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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 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 No. 1-15803
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, Ste 100 San Diego CA | 92121 | |
(Address of principal executive offices) | (Zip Code) |
(858) 552-0866
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.001 per share
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
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 periods 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statement incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES o NO þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the
registrant as of June 30, 2005 was approximately $106,604,071, based upon the closing price on
the American Stock Exchange reported for such date. Shares of
common stock held by each officer and director and by each person who is known to own 5% or more of
the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates
of the Company. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
68,796,978
shares of the registrants Common Stock were issued and
outstanding as of March 13,
2006.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required to be disclosed in Part III of this report is incorporated by
reference from the registrants definitive Proxy Statement, which will be filed with the Securities
and Exchange Commission in connection with the registrants Annual Meeting of Shareholders to be
held on May 15, 2006.
Table of Contents
Page | ||||||||
PART I | 1 | |||||||
Item 1. | 1 | |||||||
Item 1A. | 13 | |||||||
Item 1B | 19 | |||||||
Item 2. | 20 | |||||||
Item 3. | 20 | |||||||
Item 4. | 20 | |||||||
PART II | 21 | |||||||
Item 5. | 21 | |||||||
Item 6. | 22 | |||||||
Item 7. | 23 | |||||||
Item 7A. | 27 | |||||||
Item 8. | 27 | |||||||
Item 9. | 27 | |||||||
Item 9A. | 27 | |||||||
Item 9B. | 28 | |||||||
PART III | ||||||||
Item 10. | 28 | |||||||
Item 11. | 28 | |||||||
Item 12. | 28 | |||||||
Item 13. | 29 | |||||||
Item 14. | 29 | |||||||
PART IV | 30 | |||||||
Item 15. | 30 | |||||||
31 | ||||||||
EXHIBIT 3.1 | ||||||||
EXHIBIT 10.10 | ||||||||
EXHIBIT 10.11 | ||||||||
EXHIBIT 10.13 | ||||||||
EXHIBIT 10.17 | ||||||||
EXHIBIT 10.19 | ||||||||
EXHIBIT 21.1 | ||||||||
EXHIBIT 23.1 | ||||||||
EXHIBIT 31.1 | ||||||||
EXHIBIT 31.2 | ||||||||
EXHIBIT 32.1 | ||||||||
EXHIBIT 32.2 |
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PART I
Forward-Looking Statements
This Annual Report on Form 10-K 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 Annual 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 Annual 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 in Part I., Item 1A,BusinessRisk Factors, Item 7.
Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical
Accounting Policies and Estimates 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.
ITEM 1. BUSINESS
In this report, the terms ADVENTRX, Company, we, us and our refer to ADVENTRX
Pharmaceuticals, Inc. The term Common Stock refers to our Common Stock, par value $0.001 per
share.
We organized as a corporation under the Delaware General Corporation Law in December
1995.
On May 30, 2003, we merged our wholly owned subsidiary, Biokeys, Inc., into itself 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 clinical trials in the European Union.
CoFactorâ, SeloneÔ and ThiovirÔ are our trademarks,
and we have an additional product, vinorelbine emulsion (ANX-530), for which we do not yet have
registered trademark. Product names, trade names and trademarks of other entities are also
referred to in this report.
Business of Issuer
We are a biopharmaceutical research and development company focused on introducing new
technologies for anticancer and antiviral treatments that surpass the performance and safety of
existing drugs and address significant problems such as drug metabolism, toxicity, bioavailability
and resistance. Our business is in the development stage; we have not generated any significant
revenues and we have not yet marketed any products.
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Principal Products
General information regarding each of the products currently in our pipeline is listed below.
