses |
537,400 | 115,144 | ||||||
Short-term investments |
7,007,637 | |||||||
Other current assets |
88,755 | | ||||||
Assets available for sale |
| 108,000 | ||||||
Total current assets |
26,150,071 | 13,266,215 | ||||||
Property and equipment, net |
348,142 | 285,304 | ||||||
Other assets |
58,386 | 57,268 | ||||||
Total assets |
$ | 26,556,599 | $ | 13,608,787 | ||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 417,309 | $ | 532,327 | ||||
Accrued liabilities |
1,088,272 | 628,754 | ||||||
Accrued salary and related taxes |
186,804 | 57,315 | ||||||
Total current liabilities |
1,692,385 | 1,218,396 | ||||||
Long-term liabilities |
62,429 | | ||||||
Total liabilities |
1,754,814 | 1,218,396 | ||||||
Commitments and contingencies |
| | ||||||
Shareholders equity: |
||||||||
Common stock, $0.001 par value. Authorized
100,000,000 shares; issued 67,146,298 shares in
2005 and 53,834,237 shares in 2004 |
67,147 | 53,835 | ||||||
Additional paid-in capital |
69,611,168 | 47,553,497 | ||||||
Accumulated
other comprehensive loss |
(1,625 | ) | | |||||
Deficit accumulated during the development stage |
(44,840,158 | ) | (35,182,194 | ) | ||||
Treasury stock, 23,165 shares at cost |
(34,747 | ) | (34,747 | ) | ||||
Total shareholders equity |
24,801,785 | 12,390,391 | ||||||
Total liabilities and shareholders equity |
$ | 26,556,599 | $ | 13,608,787 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
Table of Contents
ADVENTRX PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(unaudited)
Inception | ||||||||||||||||||||
(June 12, 1996) | ||||||||||||||||||||
through | ||||||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | September 30, | ||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | ||||||||||||||||
Net sales |
$ | | $ | | $ | | $ | | $ | 174,830 | ||||||||||
Cost of goods sold |
| | | | 51,094 | |||||||||||||||
Gross margin |
| | | | 123,736 | |||||||||||||||
Grant revenue |
| | | | 129,733 | |||||||||||||||
Interest income |
159,373 | 28,055 | 261,292 | 44,742 | 463,570 | |||||||||||||||
159,373 | 28,055 | 261,292 | 44,742 | 717,039 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development |
1,720,257 | 983,665 | 5,661,663 | 2,053,131 | 13,135,917 | |||||||||||||||
General and administrative |
1,887,260 | 1,155,716 | 4,161,171 | 2,315,936 | 16,594,468 | |||||||||||||||
Depreciation and amortization |
34,331 | 12,481 | 96,422 | 19,199 | 10,236,438 | |||||||||||||||
Impairment loss write off of
goodwill |
| | | | 5,702,130 | |||||||||||||||
Interest expense |
| | | | 179,090 | |||||||||||||||
Equity in loss of investee |
| | | | 178,936 | |||||||||||||||
Total operating expenses |
3,641,848 | 2,151,862 | 9,919,256 | 4,388,266 | 46,026,979 | |||||||||||||||
Loss before cumulative
effect of change in
accounting principle |
(3,482,475 | ) | (2,123,807 | ) | (9,657,964 | ) | (4,343,524 | ) | (45,309,940 | ) | ||||||||||
Cumulative effect of change in
accounting principle |
| | | | (25,821 | ) | ||||||||||||||
Net loss |
(3,482,475 | ) | (2,123,807 | ) | (9,657,964 | ) | (4,343,524 | ) | (45,335,761 | ) | ||||||||||
Preferred stock dividends |
| | | | (621,240 | ) | ||||||||||||||
Net loss applicable to common
stock |
$ | (3,482,475 | ) | $ | (2,123,807 | ) | $ | (9,657,964 | ) | $ | (4,343,524 | ) | $ | (45,957,001 | ) | |||||
Loss per common share -
basic and diluted |
$ | (.06 | ) | $ | (.04 | ) | $ | (.17 | ) | $ | (.09 | ) | ||||||||
Weighted
average number of common shares outstanding - basic and diluted |
63,255,407 | 53,811,072 | 57,346,039 | 49,715,980 | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
Table of Contents
ADVENTRX PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Shareholders Equity (Deficit)
Inception (June 12, 1996) through June 30, 2005
Cumulative | Cumulative | Cumulative | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||
convertible | convertible | convertible | Accumulated | accumulated | Total | |||||||||||||||||||||||||||||||||||||||||||||||
preferred stock, | preferred stock, | preferred stock, | Additional | other | during the | Treasury | shareholders | |||||||||||||||||||||||||||||||||||||||||||||
series A | series B | series C | Common stock | paid-in | comprehensive | development | Stock, | equity | ||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | loss | stage | at cost | (deficit) | ||||||||||||||||||||||||||||||||||||||||
Balances at June
12, 1996 (date of
incorporation) |
| $ | | | $ | | | $ | | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||||||||||||||||
Sale of common stock
without par value |
| | | | | | 503 | 5 | 5 | | | | 10 | |||||||||||||||||||||||||||||||||||||||
Change in par value of
common stock |
| | | | | | | (4 | ) | 4 | | | | | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock
and net liabilities
assumed in acquisition |
| | | | | | 1,716,132 | 1,716 | 3,224 | | (18,094 | ) | | (13,154 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of common stock |
| | | | | | 2,010,111 | 2,010 | 456 | | (2,466 | ) | | | ||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (259,476 | ) | | (259,476 | ) | |||||||||||||||||||||||||||||||||||||
Balances at December 31,
1996 |
| | | | | | 3,726,746 | 3,727 | 3,689 | | (280,036 | ) | | (272,620 | ) | |||||||||||||||||||||||||||||||||||||
Sale of common stock, net of offering costs of $9,976 |
| | | | | | 1,004,554 | 1,004 | 1,789,975 | | | | 1,790,979 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock
in acquisition |
| | | | | | 375,891 | 376 | 887,874 | | | | 888,250 | |||||||||||||||||||||||||||||||||||||||
Minority interest
deficiency at
acquisition charged to
the Company |
| | | | | | | | | | (45,003 | ) | | (45,003 | ) | |||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (1,979,400 | ) | | (1,979,400 | ) | |||||||||||||||||||||||||||||||||||||
Balances at December 31,
1997 |
| | | | | | 5,107,191 | 5,107 | 2,681,538 | | (2,304,439 | ) | | 382,206 | ||||||||||||||||||||||||||||||||||||||
Rescission of acquisition |
| | | | | | (375,891 | ) | (376 | ) | (887,874 | ) | | 561,166 | | (327,084 | ) | |||||||||||||||||||||||||||||||||||
Issuance of common stock
at conversion of notes
payable |
| | | | | | 450,264 | 451 | 363,549 | | | | 364,000 | |||||||||||||||||||||||||||||||||||||||
Expense related to stock
warrants issued |
| | | | | | | | 260,000 | | | | 260,000 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (1,204,380 | ) | | (1,204,380 | ) | |||||||||||||||||||||||||||||||||||||
Balances at December 31,
1998 |
| | | | | | 5,181,564 | 5,182 | 2,417,213 | | (2,947,653 | ) | | (525,258 | ) | |||||||||||||||||||||||||||||||||||||
Sale of common stock |
| | | | | | 678,412 | 678 | 134,322 | | | | 135,000 | |||||||||||||||||||||||||||||||||||||||
Expense related to stock
warrants issued |
| | | | | | | | 212,000 | | | | 212,000 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (1,055,485 | ) | | (1,055,485 | ) | |||||||||||||||||||||||||||||||||||||
Balances at December 31,
1999 |
| | | | | | 5,859,976 | 5,860 | 2,763,535 | | (4,003,138 | ) | | (1,233,743 | ) |
5
Table of Contents
Cumulative | Cumulative | Cumulative | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||
convertible | convertible | convertible | Accumulated | accumulated | Total | |||||||||||||||||||||||||||||||||||||||||||||||
preferred stock, | preferred stock, | preferred stock, | Additional | other | during the | Treasury | shareholders' | |||||||||||||||||||||||||||||||||||||||||||||
series A | series B | series C | Common stock | paid-in | comprehensive | development | Stock, | equity | ||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | loss | stage | at cost | (deficit) | ||||||||||||||||||||||||||||||||||||||||
Sale of preferred stock,
net of offering costs
of $76,500 |
3,200 | 32 | | | | | | | 3,123,468 | $ | | | | 3,123,500 | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock
at conversion of notes
and interest payable |
| | | | | | 412,487 | 412 | 492,085 | | | | 492,497 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock
at conversion of notes
payable |
| | | | | | 70,354 | 70 | 83,930 | | | | 84,000 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock
to settle obligations |
| | | | | | 495,111 | 496 | 1,201,664 | | | | 1,202,160 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock
for acquisition |
| | | | | | 6,999,990 | 7,000 | 9,325,769 | | | | 9,332,769 | |||||||||||||||||||||||||||||||||||||||
Issuance of warrants for
acquisition |
| | | | | | | | 4,767,664 | | | | 4,767,664 | |||||||||||||||||||||||||||||||||||||||
Stock issued for
acquisition costs |
| | | | | | 150,000 | 150 | 487,350 | | | | 487,500 | |||||||||||||||||||||||||||||||||||||||
Expense related to stock
warrants issued |
| | | | | | | | 140,000 | | | | 140,000 | |||||||||||||||||||||||||||||||||||||||
Dividends payable on
preferred stock |
| | | | | | | | (85,000 | ) | | | | (85,000 | ) | |||||||||||||||||||||||||||||||||||||
Cashless exercise of
warrants |
| | | | | | 599,066 | 599 | (599 | ) | | | | | ||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (3,701,084 | ) | | (3,701,084 | ) | |||||||||||||||||||||||||||||||||||||
Balances at December 31,
2000 |
3,200 | 32 | | | | | 14,586,984 | 14,587 | 22,299,866 | | (7,704,222 | ) | | 14,610,263 | ||||||||||||||||||||||||||||||||||||||
Dividends payable on
preferred stock |
| | | | | | | | (256,000 | ) | | | | (256,000 | ) | |||||||||||||||||||||||||||||||||||||
Repurchase of warrants |
| | | | | | | | (55,279 | ) | | | | (55,279 | ) | |||||||||||||||||||||||||||||||||||||
Sale of warrants |
| | | | | | | | 47,741 | | | | 47,741 | |||||||||||||||||||||||||||||||||||||||
Cashless exercise of
warrants |
| | | | | | 218,493 | 219 | (219 | ) | | | | | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock
to pay preferred
dividends |
| | | | | | 93,421 | 93 | 212,907 | | | | 213,000 | |||||||||||||||||||||||||||||||||||||||
Detachable warrants
issued with notes
payable |
| | | | | | | | 450,000 | | | | 450,000 | |||||||||||||||||||||||||||||||||||||||
Issuance of warrants to
pay operating expenses |
| | | | | | | | 167,138 | | | | 167,138 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock
to pay operating
expenses |
| | | | | | 106,293 | 106 | 387,165 | | | | 387,271 | |||||||||||||||||||||||||||||||||||||||
Issuance of preferred
stock to pay operating
expenses |
137 | 1 | | | | | | | 136,499 | | | | 136,500 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (16,339,120 | ) | | (16,339,120 | ) | |||||||||||||||||||||||||||||||||||||
Balances at December 31,
2001 |
3,337 | 33 | | | | | 15,005,191 | 15,005 | 23,389,818 | | (24,043,342 | ) | | (638,486 | ) |
6
Table of Contents
ADVENTRX PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Shareholders Equity (Deficit)
Inception (June 12, 1996) through June 30, 2005
CONTINUED FROM PREVIOUS PAGE
Cumulative | Cumulative | Cumulative | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||
convertible | convertible | convertible | Accumulated | accumulated | Total | |||||||||||||||||||||||||||||||||||||||||||||||
preferred stock, | preferred stock, | preferred stock, | Additional | other | during the | Treasury | shareholders' | |||||||||||||||||||||||||||||||||||||||||||||
series A | series B | series C | Common stock | paid-in | comprehensive | development | Stock, | equity | ||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | loss | stage | at cost | (deficit) | ||||||||||||||||||||||||||||||||||||||||
Dividends payable on
preferred stock |
| | | | | | | | (242,400 | ) | | | | (242,400 | ) | |||||||||||||||||||||||||||||||||||||
Repurchase of warrants |
| | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Sale of warrants |
| | | | | | 240,000 | 240 | 117,613 | | | | 117,853 | |||||||||||||||||||||||||||||||||||||||
Cashless exercise of warrants |
| | | | | | 100,201 | 100 | (100 | ) | | | | | ||||||||||||||||||||||||||||||||||||||
Exercise of warrants |
| | | | | | 344,573 | 345 | 168,477 | | | | 168,822 | |||||||||||||||||||||||||||||||||||||||
Sale of preferred stock at $1.50 |
| | 200,000 | 2,000 | | | | | 298,000 | | | | 300,000 | |||||||||||||||||||||||||||||||||||||||
Sale of preferred stock at $10.00 |
| | | | 70,109 | 701 | | | 700,392 | | | | 701,093 | |||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock
into common stock |