Product/Description | Development Stage | Indication | Status | |||
CoFactorÒ (ANX-510) 5-FU Biomodulator |
Phase II US and Europe | Metastatic Colorectal Cancer |
Patient dosing completed. Complete clinical trial results currently expected in 2006. | |||
Phase IIb Europe and India | Metastatic Colorectal Cancer |
Over 50% of patients enrolled. Clinical trial results currently expected in 2007. | ||||
Phase III US | Metastatic Colorectal Cancer |
Dosing currently expected to begin in Q2 2006. | ||||
Vinorelbine emulsion (ANX-530)
|
505(b)(2) | Non-small cell lung and other solid tumors | Currently plan to File IND in Q3 2006 | |||
Selone Alkylating Agent |
Preclinical | Drug Resistant Cancers | Continue preclinical testing in 2006 | |||
Thiovir Pyrophosphate Analogue |
Preclinical | HIV/AIDS and Avian Influenza | Currently plan to File INDs in Q2 2006 | |||
Preclinical | Herpes | Preclinical testing during 2006. |
CoFactor (ANX-510)
CoFactor (ANX-510) is a folate-based biomodulator drug being developed to enhance the activity
and reduce associated toxicity of the widely used cancer chemotherapeutic agent 5-fluorouracil
(5-FU). CoFactor creates more stable binding of the active form of
5-FU, 5-fluorodeoxyuracil monophosphate (Fdump) to the target enzyme,
thymidylate synthase (TS), improving 5-FU performance. We have an exclusive license to use certain
patents and other intellectual property related to CoFactor from the University of Southern
California which permits us to develop and commercialize CoFactor. We
also have additional patents pending.
Preclinical studies
We have presented results from preclinical studies using in vivo human tumor xenotransplant
mouse models for colorectal and pancreatic cancer that demonstrated the antitumor efficacy of
CoFactor/5-FU in combination with irinotecan, oxaliplatin, anti-VEGF antibody, and gemcitabine.
CoFactor-containing combination regimens induced either equivalent or better antitumor responses,
as noted by slower tumor growth and increased mouse survival, compared with leucovorin-containing
combinations for all drug types tested. Furthermore, in an in vivo immunocompetent mouse model,
CoFactor/5-FU induced less systemic toxicity than 5-FU/leucovorin either alone or in combination
drug regimens. Lower hematological toxicity was observed including less thrombocytopenia,
leukopenia, neutropenia and lymphopenia. Furthermore, weight loss was quantitatively less severe
with drug treatments containing CoFactor. For example, while 5-FU/leucovorin/gemcitabine induced
greater than 25% weight loss in 91% of mice, significantly less (p < 0.05, Fishers exact test)
mice treated with 5-FU/CoFactor/gemcitabine (33% of mice) had this level of weight loss.
Additional preclinical studies are planned for CoFactor during 2006.
Phase I/II single site clinical trial in gastrointestinal and breast cancers
A Phase I/II single-arm clinical trial in 62 patients conducted at a single site in Sweden
between November 1989 and March 1993 demonstrated increased clinical benefit, improved time to
tumor progression, overall median survival and reduced toxicity in advanced colorectal, pancreatic, stomach and breast cancer patients treated with CoFactor plus
5-FU when compared historically with multiple studies using leucovorin plus 5-FU. In this clinical trial, treatment with CoFactor and 5-FU demonstrated the following rates
of clinical benefit, defined as stable disease or tumor response: pancreatic (40%), colorectal
(57%), gastric (66%) and breast (89%).
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Phase II multi-center clinical trial in first-line metastatic colorectal cancer
We are evaluating CoFactor use with 5-FU in a 50-patient Phase II clinical trial for first
line treatment of metastatic colorectal cancer at nine sites in the US and Serbia. The Phase II
clinical trial is a single-arm, multi-center study to evaluate tumor response as the primary
endpoint, and safety, time-to-tumor-progression and overall survival, as secondary endpoints, in
patients treated with CoFactor and 5-FU in a weekly bolus regimen. We completed patient enrollment
in the first quarter 2005. We reported preliminary Phase II results from an independent
radiological assessment that found an overall clinical benefit of 85% and objective response of 35%
in metastatic colorectal cancer patients treated with CoFactor and 5-FU. We also reported time to
tumor progression (TTP) of 163 days. The response rate and time to tumor progression values from
our Phase II clinical trial have surpassed previous published values from multiple institutional
studies using Leucovorin and 5-FU, including the registration trials for irinotecan and
capecitabine, for which the CoFactor Phase II time to tumor progression was approximately 25%
longer. There were no drug-related grade 3 or grade 4 gastrointestinal or hematological
toxicities. Median survival has not yet been reached but is expected to be announced during 2006.