(3,000 | ) | (30 | ) | | | | | 1,800,000 | 1,800 | (1,770 | ) | | | | | ||||||||||||||||||||||||||||||||||||
Preferred stock dividends forgiven |
| | | | | | | | 335,440 | | | | 335,440 | |||||||||||||||||||||||||||||||||||||||
Issuance of warrants to pay
operating expenses |
| | | | | | | | 163,109 | | | | 163,109 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock to pay
operating expenses |
| | | | | | 6,292 | 6 | 12,263 | | | | 12,269 | |||||||||||||||||||||||||||||||||||||||
Issuance of preferred stock to
pay operating expenses |
136 | 1 | | | | | | | 6,000 | | | | 6,001 | |||||||||||||||||||||||||||||||||||||||
Issuance of stock options to
employees |
| | | | | | | | 329,296 | | | | 329,296 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (2,105,727 | ) | | (2,105,727 | ) | |||||||||||||||||||||||||||||||||||||
Balances at December 31, 2002 |
473 | 4 | 200,000 | 2,000 | 70,109 | 701 | 17,496,257 | 17,496 | 25,276,138 | | (26,149,069 | ) | | (852,730 | ) | |||||||||||||||||||||||||||||||||||||
Dividends payable on preferred
stock |
| | | | | | | | (37,840 | ) | | | | (37,840 | ) | |||||||||||||||||||||||||||||||||||||
Conversion of Series C preferred
stock into common stock |
| | | | (70,109 | ) | (701 | ) | 14,021,860 | 14,022 | (13,321 | ) | | | | | ||||||||||||||||||||||||||||||||||||
Issuance of common stock to pay
interest on Bridge Notes |
| | | | | | 165,830 | 165 | 53,326 | | | | 53,491 | |||||||||||||||||||||||||||||||||||||||
Sale of common stock at $0.40 per
share, net of issuance costs |
| | | | | | 6,640,737 | 6,676 | 2,590,656 | | | | 2,597,332 | |||||||||||||||||||||||||||||||||||||||
Sale of common stock at $1.00 per
share, net of issuance costs |
| | | | | | 3,701,733 | 3,668 | 3,989,181 | | | | 3,992,849 | |||||||||||||||||||||||||||||||||||||||
Exchange of warrants |
| | | | | | 235,291 | 235 | 49,486 | | | | 49,721 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock to pay
operating expenses |
| | | | | | 230,000 | 230 | 206,569 | | | | 206,799 | |||||||||||||||||||||||||||||||||||||||
Issuance of warrants to pay
operating expenses |
| | | | | | | | 156,735 | | | | 156,735 | |||||||||||||||||||||||||||||||||||||||
Issuance of stock options to
employees |
| | | | | | | | 286,033 | | | | 286,033 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (2,332,077 | ) | | (2,332,077 | ) | |||||||||||||||||||||||||||||||||||||
7
Table of Contents
Cumulative | Cumulative | Cumulative | Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||
convertible | convertible | convertible | Accumulated | accumulated | Total | |||||||||||||||||||||||||||||||||||||||||||||||
preferred stock, | preferred stock, | preferred stock, | Additional | Other | during the | Treasury | shareholders' | |||||||||||||||||||||||||||||||||||||||||||||
series A | series B | series C | Common stock | paid-in | Comprehensive | development | Stock, | equity | ||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | Loss | stage | at cost | (deficit) | ||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2003 |
473 | 4 | 200,000 | 2,000 | | | 42,491,708 | 42,492 | 32,556,963 | | (28,481,146 | ) | | 4,120,313 | ||||||||||||||||||||||||||||||||||||||
Extinguishment of dividends
payable on preferred stock |
| | | | | | | | 72,800 | | | | 72,800 | |||||||||||||||||||||||||||||||||||||||
Conversion of Series A cumulative
preferred stock |
(473 | ) | (4 | ) | | | | | 236,500 | 236 | (232 | ) | | | | | ||||||||||||||||||||||||||||||||||||
Conversion of Series B preferred
stock |
| | (200,000 | ) | (2,000 | ) | | | 200,000 | 200 | 1,800 | | | | | |||||||||||||||||||||||||||||||||||||
Cashless exercise of warrants |
464,573 | 465 | (465 | ) | | | | | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants |
| | | | | | 23,832 | 23 | 27,330 | | | | 27,353 | |||||||||||||||||||||||||||||||||||||||
Issuance of warrants in
settlement of a claim |
| | | | | | | | 86,375 | | | | 86,375 | |||||||||||||||||||||||||||||||||||||||
Sale of common stock at $1.50 per
share |
| | | | | | 10,417,624 | 10,419 | 15,616,031 | | | | 15,626,450 | |||||||||||||||||||||||||||||||||||||||
Payment of financing and offering
costs |
| | | | | | | | (1,366,774 | ) | | | | (1,366,774 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of stock options to
employees |
| | | | | | | | 524,922 | | | | 524,922 | |||||||||||||||||||||||||||||||||||||||
Acquisition of treasury stock |
| | | | | | | | 34,747 | | | (34,747 | ) | | ||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (6,701,048 | ) | | (6,701,048 | ) | |||||||||||||||||||||||||||||||||||||
Balances at December 31, 2004 |
| | | | | | 53,834,237 | 53,835 | 47,553,497 | | (35,182,194 | ) | (34,747 | ) | 12,390,391 | |||||||||||||||||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss |
| | | | | | | | | | (9,657,964 | ) | | (9,657,964 | ) | |||||||||||||||||||||||||||||||||||||
Effect of change in fair
value of available for sale
securities |
| | | | | | | | | (1,625 | ) | | | (1,625 | ) | |||||||||||||||||||||||||||||||||||||
Total
comprehensive loss |
| | | | | | | | | | | | (9,659,589 | ) | ||||||||||||||||||||||||||||||||||||||
Sale of common stock at $1.85 per
share, net of issuance costs |
| | | | | | 10,810,809 | 10,811 | 17,908,614 | | | | 17,919,425 | |||||||||||||||||||||||||||||||||||||||
Exercise of warrants |
| | | | | | 2,376,252 | 2,376 | 3,060,486 | | | | 3,062,862 | |||||||||||||||||||||||||||||||||||||||
Issuance of stock options to
employees |
| | | | | | | | 757,133 | | | | 757,133 | |||||||||||||||||||||||||||||||||||||||
Issuance of
stock options to non-employee |
| | | | | | | | 73,063 | | | | 73,063 | |||||||||||||||||||||||||||||||||||||||
Issuance of stock to vendor |
| | | | | | 125,000 | 125 | 258,375 | | | | 258,500 | |||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2005
(unaudited) |
| $ | | | $ | | | $ | | 67,146,398 | $ | 67,147 | $ | 69,611,168 | $ | (1,625 | ) | $ | (44,840,158 | ) | $ | (34,747 | ) | $ | 24,801,785 | |||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
8
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ADVENTRX PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(unaudited)
(unaudited)
Inception | ||||||||||||
(June 12, 1996) | ||||||||||||
through | ||||||||||||
Nine months ended September 30, | September 30, | |||||||||||
2005 | 2004 | 2005 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (9,657,964 | ) | $ | (4,343,524 | ) | $ | (45,335,761 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Depreciation and amortization |
96,422 | 19,199 | 9,786,438 | |||||||||
Amortization of debt discount |
| | 450,000 | |||||||||
Forgiveness of employee receivable |
| | 30,036 | |||||||||
Impairment
loss write-off of goodwill |
| | 5,702,130 | |||||||||
Expenses paid by warrants |
| 86,375 | 573,357 | |||||||||
Expenses paid by preferred stock |
| | 142,501 | |||||||||
Expenses related to stock warrants issued |
| | 612,000 | |||||||||
Expenses related to employee stock options issued |
757,133 | 412,271 | 1,897,383 | |||||||||
Expense
related to stock options issued to non-employee |
73,063 | | 73,063 | |||||||||
Expenses paid by issuance of common stock |
82,250 | | 1,076,048 | |||||||||
Equity in loss of investee |
| | 178,936 | |||||||||
Write-off of license agreement |
| | 152,866 | |||||||||
Write-off of assets available for sale |
108,000 | | 108,000 | |||||||||
Cumulative effect of change in accounting principle |
| | 25,821 | |||||||||
Changes in assets and liabilities , net of effect of acquisitions: |
||||||||||||
(Increase) decrease in prepaid and other assets |
(334,436 | ) | (257,174 | ) | (941,273 | ) | ||||||
Increase (decrease) in accounts payable and accrued liabilities |
473,989 | 603,435 | 1,171,114 | |||||||||
Increase (decrease) in other long-term liabilities |
62,429 | 62,429 | ||||||||||
Increase in sponsored research payable and license obligation |
| | 924,318 | |||||||||
Net cash used in operating activities |
(8,339,114 | ) | (3,479,418 | ) | (23,310,594 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchase of certificate of deposit |
| | (1,016,330 | ) | ||||||||
Maturity of certificate of deposit |
| | 1,016,330 | |||||||||
Purchases of property and equipment |
(159,260 | ) | (289,884 | ) | (587,502 | ) | ||||||
Purchases of short-term investments |
(7,009,262 | ) | | (7,009,262 | ) | |||||||
Payment on obligation under license agreement |
| | (106,250 | ) | ||||||||
Cash acquired in acquisition of subsidiary |
| | 64,233 | |||||||||
Issuance of note receivable related party |
| | (35,000 | ) | ||||||||
Payments on note receivable |
| | 405,993 | |||||||||
Advance to investee |
| | (90,475 | ) | ||||||||
Cash transferred in rescission of acquisition |
| | (19,475 | ) | ||||||||
Cash received in rescission of acquisition |
| | 230,000 | |||||||||
Net cash used in investing activities |
(7,168,522 | ) | (289,884 | ) | (7,147,738 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from sale of preferred stock |
| | 4,200,993 | |||||||||
Proceeds from sale of common stock |
19,999,997 | 15,626,450 | 44,152,593 | |||||||||
Proceeds from sale or exercise of warrants |
3,062,862 | 27,353 | 3,474,452 | |||||||||
Repurchase of warrants |
| | (55,279 | ) | ||||||||
Payment of financing and offering costs |
(2,080,572 | ) | (1,354,541 | ) | (3,546,322 | ) | ||||||
Payments of notes payable and long-term debt |
| | (605,909 | ) | ||||||||
Proceeds from issuance of notes payable and detachable warrants |
| | 1,344,718 | |||||||||
Net cash provided by financing activities |
20,982,287 | 14,299,262 | 48,965,246 | |||||||||
Net increase in cash and cash equivalents |
5,474,651 | 10,529,960 | 18,506,914 | |||||||||
Cash and cash equivalents at beginning of period |
13,032,263 | 4,226,397 | | |||||||||
Cash and cash equivalents at end of period |
$ | 18,506,914 | $ | 14,756,357 | $ | 18,506,914 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
9
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ADVENTRX Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
1. Description of the Company
ADVENTRX Pharmaceuticals, Inc., a Delaware corporation, (the Company), is a biopharmaceutical
research and development company focused on introducing new technologies for anticancer and
antiviral treatments that improve the performance and safety of existing drugs by addressing
significant problems such as drug metabolism, toxicity, bioavailability and resistance. The Company
currently does not manufacture, market, sell or distribute any products. Pursuant to license
agreements with University of Southern California National Institutes of Health and SD
Pharmaceuticals, Inc. the Company has rights to drug candidates in varying stages of development.
On May 30, 2003, the Company merged its wholly owned subsidiary, Biokeys, Inc., into itself and
changed the name of the Company from Biokeys Pharmaceuticals, Inc. to ADVENTRX Pharmaceuticals,
Inc. The merger had no effect on the financial statements of the Company.
In
July 2004, the Company formed a wholly owned subsidiary, ADVENTRX (Europe) Ltd., in the
United Kingdom for the purpose of conducting drug trials in the European Union.
2. Unaudited interim financial statements
In the opinion of management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of September 30, 2005 and its results of
operations and cash flows for the three and/or nine months ended September 30, 2005 and 2004 and
for the period from inception (June 12, 1996) through September 30, 2005. Information included in
the consolidated balance sheet as of December 31, 2004 has been derived from the audited
consolidated financial statements of the Company as of December 31, 2004 (the Audited Financial
Statements) included in the Companys Annual Report on Form 10-KSB (the 10-KSB) for the year
ended December 31, 2004 that was previously filed with the Securities and Exchange Commission (the
SEC). Pursuant to the rules and regulations of the SEC, certain information and disclosures
normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or omitted from these
financial statements unless significant changes have taken place since the end of the most recent
fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be
read in conjunction with the Audited Financial Statements and the other information also included
in the 10-KSB.
The results of the Companys operations for the nine months ended September 30, 2005 are not
necessarily indicative of the results of operations for the full year ending December 31, 2005.
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities as of the dates of the condensed consolidated balance
sheets and reported amount of revenues and expenses for the periods presented. Accordingly, actual
results could materially differ from those estimates.
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Supplementary Cash Flow Information
Noncash investing and financing transactions excluded from the condensed statements of cash flows
for the nine months ended September 30, 2005 and 2004 and for the period from inception (June 12,
1996) through September 30, 2005 are as follows:
Inception | ||||||||||||
(June 12, 1996) | ||||||||||||
Nine months ended September 30, | through | |||||||||||
2005 | 2004 | September 30, 2005 | ||||||||||
Issuance of warrants, common stock and preferred stock for: |
||||||||||||
Conversion of notes payable and accrued interest |
$ | | $ | | $ | 1,213,988 | ||||||
Payment of operating expenses |
258,500 | | 1,482,781 | |||||||||
Conversion of preferred stock |
| 2,000 | 2,705 | |||||||||
Acquisitions |
| | 14,617,603 | |||||||||
Payment of dividends |
| | 213,000 | |||||||||
Financial advisor services in conjunction with private placement |
| 1,137,456 | 1,137,456 | |||||||||
Settlement of claim |
| | 86,375 | |||||||||
Acquisition of treasury stock in settlement of a claim |
| | 34,747 | |||||||||
Assumptions of liabilities in acquisitions |
| | 1,009,567 | |||||||||
Acquisition of license agreement for long-term debt |
| | 161,180 | |||||||||
Cashless exercise of warrants |
130 | 465 | 3,872 | |||||||||
Dividends accrued |
| | 621,040 | |||||||||
Trade asset converted to available for sale asset |
| | 108,000 | |||||||||
Dividends extinguished |
| 72,800 | 408,240 | |||||||||
Trade payable converted to note payable |
| | 83,948 | |||||||||
Issuance of warrants for return of common stock |
| | 50,852 | |||||||||
Detachable warrants issued with notes payable |
| | 450,000 | |||||||||
Unrealized loss on short-term investments |
1,625 | | 1,625 |
3. Net Loss Per Common Share
Net loss per common share is calculated according to Statement of Financial Accounting Standards
No. 128, Earnings per Share, using the weighted average number of shares of common stock
outstanding during the period.
The following potentially dilutive shares were not included in the computation of net loss per
common share diluted, as their effect would have been antidilutive due to the Companys net
losses as of September 30, 2005 and 2004:
September 30, 2005 | September 30, 2004 | ||||||||
Warrants |
19,668,012 | 11,154,964 | |||||||
Options |
2,742,000 | 3,456,000 | |||||||
Total |
22,410,012 | 14,610,964 | |||||||
11
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4. Stock Compensation Plans
On May 24, 2005, at the Companys annual meeting of stockholders, the Companys stockholders
approved the 2005 Equity Incentive Plan (the 2005 Plan) and the 2005 Employee Stock Purchase
Plan. The 2005 Plan is intended to encourage ownership of shares of common stock by directors,
officers, employees, consultants and advisors of the Company and its affiliates and to provide
additional incentive for them to promote the success of the Companys business through the grant of
equity-based awards. The 2005 Plan permits the Company to issue options, share appreciation
rights, restricted shares, restricted share units, performance awards, annual incentive awards and
other share-based awards and cash-based awards. The maximum aggregate number of shares of common
stock which may be issued pursuant to or subject to the foregoing types of awards granted under the
2005 Plan currently is 8,000,000. This maximum number is subject to an annual increase beginning
on January 1, 2006 equal to the lesser of (i) one percent of the number of outstanding shares of
common stock on such day, (ii) 750,000 and (iii) such other amount as the Companys board of
directors may specify. The 2005 Plan is intended to comply with applicable securities law
requirements, permit performance-based awards that qualify for deductibility under Section 162(m)
of the Internal Revenue Code and allow for the issuance of incentive stock options.
The Company applies Statement of Financial Accounting Standards No. 123 (revised) and related
interpretations in accounting for employee stock-based compensation.
In July
2005, the Company granted 1,625,000 options to employees under the
2005 Plan under pre-existing option agreements. In addition in July
2005, the Company granted 1,103,000 new options to employees under
the 2005 Plan. For purposes of Black-Scholes pricing model the
following assumptions were used to estimate a fair value for these
option grants: no dividend yield, expected volatility 81% to 90%,
risk-free interest rates 3.30% to 4.74% and expected lives of 3 to 5
years. The Company cancelled 100,000
options in the nine months ended September 30, 2005 related to terminated employees.
In July
2005, the Company granted 114,000 options to consultants. These
option grants were valued as of September 30, 2005 using the
Black-Scholes pricing model with the following assumptions: no
dividend yield, expected volatility of 90%, risk-free interest rate
4% and expected life of 3 or 5 years. The Company recognized $73,063 in
compensation expense for these options in the three and nine months
ended September 30, 2005.
The
Company recognized compensation expense of $526,973 and $230,971 in the three months ended
September 30, 2005 and 2004, respectively, and $757,132 and $412,271 in the nine months ended
September 30, 2005 and 2004, respectively, related to the portion of employee stock options which
vested in those periods.
5. Equity Transactions
In the nine months ended September 30, 2005, the Companys warrant holders exercised warrants for
an aggregate of 2,376,253 shares of common stock, with proceeds to
the Company of $3,062,863.
On April 14, 2005, the Company issued 25,000 shares of common stock as partial payment for services
rendered by a consulting firm. Those shares were recognized at fair market value as of the date of
obligation and resulted in compensation expense of $23,500 in the first quarter of 2005, when the
services were performed.
On July 13, 2005, the Company issued 100,000 shares of common stock pursuant to a consulting
agreement entered into in January 2005. Those shares were recognized at fair market value
as of the date of issuance and resulted in compensation expense of
$58,750 in the third quarter of
2005.
On
July 28, 2005 the Company issued 10,810,809 shares in
conjunction with a private placement which resulted in net proceeds of
$17,919,425. The Company also issued warrants to purchase
10,810,809 shares of common stock with this placement.
6. Commitments and Contingencies
Litigation
In the normal course of business, the Company may become subject to lawsuits and other claims and
proceedings. Such matters are subject to uncertainty and outcomes are often not predictable with
assurance. Management is not aware of any pending or threatened lawsuit or preceding that would
have a material adverse effect on the Companys financial position, results of operations or cash
flows. Notwithstanding the foregoing, in March 2005, the Company received a letter from counsel to
a former executive in which the former executive claimed that the Company constructively terminated
him, discriminated against him on the basis of age and committed various torts against him. No
settlement demand was specifically made by the former executive in this letter and the letter
otherwise did not state any specific monetary damages that this former executive had purportedly
sustained. The Company believes that these claims lack merit. In October 2005, the Company
executed a binding settlement memorandum with this former executive to settle this dispute and
currently expects to execute a fully-negotiated settlement agreement and release of claims in
November 2005. In consideration of this settlement, the Company agreed to pay this former
executive $180,000 and the parties agreed to execute a mutual release
of claims. This settlement has been accrued for at September 30, 2005
and is included in accrued liabilities.
12
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the financial statements
and related notes contained elsewhere in this report. See Risk Factors regarding certain factors
known to us that could cause reported financial information not to be necessarily indicative of
future results.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which include, without limitation, statements about the market for our
technology, our strategy, competition, expected financial performance and other aspects of our
business identified in this Quarterly Report, as well as other reports that we file from time to
time with the Securities and Exchange Commission. Any statements about our business, financial
results, financial condition and operations contained in this Quarterly Report that are not
statements of historical fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words believes, anticipates, expects, intends, projects, or similar
expressions are intended to identify forward-looking statements. Our actual results could differ
materially from those expressed or implied by these forward-looking statements as a result of
various factors, including the risk factors described under the heading Risk Factors and
elsewhere in this report. We undertake no obligation to update publicly any forward-looking
statements for any reason, except as required by law, even as new information becomes available or
other events occur in the future.
Overview
We are a biopharmaceutical research and development company focused on introducing new technologies
for anticancer and antiviral treatments that improve the performance and safety of existing drugs
by addressing significant problems such as drug metabolism, toxicity, bioavailability and
resistance. We do not manufacture, market, sell or distribute any product. Pursuant to license
agreements with University of Southern California, the National Institutes of Health and SD
Pharmaceuticals, Inc., we have rights to drug candidates in varying stages of development. Our
current drug candidates are CoFactor, ANX-530, Selone, Thiovir and BlockAide/CR. All
of these drug candidates, other than ANX-530, are described in our Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2004. ANX-530 is a novel emulsion formulation of vinorelbine
tartrate. Vinorelbine is currently used as a monotherapy or in combination with other
chemotherapeutic agents for the treatment of non-small-cell lung, breast, ovarian and other
cancers. Severe phlebitis, an injection site reaction, is a known complication of standard
vinorelbine therapy. In preclinical testing, ANX-530 demonstrated markedly reduced vein irritation
following repeated intravenous injections compared with Navelbine, GlaxoSmithKlines form of
vinorelbine that the US Food and Drug Administration (the FDA) has approved for marketing. We
currently plan to pursue a 505(b)(2) regulatory path for ANX-530. We have initiated discussions
with the FDA for the clinical trial design and are preparing for a pre-Investigational New Drug
(IND) meeting with the FDA scheduled for December 2005.
On May 30, 2003, we merged our wholly-owned subsidiary, Biokeys, Inc., into the Company
and changed our name from Biokeys Pharmaceuticals, Inc. to ADVENTRX Pharmaceuticals, Inc. The
merger had no effect on our financial statements.
In July 2004, we formed a wholly-owned subsidiary, ADVENTRX (Europe) Ltd., in the United
Kingdom for the purpose of conducting drug trials in the European Union.
We have incurred net losses since our inception. As of September 30, 2005, our accumulated deficit
was approximately $45 million. We expect to incur substantial and increasing losses for the next
several years as we continue development and possible commercialization of new products.
To date, we have funded our operations primarily through sales of equity securities.
Our business is subject to significant risks, including risks inherent in our ongoing clinical
trials, the regulatory approval processes, the results of our research and development efforts,
commercialization, and competition from other pharmaceutical companies.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of the consolidated financial
statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities and expenses and the related disclosure of contingent assets and liabilities. We review
our estimates on an on-going basis, including those
13
Table of Contents
related to valuation of goodwill, intangibles and other long-lived assets. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the bases for making judgments about the carrying values
of assets and liabilities. Actual results may differ from these estimates under different
assumptions or conditions. Our accounting policies are described in more detail in Note 1 to our
consolidated financial statements included in our Annual Report on Form 10-KSB. We have identified
the following as the most critical accounting policies and estimates used in the preparation of our
consolidated financial statements.
Stock Compensation Plans. In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R). We currently recognize our
option grants and associated expenses in accordance with SFAS 123R
guidance.
Results of Operations
Three Months Ended Septmember 30, 2005
Research and Development Expenses. Total research and development expenses were $1.7 million for
the three months ended September 30, 2005 compared to $984,000 for the comparable period in 2004,
an increase of $737,000 or 75%. The quarter to quarter increase in research and development
expenses was primarily related to an increase of $336,000 in clinical trial expenses for our Phase
IIb clinical trials of CoFactor which commenced in May 2005. Other factors include an increase of
$185,000 in headcount and personnel costs due to hiring related to expansion of our clinical
operations, an increase of $149,000 in pre-clinical costs related to
our drug candidates and an
increase in consulting fees of $73,000. These increases were partially offset by individually minor
items.
We currently expect that our research and development expenses will significantly increase from the
level of expenses in the quarter ended September 30, 2005 as we ramp up our Phase III pivotal
clinical trial of CoFactor for the treatment of metastatic colorectal cancer in the United States,
and continue enrolling patients in our Phase IIb clinical trial of CoFactor for the treatment of
metastatic colorectal cancer in Europe. The timing of the increase in expense will be directly
related to the launch of the Phase III trial, and the amount of increase will be directly related
to the success and speed of patient enrollment in the Phase IIb and Phase III trials.
General
and Administrative Expenses. General and administrative expenses were $1.9 million for the
three months ended September 30, 2005 compared to $1.2 million for the comparable period in 2004,
an increase of $732,000 or 63%. The quarter to quarter increase in general and administrative
expenses was due to a $58,000 compensation charge resulting from the issuance of shares of common
stock pursuant to a consulting agreement, a one time charge of
$204,000 to record the fair value and related expense for employee
options granted in July 2005 with retroactive vesting dates, an
increase in employee stock option expense of $92,000, a $73,000
expense for options issued to non-employees and a $180,000 accrual for a legal settlement which was
executed in October of 2005. The remainder of the fluctuation in general and administrative
expenses was caused by individually minor items. We currently expect our general and
administrative expenses excluding non-recurring charges to continue at current levels through the fourth quarter as we continue
evaluating, testing and documenting our system of internal controls over financial reporting and
preparing to comply with Section 404 of the Sarbanes-Oxley Act of 2002.