The study database was closed March 8, 2006 and a final study report is in preparation for
submission to the FDA. Long-term follow-up and survival data will continue to be captured and
analyzed.
Phase IIb multi-center clinical trial in first-line metastatic colorectal cancer
We initiated a multi-national 300-patient Phase IIb randomized controlled clinical trial in
the second quarter 2005 using CoFactor in first-line treatment of metastatic colorectal cancer.
Patients are being randomized to one of two arms containing either CoFactor or leucovorin, each in
combination with infusional 5-FU. We reported in the first quarter 2006 that we had enrolled more
than 50% of the total patients in this clinical trial. The trials primary endpoint is a reduction
in the frequency of grade 3 or grade 4 hematological or gastrointestinal toxicities. Secondary
endpoints are response rate, time to tumor progression, and survival. We are conducting the study
at 30 sites in Europe and India. We currently plan to have initial results from the clinical trial
during 2007.
Phase III multi-center clinical trial in first-line metastatic colorectal cancer
In the second quarter of 2005, we reported that the FDA granted clearance under a special
protocol assessment (SPA) to initiate a 600-patient Phase III pivotal clinical trial using CoFactor
in first-line treatment of metastatic colorectal cancer. Patients will be equally randomized to two
arms containing either CoFactor or leucovorin, each in combination with 5-FU and bevacizumab
(Avastin®). The primary endpoint is progression-free survival. Secondary endpoints include response
rate, duration of response, overall survival and incidence and severity of adverse events. In
February 2006, following extensive consultations with
thought-leading oncologists, we requested certain adjustments with the FDA with respect to certain revisions we
would like to make to our protocol for this Phase III clinical trial, including increasing the trial
size to 1,200 patients. We previously announced that we would begin dosing patients in this trial
in the first quarter of 2006. We now plan to wait until after we
receive the response to these adjustments from the FDA and expect that we will begin
patient dosing for this clinical trial in the second quarter of 2006.
Proposed Phase III clinical trial in third-line breast cancer
In addition to the clinical trials listed above, we announced in the first quarter 2006 that
we plan to conduct a Phase III clinical trial in patients with advanced breast cancer who have
completed taxane and doxorubicin treatment. Patients would be equally randomized to two arms
containing either CoFactor in combination with 5-FU or capecitabine (Xeloda®). We currently
anticipate that we would enroll approximately 450 patients in this proposed Phase III clinical
trial. This proposed Phase III clinical trial would require clearance regarding the clinical design
from the FDA which we have not yet sought. We currently plan to seek clearance from the FDA
regarding the clinical design in the fourth quarter 2006 and initiate the clinical trial in 2007.
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Vinorelbine emulsion (ANX-530)
In the fourth quarter 2005 we announced that we obtained an exclusive license of certain
rights to ANX-530, a novel emulsion formulation of vinorelbine tartrate. This new formulation
emulsifies vinorelbine into a homogeneous suspension of nanoparticles, and is designed to protect
the venous endothelium during administration into a peripheral vein, and therefore reduce
associated vein irritation caused by the drug. Vinorelbine is a chemotherapeutic agent indicated as
a single agent or in combination with cisplatin for treatment of advanced non-small cell lung
cancer (NSCLC).
Preclinical studies
In preclinical testing, ANX-530 demonstrated markedly reduced vein irritation following
repeated IV injections compared with Navelbine®, GlaxoSmithKlines FDA-approved form of
vinorelbine. Vein irritation was examined in rabbits following repeated IV injections in the
marginal ear vein. In parallel studies in rodents ANX-530
demonstrated comparable efficiency to Navalbine.