Interest Income. Interest income for the three months ended September 30, 2005 was $159,000
compared to $28,000 of net interest income for the comparable period in 2004. The increase is
attributable to higher invested balances from funds received in July 2005 from our most recent
financing and from the exercise of warrants during the quarter and higher interest rate yield on
these balances.
Nine Months Ended September 30, 2005
Research and Development Expenses. Total research and development expenses were $5.7 million for
the nine months ended September 30, 2005 compared to $2.1 million for the comparable period in
2004, an increase of $3.6 million or 176%. The year over year increase in research and development
expenses was primarily related to an increase of $2.6 million of clinical trial expenses for our
Phase II and Phase IIb clinical trials of CoFactor, which commenced in May 2005. Other factors
include an increase of $419,000 in headcount and personnel costs and an increase of $699,000 in
preclinical costs related to our drug candidates . These increases were partially offset by
individually minor items.
As stated above, we currently expect that our research and development expenses will significantly
increase from the level of expenses in the nine months ended September 30, 2005 as we ramp up our
Phase III pivotal clinical trial of CoFactor for the treatment of metastatic colorectal cancer in
the United States, and continue enrolling patients in our Phase IIb clinical trial of CoFactor for
the treatment of metastatic colorectal cancer in Europe.
14
Table of Contents
General
and Administrative Expenses. General and administrative expenses
were $4.2 million for the
nine months ended September 30, 2005 compared to $2.3 million for the comparable period in 2004, an
increase of $1.8 million or 80%. The year over year increase in general and administrative expenses
was primarily due to the following increases: $491,000 due to the hiring of additional personnel in
the finance and marketing and business development departments,
$58,000 due a compensation charge
resulting from the issuance of shares of common stock pursuant to a
consulting agreement, a one time charge of $204,000 to record the
fair value and related expense for employee options granted in July
2005 with retroactive vesting dates, $141,000 in expense for employee
options, $73,000 expense for options issued to non-employees, $217,000
in consulting expenses primarily due to SOX compliance efforts and a related systems
implementation, $180,000 due to an accrual for a legal settlement which executed in October 2005, $150,000 in rent and facilities costs and $103,000 in legal fees. We expect that our general
and administrative expenses will maintain these levels in the fourth quarter as we continue
evaluating, testing and documenting of our system of internal controls over financial reporting and
preparing to comply with Section 404 of the Sarbanes-Oxley Act of 2002 .
Interest
Income. Interest income for the nine months ended September 30, 2005 was $262,000 compared
to $45,000 of net interest income for the comparable period in 2004. This increase is primarily
due to interest earned on funds received from our latest financing which closed in July 2005 and
warrants exercised during this period and higher interest rate yield on these balances.
Liquidity and Capital Resources
As of September 30, 2005, our principal sources of liquidity were our cash and cash equivalents and
short-term investments which totaled $25.5 million as compared to $13.0 million as of December 31,
2004. This increase is primarily due to the closing of a financing round in July 2005 which raised
$17.9 million net of issuance costs and the exercise of warrants during this period pursuant to
which we received $3.1 million. As of September 30, 2005 we held $18.5 million in cash and $7.0
million in short-term investments. As of September 30, 2005, our short-term investments consisted
primarily of commercial paper and U.S. Govt Agencies.
Net cash used in operating activities was $8.3 million during the nine months ended September 30,
2005, compared with $3.5 million during the nine months ended September 30, 2004. The increase in
net cash used in operating activities was due to increased funding for clinical trials, and our
increased operating expenses as we added additional personnel in general and administrative
functions to support our expanded research and development activities and business development
activities.
Net cash used in investing activities was $7.2 million during the nine months ended September 30,
2005 compared with $290,000 during the nine months ended September 30, 2004. The increase in cash
used for investing activities was caused primarily by the purchase of short-term investments with
the proceeds of our financing round which closed in July 2005 and from the exercise of warrants
during this period.
Net cash provided by financing activities was $21 million during the nine months ended September
30, 2005 compared with net cash provided by financing activities of $14.3 million during the nine
months ended September 30, 2004. The cash flows from financing activities for the nine months ended
September 30, 2005 were primarily proceeds from our sale of common stock in a private placement
financing which closed in July 2005 and proceeds from the exercise of warrants. The cash flows from
financing activities for the nine months ended September 30, 2004 were primarily due to the sale of
common stock in a private placement financing which occurred in April 2004.
Our future capital uses and requirements depend on numerous forward-looking factors and cannot be
budgeted with any reasonable certainty. These factors include but are not limited to the following:
| the timing and results of our clinical trials; | ||
| the progress of our research activities; | ||
| the number and scope of our research programs; | ||
| the progress of our preclinical development activities; | ||
| our ability to establish and maintain strategic collaborations; | ||
| the costs involved in enforcing or defending patent claims and other intellectual property rights; | ||
| the costs and timing of regulatory approvals; |
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| the costs of establishing or expanding manufacturing, sales and distribution capabilities; | ||
| the success of the commercialization of our products; and | ||
| the extent to which we license, acquire or invest in other products, technologies and businesses. |
To date, we have funded our operations primarily through the sale of equity securities. Through
September 30, 2005, we had an accumulated deficit of approximately $45 million, with total
additional paid-in capital of approximately $70 million. The $70 million of additional paid-in
capital is comprised of $48 million in net proceeds from the sale of equity securities, plus
non-cash equity issuances for acquisitions of $15 million, plus other non-cash equity transactions
for operating expenses of $7 million. As a result of our private placement which closed on July 28,
2005, we believe that our existing cash and cash equivalents as of September 30, 2005 will be
sufficient to meet our projected operating requirements through December 31, 2006.
We intend to finance our operations and capital expenditure needs through the sale of additional
equity securities, debt financing or strategic collaboration agreements. We cannot be sure that
additional financing will be available when needed or that, if available, financing will be
obtained on favorable terms. If we raise additional funds by issuing equity securities, substantial
dilution to existing stockholders would likely result. If we raise additional funds by incurring
debt financing, which is not likely given our lack of operating revenue, the terms of the debt may
involve significant cash payment obligations as well as covenants and specific financial ratios
that may restrict our ability to operate our business. In addition, we may not be successful in
obtaining collaboration agreements, or in receiving milestone or royalty payments under those
agreements. Having insufficient funds may require us to delay, scale back or eliminate some or all
of our research or development programs or to relinquish greater or all rights to product
candidates at an earlier stage of development or on less favorable terms than we would otherwise
choose. Failure to obtain adequate financing also may adversely affect our ability to operate as a
going concern.
Risk Factors
If any of the following risks actually occur, our business, results of operations and financial
condition could suffer significantly.
We
have a substantial accumulated deficit.
We
had an accumulated deficit of $45 million as of September 30, 2005. Since we presently have
no source of revenues and are committed to continuing our product research and development program,
significant expenditures and losses will continue until development of new products is completed
and such products have been clinically tested, approved by the FDA or other regulatory agencies and
successfully marketed. In addition, we fund our operations primarily through the sale of
securities, and have had limited working capital for our product development and other activities.
We do not believe that debt financing from financial institutions will be available until at least
the time that one of our products is approved for commercial production.
We have no current product sales revenues or profits.
We have devoted our resources to developing a new generation of therapeutic drug products, but
such products cannot be marketed until clinical testing is completed and governmental approvals
have been obtained. Accordingly, there is no current source of revenues, much less profits, to
sustain our present activities, and no revenues will likely be available until, and unless, the new
products are clinically tested, approved by the FDA or other regulatory agencies and successfully
marketed, either by us or a marketing partner, an outcome which we are not able to guarantee.
It is uncertain that we will have access to future capital.
It is not expected that we will generate positive cash flow from operations for at least the
next several years. As a result, substantial additional equity or debt financing for research and
development or clinical development will be required to fund our activities. Although we have
raised such equity financing in April 2004 and July 2005, we cannot be certain that we will be able
to continue to obtain such financing on favorable or satisfactory terms, if at all, or that it will
be sufficient to meet our cash requirements. Any additional equity financing could result in
substantial dilution to stockholders, and debt financing, if available, will most likely involve
restrictive covenants that preclude us from making distributions to stockholders and taking other
actions beneficial to stockholders. If adequate funds are not available, we may be required to
delay or reduce the scope of our drug development program or attempt to
continue development by entering into arrangements with collaborative partners or others that
may require us to relinquish some or all of our rights to proprietary drugs. The inability to fund
our capital requirements would have a material adverse effect on us.
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We are not certain that we will be successful in the development of our drug candidates.
The successful development of any new drug is highly uncertain and is subject to a number of
significant risks. Our drug candidates, all of which are in a development stage, require
significant, time-consuming and costly development, testing and regulatory clearance. This process
typically takes several years and can require substantially more time. Risks include, among others,
the possibility that a drug candidate will (i) be found to be ineffective or unacceptably toxic,
(ii) have unacceptable side effects, (iii) fail to receive necessary regulatory clearances, (iv)
not achieve broad market acceptance, (v) be subject to competition from third parties who may
market equivalent or superior products, (vi) be affected by third parties holding proprietary
rights that will preclude us from marketing a drug product, or (vii) not be able to be immediately
manufactured by manufacturers in a timely manner in accordance with required standards of quality.
There can be no assurance that the development of our drug candidates will demonstrate the efficacy
and safety of our drug candidates as therapeutic drugs, or, even if demonstrated, that there will
be sufficient advantages to their use over other drugs or treatments so as to render the drug
product commercially viable. In the past, we have been faced with limiting the scope and/or
delaying the launch of preclinical and clinical drug trials due to limited cash and personnel
resources. We have also chosen to terminate licenses of some drug candidates that were not showing
sufficient promise to justify continued expense and development. In the event that we are not
successful in developing and commercializing one or more drug candidates, investors are likely to
realize a loss of their entire investment.
We have been delayed at certain times in the past in the development of our drug products by
limited funding. In addition, if certain of our scientific and technical personnel resigned at or
about the same time, the development of our drug products would probably be delayed until new
personnel were hired and became familiar with the development programs.
Positive results in preclinical and clinical trials do not ensure that future clinical trials
will be successful or that drug candidates will receive any necessary regulatory approvals for the
marketing, distribution or sale of such drug candidates.
Success in preclinical and clinical trials does not ensure that large-scale clinical trials
will be successful. Clinical results are frequently susceptible to varying interpretations that may
delay, limit or prevent regulatory approvals. The length of time necessary to complete clinical
trials and to submit an application for marketing approval for a final decision by a regulatory
authority varies significantly and may be difficult to predict. In the past, we have terminated
licenses of drug candidates when our preclinical trials did not support or verify earlier
preclinical data. There is a significant risk that any of our drug candidates could fail to show
satisfactory results in continued trials, and would not justify further development.
We will face intense competition from other companies in the pharmaceutical industry.
We are engaged in a segment of the pharmaceutical industry that is highly competitive and
rapidly changing. If successfully developed and approved, any of our drug candidates will likely
compete with several existing therapies. CoFactor, our leading drug candidate, would likely compete
against a well-established product, leucovorin. In addition, there are numerous companies with a
focus in oncology and/or anti-viral therapeutics that are pursuing the development of new
pharmaceuticals that target the same diseases as are targeted by the drugs being developed by us.
We anticipate that we will face intense and increasing competition in the future as new products
enter the market and advanced technologies become available. We cannot assure that existing
products or new products developed by competitors will not be more effective, or more effectively
marketed and sold than those we may market and sell. Competitive products may render our drugs
obsolete or noncompetitive prior to our recovery of development and commercialization expenses.
Many of our competitors such as Merck and Pfizer will also have significantly greater financial,
technical and human resources and will likely be better equipped to develop, manufacture and market
products. In addition, many of these competitors have extensive experience in preclinical testing
and clinical trials, obtaining FDA and other regulatory approvals and manufacturing and marketing
pharmaceutical products. A number of these competitors also have products that have been approved
or are in late-stage development and operate large, well-funded research and development programs.
Smaller companies may also prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, government agencies and other public and private research organizations are becoming
increasingly aware of the commercial value of their inventions and are actively seeking to
commercialize the technology they have developed. Companies such as Gilead, Roche, GlaxoSmithKline
all have drugs in various stages of development that could become competitors. Accordingly,
competitors may succeed in commercializing products more rapidly or effectively than us, which
would have a material adverse effect on us.
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There is no assurance that our products will have market acceptance.
Our success will depend in substantial part on the extent to which a drug product, once
approved, achieves market acceptance. The degree of market acceptance will depend upon a number of
factors, including (i) the receipt and scope of regulatory approvals, (ii) the establishment and
demonstration in the medical community of the safety and efficacy of a drug product, (iii) the
products potential advantages over existing treatment methods and (iv) reimbursement policies of
government and third party payors. We cannot predict or guarantee that physicians, patients,
healthcare insurers or maintenance organizations, or the medical community in general, will accept
or utilize any of our drug products.
The unavailability of health care reimbursement for any of our products will likely adversely
impact our ability to effectively market such products and whether health care reimbursement will
be available for any of our products is uncertain.
Our ability to commercialize our technology successfully will depend in part on the extent to
which reimbursement for the costs of such products and related treatments will be available from
government health administration authorities, private health insurers and other third-party payors.
Significant uncertainty exists as to the reimbursement status of newly approved medical products.
We cannot guarantee that adequate third-party insurance coverage will be available for us to
establish and maintain price levels sufficient for realization of an appropriate return on our
investments in developing new therapies. If we are successful in getting FDA approval for CoFactor,
we will be competing against a generic drug, leucovorin, which has a lower cost and a long,
established history of reimbursement. Receiving sufficient reimbursement for purchase costs of
CoFactor will be necessary to make it cost effective and competitive versus the established drug,
leucovorin. Government, private health insurers, and other third-party payors are increasingly
attempting to contain health care costs by limiting both coverage and the level of reimbursement
for new therapeutic products approved for marketing by the FDA. Accordingly, even if coverage and
reimbursement are provided by government, private health insurers, and third-party payors for use
of our products, the market acceptance of these products would be adversely affected if the amount
of reimbursement available for the use of our therapies proved to be unprofitable for health care
providers.
Uncertainties related to health care reform measures may affect our success.
There have been some federal and state proposals in the past to subject the pricing of health
care goods and services, including prescription drugs, to government control and to make other
changes to the U.S. health care system. None of the proposals seems to have affected any of the
drugs in our programs. However, it is uncertain if future legislative proposals would be adopted
that might affect the drugs in our programs or what actions federal, state, or private payors for
health care treatment and services may take in response to any such health care reform proposals or
legislation. Any such health care reforms could have a material adverse effect on the marketability
of any drugs for which we ultimately require FDA approval.
Further testing of our drug candidates will be required and there is no assurance of FDA
approval.
The FDA and comparable agencies in foreign countries impose substantial requirements upon the
introduction of medical products, through lengthy and detailed laboratory and clinical testing
procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of
these requirements typically takes several years or more and varies substantially based upon the
type, complexity, and novelty of the product.
The effect of government regulation and the need for FDA approval will delay marketing of new
products for a considerable period of time, impose costly procedures upon our activities, and
provide an advantage to larger companies that compete with us. There can be no assurance that the
FDA or other regulatory approval for any products developed by us will be granted on a timely basis
or at all. Any such delay in obtaining or failure to obtain, such approvals would materially and
adversely affect the marketing of any contemplated products and the ability to earn product
revenue. Further, regulation of manufacturing facilities by state, local, and other authorities is
subject to change. Any additional regulation could result in limitations or restrictions on our
ability to utilize any of our technologies, thereby adversely affecting our operations.
Human pharmaceutical products are subject to rigorous preclinical testing and clinical trials
and other approval procedures mandated by the FDA and foreign regulatory authorities. Various
federal and foreign statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of pharmaceutical products. The process of
obtaining these
approvals and the subsequent compliance with appropriate U.S. and foreign statutes and
regulations are time-consuming and require the expenditure of substantial resources. In addition,
these requirements and processes vary widely from country to country.
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Among the uncertainties and risks of the FDA approval process are the following: (i) the
possibility that studies and clinical trials will fail to prove the safety and efficacy of the
drug, or that any demonstrated efficacy will be so limited as to significantly reduce or altogether
eliminate the acceptability of the drug in the marketplace, (ii) the possibility that the costs of
development, which can far exceed the best of estimates, may render commercialization of the drug
marginally profitable or altogether unprofitable, and (iii) the possibility that the amount of time
required for FDA approval of a drug may extend for years beyond that which is originally estimated.
In addition, the FDA or similar foreign regulatory authorities may require additional clinical
trials, which could result in increased costs and significant development delays. Delays or
rejections may also be encountered based upon changes in FDA policy and the establishment of
additional regulations during the period of product development and FDA review. Similar delays or
rejections may be encountered in other countries.
Our success will depend on licenses and proprietary rights we receive from other parties, and
on any patents we may obtain.
Our success will depend in large part on our ability and our licensors ability to (i)
maintain license and patent protection with respect to their drug products, (ii) defend patents and
licenses once obtained, (iii) maintain trade secrets, (iv) operate without infringing upon the
patents and proprietary rights of others and (iv) obtain appropriate licenses to patents or
proprietary rights held by third parties if infringement would otherwise occur, both in the U.S.
and in foreign countries. We have obtained licenses to patents and other proprietary rights from
University of Southern California, the National Institutes of Health and SD Pharmaceuticals, Inc.
The patent positions of pharmaceutical companies, including ours, are uncertain and involve
complex legal and factual questions. There is no guarantee that we or our licensors have or will
develop or obtain the rights to products or processes that are patentable, that patents will issue
from any of the pending applications or that claims allowed will be sufficient to protect the
technology licensed to us. In addition, we cannot be certain that any patents issued to or licensed
by us will not be challenged, invalidated, infringed or circumvented, or that the rights granted
thereunder will provide competitive disadvantages to us.
Litigation, which could result in substantial cost, may also be necessary to enforce any
patents to which we have rights, or to determine the scope, validity and unenforceability of other
parties proprietary rights, which may affect our rights. U.S. patents carry a presumption of
validity and generally can be invalidated only through clear and convincing evidence. There can be
no assurance that our licensed patents would be held valid by a court or administrative body or
that an alleged infringer would be found to be infringing. The mere uncertainty resulting from the
institution and continuation of any technology-related litigation or interference proceeding could
have a material adverse effect on us pending resolution of the disputed matters.
We may also rely on unpatented trade secrets and know-how to maintain our competitive
position, which we seek to protect, in part, by confidentiality agreements with employees,
consultants and others. There can be no assurance that these agreements will not be breached or
terminated, that we will have adequate remedies for any breach, or that trade secrets will not
otherwise become known or be independently discovered by competitors.
Our license agreements can be terminated in the event of a breach.
The license agreements pursuant to which we license our core technologies for our potential
drug products permit the licensors, respectively National Institutes of Health, the University of
Southern California and SD Pharmaceuticals, Inc., to terminate the agreement under certain
circumstances, such as the failure by us to use our reasonable best efforts to commercialize the
subject drug or the occurrence of any other uncured material breach by us. The license agreements
also provide that the licensor is primarily responsible for obtaining patent protection for the
technology licensed, and we are required to reimburse the licensor for the costs it incurs in
performing these activities. The license agreements also require the payment of specified
royalties. Any inability or failure to observe these terms or pay these costs or royalties could
result in the termination of the applicable license agreement in certain cases. In the past, we
have let lapse certain licenses for drug candidates when we determined that the expense and risk of
continued development outweighed the likely benefits of that continued development. The termination
of any license agreement could have a material adverse effect on us.
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Protecting our proprietary rights is difficult and costly.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and
involve complex legal and factual questions. Accordingly, we cannot predict the breadth of claims
allowed in these companies patents or whether we may infringe or be infringing these claims.
Although we have not been notified of any patent infringement, nor notified others of patent
infringement, such patent disputes are common and could preclude the commercialization of our
products. Patent litigation is costly in its own right and could subject us to significant
liabilities to third parties. In addition, an adverse decision could force us to either obtain
third-party licenses at a material cost or cease using the technology or product in dispute.
We
may be unable to retain skilled personnel and executives and maintain key relationships.
The success of our business depends, in large part, on our ability to attract and retain
highly qualified management, scientific and other personnel, and on our ability to develop and
maintain important relationships with leading research institutions and consultants and advisors.
Competition for these types of personnel and relationships is intense from numerous pharmaceutical
and biotechnology companies, universities and other research institutions. We are currently
dependent upon our scientific staff, which has a deep background in our drug candidates and the
ongoing preclinical and clinical trials. Recruiting and retaining senior employees with relevant
drug development experience in oncology and anti-viral therapeutics is costly and time-consuming.
There can be no assurance that we will be able to attract and retain such individuals on an
uninterrupted basis and on commercially acceptable terms, and the failure to do so could have a
material adverse effect on us by significantly delaying one or more of our drug development
programs. The loss of any of our senior executive officers, including
our chief executive officer and chief financial officer, in
particular, could have a material adverse effect on the company and
the market for our common stock, particularly if such loss was abrupt
or unexpected. All of our employees are employed on an at-will basis under
offer letters. We do not have non-competition agreements with any of
our employees.
We currently have no sales capability, and limited marketing capability.
We currently do not have sales personnel. We have limited marketing and business development
personnel. We will have to develop a sales force, or rely on marketing partners or other
arrangements with third parties for the marketing, distribution and sale of any drug product which
is ready for distribution. There is no guarantee that we will be able to establish marketing,
distribution or sales capabilities or make arrangements with third parties to perform those
activities on terms satisfactory to us, or that any internal capabilities or third party
arrangements will be cost-effective.
In addition, any third parties with which we may establish marketing, distribution or sales
arrangements may have significant control over important aspects of the commercialization of a drug
product, including market identification, marketing methods, pricing, composition of sales force
and promotional activities. There can be no assurance that we will be able to control the amount
and timing of resources that any third party may devote to our products or prevent any third party
from pursuing alternative technologies or products that could result in the development of products
that compete with, or the withdrawal of support for, our products.
We do not have manufacturing capabilities and may not be able to efficiently develop
manufacturing capabilities or contract for such services from third parties on commercially
acceptable terms.
We do not have any manufacturing capacity. When required, we will seek to establish
relationships with third-party manufacturers for the manufacture of clinical trial material and the
commercial production of drug products as we have with our current manufacturing partners. There
can be no assurance that we will be able to establish relationships with third-party manufacturers
on commercially acceptable terms or that third-party manufacturers will be able to manufacture a
drug product on a cost-effective basis in commercial quantities under good manufacturing practices
mandated by the FDA.
The dependence upon third parties for the manufacture of products may adversely affect future
costs and the ability to develop and commercialize a drug product on a timely and competitive
basis. Further, there can be no assurance that manufacturing or quality control problems will not
arise in connection with the manufacture of our drug products or that third party manufacturers
will be able to maintain the necessary governmental licenses and approvals to continue
manufacturing such products. Any failure to establish relationships with third parties for our
manufacturing requirements on commercially acceptable terms would have a material adverse effect on
us.
We are dependent in part on third parties for drug development and research facilities.
We do not possess research and development facilities necessary to conduct all of our drug
development activities. We engage consultants and independent contract research organizations to
design and conduct clinical trials in connection with the development
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of our drugs. As a result, these important aspects of a drugs development will be outside our
direct control. In addition, there can be no assurance that such third parties will perform all of
their obligations under arrangements with us or will perform those obligations satisfactorily.
In the future, we anticipate that we will need to obtain additional or increased product
liability insurance coverage and it is uncertain that such increased or additional insurance
coverage can be obtained on commercially reasonable terms.
Our business will expose us to potential product liability risks that are inherent in the
testing, manufacturing and marketing of pharmaceutical products. There can be no assurance that
product liability claims will not be asserted against us. We intend to obtain additional limited
product liability insurance for our clinical trials, directly or through our marketing development
partners or contract research organization (CRO) partners, when they begin in the U.S. and to
expand our insurance coverage if and when we begin marketing commercial products. However, there
can be no assurance that we will be able to obtain product liability insurance on commercially
acceptable terms or that we will be able to maintain such insurance at a reasonable cost or in
sufficient amounts to protect against potential losses. A successful product liability claim or
series of claims brought against us could have a material adverse effect on us.
The market price of our shares, like that of many biotechnology companies, is highly volatile.
Market prices for the our Common Stock and the securities of other medical and biomedical
technology companies have been highly volatile and may continue to be highly volatile in the
future. Factors such as announcements of technological innovations or new products by us or our
competitors, government regulatory action, litigation, patent or proprietary rights developments,
and market conditions for medical and high technology stocks in general can have a significant
impact on any future market for the Common Stock.
Changes in laws and regulations that affect the governance of public companies has increased
our operating expenses and will continue to do so.
Recently enacted changes in the laws and regulations affecting public companies, including the
provisions of the Sarbanes-Oxley Act of 2002 and the listing requirements for American Stock
Exchange have imposed new duties on us and on our executives, directors, attorneys and independent
accountants. In order to comply with these new rules, we have hired and expect to hire additional
personnel and use additional outside legal, accounting and advisory services, which have increased
and are likely to continue increasing our operating expenses. In particular, we expect to incur
additional administrative expenses as we implement Section 404 of the Sarbanes-Oxley Act, which
requires management to report on, and our independent registered public accounting firm to attest
to, our internal controls. For example, we expect to incur significant expenses in connection with
the implementation, documentation and testing of our existing and newly implemented control
systems. Management time associated with these compliance efforts necessarily reduces time
available for other operating activities, which could adversely affect operating results. If we are
unable to achieve full and timely compliance with these regulatory requirements, we could be
required to incur additional costs, expend additional money and management time on remedial efforts
which could adversely affect our results of operations.
Failure to implement effective control systems, or failure to complete our assessment of the
effectiveness of our internal control over financial reporting, may subject us to regulatory
sanctions and could result in a loss of public confidence, which could harm our operating results.
Pursuant to Section 404 of the Sarbanes-Oxley Act, beginning with our year ending December 31,
2005, we will be required to include in our annual report our assessment of the effectiveness of
our internal control over financial reporting and our audited financial statements as of the end of
that fiscal year. Furthermore, our independent registered public accounting firm will be required
to attest to whether our assessment of the effectiveness of our internal control over financial
reporting is fairly stated in all material
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respects and separately report on whether it believes we maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005.
If we fail to remedy these material weaknesses, fail to timely complete our assessment, or
if our independent registered public accounting firm cannot timely attest to our assessment, we
could be subject to regulatory sanctions and a loss of public confidence in our internal control.
In addition, any failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm our operating results or cause us to fail to timely
meet our regulatory reporting obligations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The primary objective of our investment activities is to preserve principal while maximizing
the income we receive from our investments without significantly increasing the risk of loss. Some
of the investable securities permitted under our cash management policy may be subject to market
risk for changes in interest rates. To mitigate this risk, we maintain a portfolio of cash
equivalent and short-term investments in a variety of securities which may include investment grade
commercial paper, money market funds, government debt issued by the United States of America, state
debt, certificates of deposit and investment grade corporate debt. Presently, we are exposed to
minimal market risks associated with interest rate changes because of the relatively short
maturities of our investments and we do not expect interest rate fluctuations to materially affect
the aggregate value of our financial instruments. We manage the sensitivity of our results of
operations to these risks by maintaining investment grade short-term investments. Our cash
management policy does not allow us to purchase or hold derivative or commodity instruments or
other financial instruments for trading purposes. Additionally, our policy stipulates that we
periodically monitor our investments for adverse material holdings related to the underlying
financial solvency of the issuer. As of September 30, 2005, our investments consisted mostly of
cash, commercial paper and U.S. government debt. Our results of operations and financial condition
would not be significantly impacted by either a 10% increase or decrease in interest rates due
mainly to the short-term nature of our investment portfolio. We have not used derivative financial
instruments in our investment portfolio. Additionally, we do not invest in foreign currencies or
other foreign investments.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures.
Under the supervision of our Chief Executive Officer and our Chief Financial Officer, we
evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2005.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
as of September 30, 2005, our disclosure controls and procedures were effective to ensure that
management is alerted to material information required to be disclosed by us in the reports we file
with the SEC and that such material information is recorded and reported within the time periods
specified in the SECs rules and forms.
As
of July 1, 2005 we concluded our implementation of a new
accounting system which corrected previously identified limitations
that may not have allowed us to ensure that prior period financial
information was not changed. In addition, we implemented a formal
journal entry review and approval process effective July 1, 2005.
We
have engaged a consulting firm to assist us in assessing and
structuring our internal controls and procedures for financial
reporting in compliance with Section 404 under the Sarbanes-Oxley Act
of 2002. Management has also implemented a formal review
and documentation process based on current industry best-practices,
and will continue to implement this throughout the remainder of the
year. While we believe that these efforts will be successful and
allow us to fully comply with the Section 404 of the Sarbanes-Oxley
Act as of December 31, 2005, we cannot be certain of this.
During the course of our compliance effort and related audit, other
weaknesses could be identified and we may not have adequate time to
remediate such weaknesses prior to December 31, 2005.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the normal course of business, we may become subject to lawsuits and other claims and
proceedings. Such matters are subject to uncertainty and outcomes are often not predictable with
assurance. We are not aware of any pending or threatened lawsuit or proceeding that would have a
material adverse effect on our financial position, results of operations or cash flows.
Notwithstanding the foregoing, in March 2005, we received a letter from counsel to a former
executive in which the former executive claimed that we constructively terminated him,
discriminated against him on the basis of age and committed various torts against him. No
settlement demand was specifically made by the former executive in this letter and the letter
otherwise did not state any specific monetary damages that this former executive has purportedly
sustained. We believe that these claims lack merit. In October 2005, the Company executed a
binding settlement memorandum with this former executive to settle this dispute and currently
expects to execute a fully-negotiated settlement agreement and release of claims in November 2005.
In consideration of this settlement, the Company agreed to pay this former executive $180,000 and
the parties agreed to execute a mutual release of claims.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the
three months ended September 30, 2005, we issued 1,189,403 shares of common stock
to warrant holders in connection with their exercise of 34 outstanding warrants totaling 1,258,540
shares. We received gross proceeds of $1,721,459 upon exercise of these warrants. In addition, from
October 1, 2005 through October 31, 2005, we issued 19,314
shares of common stock to one of our
warrant holders in connection with their net exercise of outstanding warrants. We received no gross
proceeds upon exercise of these warrants. Pursuant to the terms of an agreement we entered into
with Burnham Hill Partners, a division of Pali Capital, Inc., in March 2004, we are obligated to
pay a 4% cash commission on each cash exercise of warrants issued in a financing that we
consummated in April 2004. In accordance with this obligation, we paid Burnham Hill Partners
approximately $49,402 in connection with the exercises of warrants
during the three months ended
September 30, 2005, and we do not owe Burnham Hill Partners any commissions in connection with the
exercises of warrants from October 1, 2005 through October 31, 2005. No other commission or other
remuneration was paid or given directly or indirectly in connection with these warrant exercises.
The issuances of shares of common stock upon exercise of these warrants were not registered under
the Securities Act of 1933 in reliance upon Section 4(2) of such Act.
Item 6. Exhibits.
An Exhibit Index has been attached as part of this quarterly report and is incorporated herein by
reference.
23
Table of Contents
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ADVENTRX Pharmaceuticals, Inc. | ||||||
Date:
November 14, 2005
|
By: | /s/ Evan M. Levine | ||||
President and Chief Executive Officer (principal executive officer) |
ADVENTRX Pharmaceuticals, Inc. | ||||||
Date:
November 14, 2005
|
By: | /s/ Carrie Carlander | ||||
Chief Financial Officer, Vice President, Finance Secretary and Treasurer (principal financial officer) |
24
Table of Contents
Exhibit Index
Exhibit | Description | |
10.14
|
License Agreement, effective April 29, 2005, between the Company and SD Pharmaceuticals, Inc.* | |
31.1
|
Rule 13a-14(a)/15d-14(a) Certification | |
31.2
|
Rule 13a-14(a)/15d-14(a) Certification | |
32.1
|
Section 1350 Certifications |
* | Confidential treatment has been requested for certain portions of this exhibit. |
25
Exhibit 10.14
Note: Confidential treatment has been requested with respect to certain redacted portions of this
agreement that are identified herein by three bracketed asterisks, i.e. [***].
LICENSE AGREEMENT
between
SD PHARMACEUTICALS, Inc.
and
ADVENTRX PHARMACEUTICALS, INC.
for
SDP-012 (vinorelbine)
TABLE OF CONTENTS
Article 1: Definitions |
1 | |||
Article 2: Grants |
3 | |||
Article 3: Consideration |
3 | |||
Article 4: Diligent Commercialization |
5 | |||
Article 5: Reports, Records and Payments |
5 | |||
Article 6: Patent Matters |
7 | |||
Article 7: Governmental Matters |
8 | |||
Article 8: Termination of Agreement |
8 | |||
Article 9: Limited Warranty |
9 | |||
Article 10: Use of Names and Trademarks |
10 | |||
Article 11: Miscellaneous Provisions |
10 | |||
Exhibit A: Patent Application |
14 | |||
Exhibit B: Performance Goals |
15 |
CONFIDENTIAL
LICENSE AGREEMENT
This agreement (Agreement) is made by and between ADVENTRX Pharmaceuticals, Inc., a
California corporation having an address at 6725 Mesa Ridge Road, Ste. 100, San Diego, California,
92121 (ADVENTRX) and SD PHARMACEUTICALS, INC., a California corporation having an address at 7402
Cadencia Street, Carlsbad CA, 92009 (SD PHARMA).
This Agreement is effective on the date of the last signature (Effective Date).
RECITALS
WHEREAS, SD PHARMA has submitted a patent application which describes an invention relating to an
emulsion composition for delivering highly water-soluble Vinca Alkaloid Drugs (the Invention) (a
copy of said patent application is appended hereto as Exhibit A);
WHEREAS, ADVENTRX is desirous of obtaining certain rights from SD PHARMA for commercial
development, use, and sale of the Invention, and the SD PHARMA is willing to grant such rights;
NOW, THEREFORE, the parties agree:
ARTICLE 1. DEFINITIONS
The terms, as defined herein, shall have the same meanings in both their singular and plural forms.
1.1 Affiliate means any corporation or other business entity in which ADVENTRX owns or controls,
directly or indirectly, at least fifty percent (50%) of the outstanding stock or other voting
rights entitled to elect directors, or in which ADVENTRX is owned or controlled directly or
indirectly by at least fifty percent (50%) of the outstanding stock or other voting rights entitled
to elect directors; but in any country where the local law does not permit foreign equity
participation of at least fifty percent (50%), then an Affiliate includes any company in which
ADVENTRX owns or controls or is owned or controlled by, directly or indirectly, the maximum
percentage of outstanding stock or voting rights permitted by local law.
1.2 Clinical Trial shall mean that portion of the clinical development program that provides for
the continued trials of a pharmaceutical product on a number of patients to establish either
safety, efficacy and/or dose of a pharmaceutical product for the desired indication(s).
1.3 FDA shall mean the US Food and Drug Administration and any successor Agency thereof.
1.4 Field means development and use of Vinca Alkaloid Drug formulations for the treatment and/or
prevention of human disease.
1.5 Know-How shall mean any non-public information known to SD PHARMA and related to the Patent
Rights or the exercise thereof.
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CONFIDENTIAL
1.6 Licensed Method means any method that is covered by Patent Rights, the use of which would
constitute, but for the license granted to ADVENTRX under this Agreement, an infringement of any
pending or issued and unexpired claim within Patent Rights.
1.7 Licensed Product means any Vinca Alkaloid Drug composition or product that is covered by the
claims of Patent Rights, or that is produced by the Licensed Method, or the manufacture, use, sale,
offer for sale, or importation of which would constitute, but for the license granted to ADVENTRX
by SD PHARMA herein, an infringement of any pending or issued and unexpired claim within the Patent
Rights, for use in the Field.
1.8 NDA shall mean a New Drug Application for a product (or a Biologics License Application in
the case of a biologic product), as defined in the U.S. Food, Drug and Cosmetic Act and the
regulations promulgated thereunder.
1.9 Net Sales means the total of the gross invoice prices of Licensed Products sold by ADVENTRX,
its Sublicensees and/or its Affiliates, less the sum of the following actual and customary
deductions where applicable and separately listed as part of the gross invoice prices: cash, trade
or quantity discounts; sales, use, tariff, import/export duties or other excise taxes imposed on
particular sales (except for value-added and income taxes imposed on the sales of Product in
foreign countries); transportation charges; or credits to customers because of rejections or
returns. For purposes of calculating Net Sales, transfers to a Sublicensee or an Affiliate of
Licensed Product under this Agreement for (i) end use (but not resale) by the Sublicensee or
Affiliate shall be treated as sales by ADVENTRX at list price of ADVENTRX, or (ii) resale by a
Sublicensee or an Affiliate shall be treated as sales at the list price of the Sublicensee or
Affiliate.
1.10 Patent Costs means all out-of-pocket expenses of SD PHARMA for the preparation, filing,
prosecution, and maintenance of all United States patents included in Patent Rights.
1.11 Patent Rights means any pending or future US patent applications disclosing and claiming
the Invention, assigned to SD PHARMA; and continuing applications thereof including divisions,
substitutions, and continuations-in-part (but only to extent the claims thereof are enabled by
disclosure of the parent application[s]); any patents issuing on said applications including
reissues, reexaminations and extensions; and any corresponding US patent applications and patents
that relate to Vinca Alkaloid Drug formulations.
1.12 Sublicense means (i) any instrument ADVENTRX enters into with a third party to whom
ADVENTRX grants or promises to grant certain rights granted to ADVENTRX by SD PHARMA under this
Agreement, and (ii) any instrument pursuant to which a Sublicensee grants or promises to grant to a
third party sublicensee rights under this Agreement.
1.13 Sublicense Fees means consideration paid by a Sublicensee to ADVENTRX for a Sublicense, and
consideration paid by a sub-tier Sublicensee to a Sublicensee for a Sublicense, but excluding
earned royalties based on Net Sales. Examples of Sublicense Fees include upfront license fees,
maintenance fees, milestone fees, success fees, etc., whether payable in cash, in-kind, in stock,
or in other types of consideration paid by the Sublicensee in exchange for the Sublicense rights.
1.14 Sublicensee means a third party, including an Affiliate, to whom ADVENTRX grants or
promises to grant a Sublicense. Sublicensee also means any sub-tier sublicensee who is granted any
rights under this Agreement.
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CONFIDENTIAL
1.15 Term means the period of time beginning on the Effective Date and ending on the expiration
date of the longest-lived Patent Rights covering the Invention.
1.16 Territory means United States of America.
1.17 Vinca Alkaloid Drug(s) means those certain generic pharmaceutical drugs which are commonly
known as vinca alkaloid drugs, including without limitation to vinorelbine.
ARTICLE 2. GRANTS
2.1 License. Subject to the limitations set forth in this Agreement, SD PHARMA hereby grants to
ADVENTRX, and ADVENTRX hereby accepts, an exclusive license under Patent Rights and Know-How, to
make, use, sell, offer for sale, and import Licensed Products and to practice Licensed Methods in
the Field within the Territory and during the Term. During the Term, SD PHARMA shall not grant any
license rights to any third parties under the Patent Rights and shall not exercise the Patent
Rights itself within the Field within the Territory.
2.2 Sublicense.
(a) The license granted in Paragraph 2.1 includes the right of ADVENTRX to grant Sublicenses
to third parties during the Term but only subject to the prior written approval from SD PHARMA,
which approval will not be withheld or delayed unreasonably.
(b) With respect to Sublicenses granted pursuant to Paragraph 2.2(a), ADVENTRX shall:
(i) to the extent applicable, include all of the rights of and obligations due to SD PHARMA
and contained in this Agreement; and,
(ii) collect and/or guarantee payment of all payments due, directly or indirectly, to SD
PHARMA from Sublicensees and deliver all reports due, directly or indirectly, to SD PHARMA from
Sublicensees.
ARTICLE 3. CONSIDERATION
3.1 Fees and Royalties. The parties hereto understand that the fees and royalties payable by
ADVENTRX to SD PHARMA under this Agreement are full consideration for the license granted herein to
ADVENTRX under Patent Rights. ADVENTRX shall pay SD PHARMA:
(a) a license issue fee of [***] upon execution of this Agreement;
(b) a license maintenance fee of [***] payable within [***] following the Effective Date;
provided however, that ADVENTRX has not terminated the agreement pursuant to Paragraph 8.2(a);
(c) milestone payments in the amounts set forth below, payable within thirty (30) days after
the occurrence of each of the following events:
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CONFIDENTIAL
Amount | Date or Event | |||||||||
(i) | [***] | [***;] | ||||||||
(ii) | [***] | [***] | ||||||||
or | ||||||||||
(ii) | [***] | [***] | ||||||||
(iii) | [***] | [***] | ||||||||
(iv) | [***] | [***] |
(d) an earned royalty of [***] on Net Sales of Licensed Products sold by ADVENTRX and/or a
Sublicensees.
3.2 Sublicense Fees. ADVENTRX shall pay to SD PHARMA a specified percentage of all Sublicense
Fees received by ADVENTRX; and each Sublicensee shall pay to SD PHARMA a specified percentage of
all Sublicense Fees received by the Sublicensee. To the extent that a sub-tier Sublicensee pays
Sublicense Fees to a Sublicensee, and some or all of that same Sublicense Fee is in turn paid to a
higher tier Sublicensee or to ADVENTRX, then SD PHARMA shall receive its specified percentage share
of only the net amount of the Sublicense Fee which is retained by ADVENTRX and each Sublicensee.
The specified percentage shall be:
(a) [***]% from Sublicense agreements entered into within [***] after the Effective Date; and
(b) [***]% from Sublicense agreements entered into within [***] after the Effective Date; and
(c) [***]% from Sublicense agreements entered into after [***] after the Effective Date.
3.3 Patent Costs. ADVENTRX shall reimburse SD PHARMA all future (on or after the Effective Date)
Patent Costs within thirty (30) days following receipt by ADVENTRX of an itemized invoice from SD
PHARMA for said Patent Costs. Additionally, ADVENTRX shall pay to SD PHARMA a patent service fee
equal to [***]% of the Patent Costs, to be listed separately on each invoice, and payable by
ADVENTRX with thirty (30) days after receipt of the invoice.
ARTICLE 4. DILIGENT COMMERCIALIZATION
4.1 General Diligence. ADVENTRX (by itself and/or through its Affiliates and Sublicensees) shall
use commercially reasonable and diligent efforts to (i) research and develop commercially viable
Licensed Products, (ii) seek and obtain regulatory approval to market Licensed Products in the
Territory in the Field, and (iii) market and sell Licensed Products in the Territory in the Field.
4.2 Specific Diligence. ADVENTRX (by itself and/or through its Affiliates and Sublicensees) shall
use commercially reasonable and diligent efforts to achieve each of the Performance Goals as listed
on Exhibit B by the Performance Date as listed on Exhibit B; and if that is achieved, then ADVENTRX
shall be deemed to have also satisfied its obligations under Paragraph 4.1 through the date of the
specified Performance Date. If a particular Performance Goal is not achieved by its specified
Performance Date, and if said failure is not
4
CONFIDENTIAL
cured within the Grace Period specified on Exhibit B, then SD PHARMA may terminate this Agreement
if SD PHARMA reasonably determines that ADVENTRX (and its Affiliates and Sublicensees) have not
devoted commercially reasonable and diligent efforts for achieving the failed Performance Goal.
Notwithstanding the foregoing, if SD PHARMA reasonably concludes that there is a high probability
that the particular Performance Goal will be achieved within an additional three (3) months after
the Grace Period, then SD PHARMA will not exericise its termination right.
4.3 Performance Reports. Upon written request by SD PHARMA, ADVENTRX shall furnish to SD PHARMA a
semi-annual written report which lists the recently completed efforts, and the near term planned
efforts, and the progress results, applicable to achieving the Performance Goals. Said reports
shall be due and furnished by the first day of January and July of each year, commencing with
January 1, 2006, and continuing until the Performance Goals are achieved.
4.4 Progress Meetings. Upon written request by SD PHARMA, ADVENTRX and SD PHARMA shall meet on a
quarterly basis for ADVENTRX to orally report and discuss its activities, plans and progress for
achieving the Performance Goals, until the Performance Goals are achieved. Said meetings shall
occur within 30 days after receipt by ADVENTRX of the written request, but no more frequently than
one meeting per calendar quarter, unless otherwise agreed by both parties.
ARTICLE 5. REPORTS, RECORDS AND PAYMENTS
5.1 Reports.
(a) Commercial Sale Reports.
(i) ADVENTRX shall report to SD PHARMA the date of first commercial sale of each Licensed
Product in the United States.
(b) Data Reports. At each progress meeting specified in Section 4.4, and thereafter upon
request, ADVENTRX shall furnish to SD PHARMA copies of all pre-clinical and clinical studies
performed by or on behalf of ADVENTRX and its Affiliates and Sublicensees applicable to the Patents
Right or the Licensed Products, including without limitation, study protocols, study data, study
results, safety studies, dosage studies, pharmacology studies, etc. (the Data). If this
Agreement is terminated for any reason other than a default by SD PHARMA, SD PHARMA shall be
entitled to use the Data as it deems appropriate.
(c) Royalty Reports. After the first commercial sale of a Licensed Product, ADVENTRX shall
submit to SD PHARMA quarterly royalty reports on or before each February 28, May 31, August 31 and
November 30 of each year. Each royalty report shall cover ADVENTRXs (and each Affiliates and
Sunlicensees) most recently completed calendar quarter and shall show:
(i) the Net Sales (together with the detailed calculations therefore) during the most
recently completed calendar quarter, and the royalties payable with respect thereto, which
royalties shall be paid with each report; and
(ii) the number of each type of Licensed Product sold.
If no sales of Licensed Products have been made during any reporting period, ADVENTRX shall so
report.
5
CONFIDENTIAL
(d) Sublicense Fees Report. Within thirty (30) days after receipt of any Sublicense Fees,
ADVENTRX (and its Affiliates and Sublicensees who receive Sublicense Fees) shall report the same in
writing to SD PHARMA, together with payment to SD PHARMA of the share thereof as specified in
Paragraph 3.2.
5.2 Records & Audits.
(a) ADVENTRX shall keep, and shall require its Affiliates and Sublicensees to keep, accurate
and correct records of all Licensed Products manufactured, used, and sold, and Sublicense Fees
received under this Agreement. Such records shall be retained by ADVENTRX (and its Affiliates and
Sublicensees) for at least five (5) years following a given reporting period.
(b) All records shall be available during normal business hours for inspection at the expense
of SD PHARMA by SD PHARMAs Internal Audit Department or by a Certified Public Accountant selected
by SD PHARMA and in compliance with the other terms of this Agreement for the sole purpose of
verifying reports and payments or other compliance issues, by providing ten (10) business days
written notice to ADVENTRX (or its Affiliates and Sublicensees, as the case may be). Such
inspector shall not disclose to SD PHARMA any information other than information relating to the
accuracy of reports and payments made under this Agreement or other compliance issues. In the
event that any such inspection shows an under reporting and underpayment in excess of [***]%) for
any twelve (12)-month period, then ADVENTRX (or its Affiliates and Sublicensees, as the case may
be) shall pay the cost of the audit. In all events, ADVENTRX (or its Affiliates and Sublicensees,
as the case may be) shall promptly pay any additional sum that would have been payable to SD PHARMA
had the ADVENTRX (or its Affiliates and Sublicensees, as the case may be) reported correctly, plus
an interest charge at a rate of [***]%) per year. Such interest shall be calculated from the date
the correct payment was due to SD PHARMA up to the date when such payment is actually paid.
5.3 Payments.
(a) All fees and royalties due SD PHARMA shall be paid in United States dollars and all
checks shall be made payable to SD PHARMACEUTICALS, Inc.
(b) Royalty Payments.
(i) Royalties shall accrue upon the receipt of payment for the sale of Licensed Products.
(ii) ADVENTRX shall pay earned royalties quarterly on or before February 28, May 31, August
31 and November 30 of each calendar year. Each such payment shall be for earned royalties accrued
within the most recently completed calendar quarter.
(iii) In the event that any patent or patent claim within Patent Rights is held invalid in a
final decision by a patent office from which no appeal or additional patent prosecution has been or
can be taken, or by a court of competent jurisdiction and last resort and from which no appeal has
or can be taken, all obligation to pay royalties based solely on that patent or claim or any claim
patentably indistinct therefrom shall cease as of the date of such final decision. ADVENTRX shall
not, however, be relieved from paying any royalties that accrued before the date of such final
decision, or that are based on another patent or claim not involved in such final decision.
6
CONFIDENTIAL
(c) Late Payments. In the event any payment owed under this Agreement is not received by SD
PHARMA when due, ADVENTRX shall pay to SD PHARMA interest charges at a rate of [***]%) per year.
Such interest shall be calculated from the date payment was due until actually received by SD
PHARMA.
ARTICLE 6. PATENT MATTERS
6.1 Patent Prosecution and Maintenance.
(a) SD PHARMA shall diligently prosecute and maintain the United States Patent Rights using
counsel of its choice, after consultation with ADVENTRX. SD PHARMA shall provide ADVENTRX with
copies of all relevant documentation relating to such prosecution and ADVENTRX shall keep this
documentation confidential. All patents and patent applications in Patent Rights shall be assigned
solely to SD PHARMA.
(b) SD PHARMA shall give reasonable consideration to amending any patent application in
Patent Rights to include claims reasonably requested by ADVENTRX to protect the Licensed Products
contemplated to be sold by ADVENTRX under this Agreement.
6.2 Patent Infringement.
(a) If ADVENTRX learns of any substantial infringement of Patent Rights applicable to License
Products, ADVENTRX shall so inform SD PHARMA and provide SD PHARMA with reasonable evidence of the
infringement. Both parties shall use reasonable efforts and cooperation to terminate infringement
without litigation.
(b) ADVENTRX may request SD PHARMA to take legal action against such third party for the
infringement of Patent Rights applicable to Licensed Products. Such request shall be made in
writing and shall include reasonable evidence of such infringement and damages to ADVENTRX. If the
infringing activity has not abated ninety (90) days following ADVENTRXs request, SD PHARMA shall
elect either to commence suit on its own account, or not to do so. SD PHARMA shall give notice of
its election in writing to ADVENTRX by the end of the one-hundredth (100th) day after receiving
notice of such request from ADVENTRX. ADVENTRX may thereafter bring suit for patent infringement
at its own expense, if and only if SD PHARMA elects not to commence suit and the infringement
occurred in a jurisdiction where ADVENTRX has an exclusive license under this Agreement. If
ADVENTRX elects to bring suit, SD PHARMA may join that suit at its own expense.
(c) Recoveries from actions brought pursuant to Paragraph 5.2(b) shall be used first to
reimburse the parties for their out-of-pocket expenses incurred to pursue the litigation, plus 20%
per annum accrual on said expenses; and the remainder, if any, shall be [***].
(d) Each party shall cooperate with the other in litigation proceedings at the expense of the
party bringing suit. Litigation shall be controlled by the party who is bearing the majority of
the litigation expenses.
6.3 Patent Marking. ADVENTRX shall mark all Licensed Products made, used or sold under the terms
of this Agreement, or their containers, in accordance with the applicable patent marking laws.
7
CONFIDENTIAL
ARTICLE 7. GOVERNMENTAL MATTERS
7.1 Governmental Approval or Registration. If this Agreement or any associated transaction is
required by the law of any nation to be either approved or registered with any governmental agency,
ADVENTRX shall assume all legal obligations to do so.
7.2 Compliance With Laws. ADVENTRX (and its Affiliates and Sublicensees) shall comply with all
applicable laws and regulations related to all activities performed with respect to this Agreement,
including the development, manufacture, marketing, sale, and use of Licensed Products, and
including all FDA regulatory matters.
ARTICLE 8. TERMINATION OF THE AGREEMENT
8.1 Termination by SD Pharma. If ADVENTRX fails to perform or violates any term of this Agreement,
then SD PHARMA may give written notice of default (Notice of Default) to ADVENTRX. If ADVENTRX
fails to cure a default to pay money owed to SD PHARMA within thirty (30) days of the Notice of
Default, or a default to perform non-payment obligations within sixty (60) days of the Notice of
Default, SD PHARMA may terminate this Agreement and the license granted herein by a second written
notice (Notice of Termination) to ADVENTRX. If a Notice of Termination is sent to ADVENTRX, this
Agreement shall automatically terminate on the effective date of that notice. Termination shall
not relieve ADVENTRX of its obligation to pay any fees owed at the time of termination and shall
not impair any accrued right of SD PHARMA. Any termination of this Agreement shall also
automatically terminate any Sublicense under this Agreement. For avoidance of doubt, the grace
period specified on Exhibit B is in lieu of (and not in addition to) the cure period specified in
this Paragraph 8.1.
8.2 Termination by ADVENTRX.
(a) ADVENTRX shall have the right within fifty-nine (59) days following the Effective Date to
immediately terminate this Agreement upon written notice. Thereafter, ADVENTRX shall have the
right at any time and for any reason to terminate this Agreement upon a thirty (30)-day written
notice to SD PHARMA.
(b) Any termination under Paragraph 8.2(a) shall not relieve ADVENTRX of any obligation or
liability accrued under this Agreement prior to the effective date of the termination. Termination
shall not affect in any manner any rights of SD PHARMA arising under this Agreement prior to
termination.
8.3 Survival on Termination. The following Paragraphs and Articles shall survive the termination
of this Agreement:
(a) Article 5 (REPORTS, RECORDS AND PAYMENTS);
(b) Article 10 (USE OF NAMES AND TRADEMARKS); and
(c) Article 11 (MISCELLANEOUS PROVISIONS).
8
CONFIDENTIAL
ARTICLE 9. LIMITED WARRANTY
9.1 Limited Warranty.
(a) SD PHARMA warrants that it has the lawful right to grant this license.
(b) The license granted herein is provide AS IS and without WARRANTY OF
MERCHANTABILITY or WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE or any other warranty, express or
implied. SD PHARMA makes no representation or warranty that the Licensed Product, Licensed Method
or the use of Patent Rights will not infringe any other patent or other proprietary rights.
(c) In no event shall either party be liable for any incidental, special or consequential
damages resulting from exercise of the license granted herein or the use of the Invention, Licensed
Product, or Licensed Method.
(d) Nothing in this Agreement shall be construed as:
(i) a warranty or representation by SD PHARMA as to the validity or scope of any Patent
Rights;
(ii) a warranty or representation that anything made, used, sold or otherwise disposed of
under any license granted in this Agreement is or shall be free from infringement of patents of
third parties;
(iii) an obligation to bring or prosecute actions or suits against third parties for patent
infringement except as provided in Paragraph 6.2 hereof;
(iv) conferring by implication, estoppel or otherwise any license or rights under any patents
of SD PHARMA other than Patent Rights as defined in this Agreement, regardless of whether those
patents are dominant or subordinate to Patent Rights.
ARTICLE 10. USE OF NAMES AND TRADEMARKS
10.1 No Use. Nothing contained in this Agreement confers any right to use in advertising,
publicity, or other promotional activities any name, trade name, trademark, or other designation of
either party hereto (including contraction, abbreviation or simulation of any of the foregoing).
Unless required by law, the use by ADVENTRX of the name, SD PHARMACEUTICALS is prohibited without
the express written consent of SD PHARMA.
ARTICLE 11. MISCELLANEOUS PROVISIONS
11.1 Correspondence. Any notice or payment required to be given to either party under this
Agreement shall be deemed to have been properly given and effective:
(a) on the date of delivery if delivered in person, or
(b) one (1) business day after given by fax, e-mail, or overnight delivery service, or
(c) five (5) days after mailing if mailed by first-class or certified mail, postage paid, to
the respective addresses given below, or to such other address as is designated by written notice
given to the other party.
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CONFIDENTIAL
If sent to ADVENTRX:
6725 Mesa Ridge Rd, Ste 100
San Diego, California 92121
Attention: CEO
San Diego, California 92121
Attention: CEO
If sent to SD PHARMACEUTICALS:
SD PHARMA
7402 Cadencia Street
Carlsbad CA, 92009
Attention: CEO
7402 Cadencia Street
Carlsbad CA, 92009
Attention: CEO
11.2 Mutual Secrecy.
(a) Confidential Information shall mean information and Data relating to the Invention and
disclosed by SD PHARMA to ADVENTRX and vice versa during the term of this Agreement, which if
disclosed in writing shall be marked Confidential, or if first disclosed otherwise, shall within
thirty (30) days of such disclosure be summarized in writing by the disclosing party and sent to
the receiving party:
(b) ADVENTRX shall:
(i) use the Confidential Information only for the sole purpose of performing under the terms
of this Agreement;
(ii) safeguard Confidential Information against disclosure to others with the same degree of
care as it exercises with its own data of a similar nature;
(iii) not disclose Confidential Information to others (except to its employees, agents or
consultants who are bound to ADVENTRX by a like obligation of confidentiality) without the express
written permission of SD PHARMA, except that ADVENTRX shall not be prevented from using or
disclosing any of the Confidential Information that:
(A) ADVENTRX can demonstrate by written records was previously known to it, and not subject
to a confidentiality obligation in favor of SD PHARMA; or
(B) is now, or becomes in the future, public knowledge other than through acts or omissions
of ADVENTRX; or
(C) is lawfully obtained by ADVENTRX from sources independent of SD PHARMA and not subject to
a confidentiality obligation in favor of SD PHARMA; or
(D) ADVENTRX can demonstrate were independently developed by ADVENTRX or its employees having
no knowledge of the Confidential Information; or
(E) ADVENTRX is required to disclose by law or pursuant to the direction of a court or
government agency, but only to the limited extent as so required by the court or government agency.
(c) The secrecy obligations of ADVENTRX with respect to Confidential Information shall
continue for a period ending five (5) years from the termination date of this Agreement.
10
CONFIDENTIAL
(d) Each party may acknowledge the existence of this Agreement and the extent of the license
grant in Article 2 to third parties, but neither party shall disclose the financial terms of this
Agreement to third parties, except where the party is required by law to do so, or except under a
confidentiality agreement to the partys investors or lenders (and prospective investors and
lenders), prospective acquirers of the party, and others with whom the party has a business
relationship and reasonable need to know.
11.3 Assignability. This Agreement may not be assigned by ADVENTRX without the prior written
consent of SD PHARMA; provided however, in the event ADVENTRX is acquired by a third party (e.g.,
via merger or purchase of substantially all assets or stock of ADVENTRX), then this Agreement may
be assigned to the acquirer so long as the acquirer assumes all obligations of ADVENTRX under this
Agreement.
11.4 No Waiver. No waiver by either party of any breach or default of any covenant or agreement
set forth in this Agreement shall be deemed a waiver as to any subsequent and/or similar breach or
default.
11.5 Attorneys Fees. In the event of a failure of performance due under this Agreement and if it
becomes necessary for either party to undertake legal action against the other on account thereof,
then the prevailing party shall be entitled to reasonable attorneys fees in addition to costs and
necessary disbursements.
11.6 Governing Laws. THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any patent or patent application
shall be governed by the applicable US patent laws.
11.7 Force Majeure. A party to this Agreement may be excused from any performance required herein
if such performance is rendered impossible or unfeasible due to any catastrophe or other major
event beyond its reasonable control, including, without limitation, war, riot, and insurrection;
laws, proclamations, edicts, ordinances, or regulations; strikes, lockouts, or other serious labor
disputes; and floods, fires, explosions, or other natural disasters. When such events have abated,
the non-performing partys obligations herein shall resume. However, in no event will a force
majeure event postpone the scheduled due date for payments to SD PHARMA by more than thirty (30)
days.
11.8 Headings. The headings of the several sections are inserted for convenience of reference
only and are not intended to be a part of or to affect the meaning or interpretation of this
Agreement.
11.9 Entire Agreement. This Agreement embodies the entire understanding of the parties and
supersedes all previous communications, representations or understandings, either oral or written,
between the parties relating to the subject matter hereof. However, that certain Mutual
Non-Disclosure Agreement, between the parties, dated December 7, 2004, shall continue to remain in
effect.
11.10 Amendments. No amendment or modification of this Agreement shall be valid or binding on the
parties unless made in writing and signed on behalf of each party.
11.11 Severability. In the event that any of the provisions contained in this Agreement is held
to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall
be construed as if the invalid, illegal, or unenforceable provisions had never been contained in
it, so long as each party is still able to realize the essential benefits bestowed upon the parties
pursuant to the stated terms of this Agreement.
11
CONFIDENTIAL
IN WITNESS WHEREOF, both SD PHARMA and ADVENTRX have executed this Agreement, in duplicate
originals, by their respective and duly authorized officers on the day and year written.
ADVENTRX PHARMACEUTICALS, Inc.: | SD PHARMACEUTICALS, Inc.: | |||||
By:
|
/s/ Evan M. Levine | By: | /s/ Paul J. Marangos | |||
(Signature) | (Signature) | |||||
Evan M. Levine | Paul J. Marangos | |||||
President & CEO | Chairman & CEO | |||||
Date: |
4-29-05 | Date: | 4-29-05 | |||
12
CONFIDENTIAL
EXHIBIT A
Patent Application Attached as Vinorelbine Patent Utility Application 20040712.pdf
[***]
13
CONFIDENTIAL
EXHIBIT B
Performance Goals
Performance Goals | Performance Date | Grace Period | ||
[***] |
||||
[***] |
||||
[***] |
14
Exhibit 31.1
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Evan Levine, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ADVENTRX Pharmaceuticals, Inc. (the
Company);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the Company as of, and for, the periods presented in this report;
4. The Companys other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the Company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the Companys disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the Companys internal control over financial
reporting that occurred during the Companys most recent fiscal quarter (the Companys fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting; and
5. The Companys other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the Companys auditors and the audit committee of
the Companys board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal
controls over financial reporting which are reasonably likely to adversely affect the Companys
ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Companys internal control over financial reporting.
Date:
November 14, 2005
/S/ EVAN LEVINE Evan Levine Chief Executive Officer and President |
||||
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Carrie Carlander, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ADVENTRX Pharmaceuticals, Inc. (the
Company);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the Company as of, and for, the periods presented in this report;
4. The Companys other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the Company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the Companys disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the Companys internal control over financial
reporting that occurred during the Companys most recent fiscal quarter (the Companys fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting; and
5. The Companys other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the Companys auditors and the audit committee of
the Companys board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal
controls over financial reporting which are reasonably likely to adversely affect the Companys
ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Companys internal control over financial reporting.
Date:
November 14, 2005
/S/ CARRIE CARLANDER Carrie Carlander Chief Financial Officer, Vice President, Finance, Treasurer and Secretary |
||||
Exhibit 32.1
CERTIFICATION OF CEO AND CFO FURNISHED PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
§ 906 OF THE SARBANES-OXLEY ACT OF 2002
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
§ 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of ADVENTRX Pharmaceuticals, Inc. (the
Company) for the quarterly period ended September 30, 2005 as filed with the Securities and Exchange
Commission on the date hereof (the Report), each of Evan Levine, Chief Executive Officer and
President of the Company, and Carrie Carlander, Chief Financial Officer, Treasurer and Vice
President, Finance, of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.
Date:
November 14, 2005
|
/S/ EVAN LEVINE | |
Evan Levine | ||
Chief Executive Officer and President | ||
Date:
November 14, 2005
|
/S/ CARRIE CARLANDER | |
Carrie Carlander | ||
Chief Financial Officer, Vice President, Finance, Treasurer and Secretary |
This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and
shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, or otherwise required,
be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as
amended.