Proposed 505(b)(2) clinical trial
We had a pre-IND meeting with the FDA in the fourth quarter 2005, regarding our proposed
505(b)(2) New Drug Application (NDA) regulatory path for ANX-530. Section 505(b)(2) of the US Food,
Drug & Cosmetic Act allows the FDA to approve a follow-on drug on the basis of data in the
scientific literature or data used by the FDA in the approval of other drugs. This procedure
potentially makes it easier for drug manufacturers to obtain rapid approval of new forms of drugs
based on proprietary data of the original drug manufacturer. The FDA affirmed our proposal to
conduct a single bioequivalency study of ANX-530 as a marketing-enabling clinical
trial.
We
currently plan to file an IND for ANX-530 and begin dosing patients in the third quarter of
2006. The proposed protocol would be open-label, with a two-period crossover and would assess
bioequivalence and pharmacokinetics of ANX-530 and Navelbine. If our planned marketing-enabling clinical trial is successful, we currently
expect that we would file a new drug application (NDA) in the first quarter of 2007.
Selone
Selone is a compound in a class of drugs known as organoselenones, consisting of carbon,
oxygen and selenium. Selone and its analogues have shown effectiveness, at even relatively low
concentrations, against human ovarian, breast, lung and head/neck cancers, and against leukemias
and lymphomas, based upon current in vitro screening methods. Their potency is high for their rate
of alkylating activity, suggesting an increased specificity of action. Preclinical efforts have
demonstrated effectiveness of Selone in treatment of leukemia in mice at doses predicted to easily
achieve effective blood concentrations, as well as in a variety of human tumor cell lines in
laboratory testing. We intend to undertake further preclinical testing of Selone during 2006 in
order to determine the potential for this drug to be moved into human testing in the future. We
have an exclusive license to patents from the University of Southern California to develop and
commercialize Selone.
Infectious Diseases
Thiovir for HIV/AIDS
Thiovir is a broad spectrum anti-viral compound that has been shown to inhibit HIV, herpes
and influenza A viruses. Thiovir is being developed as a non-nucleoside reverse transcriptase
inhibitor (NNRTI) designed for oral delivery and as a component of highly active antiretroviral
therapy (HAART) for HIV/AIDS. Thiovir is a prodrug for foscarnet, an FDA-approved
intravenously-delivered therapy for opportunistic infections in HIV patients. Thiovir delivers both
the active drug TPFA (thiophosphonoformate) and the active metabolite PFA
(foscarnet) in an oral formulation. We have an exclusive license to patents from the
University of Southern California to develop and commercialize
Thiovir, and additional patents pending.
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Foscarnet is an effective, broad-spectrum antiviral but we believe it has limitations from a
commercial perspective because it must be delivered by protracted infusion. We believe that Thiovir
can serve as an effective oral antiviral drug as part of HAART for HIV/AIDS. Preclinical studies
have demonstrated that Thiovir is equivalent to foscarnet as a reverse transcriptase inhibitor and
has a dosage profile similar to foscarnet to inhibit HIV polymerase, with less affect on human DNA
polymerases.
Thiovir preclinical studies for HIV/AIDS
In the third quarter 2005, we announced results from an in vitro study indicating that Thiovir
demonstrated effectiveness against HIV-1 which is resistant to other NNRTIs and NRTIs. Thiovir also
exhibited a slightly higher level of antiviral activity against HIV-1 than foscarnet. In
combination testing with zidovudine (AZT), an NRTI, Thiovir was highly synergistic while foscarnet
was only slightly synergistic to antagonistic. A poster of the study data was presented at the 3rd
International AIDS Society Conference on HIV Pathogenesis and
Treatment in Rio de Janeiro. We have demonstrated synergy of Thiovir
with Tenofovir (an NRTI in Truvada® and Viread®) in
preclinical studies, and we are
planning additional preclinical studies testing synergy with Thiovir in combination with other
NRTIs in 2006.
Proposed Phase I/II clinical trial for HIV/AIDS
We currently plan to file an IND with the US Food and Drug Administration in the first half of
2006 for testing of Thiovir in patients with HIV/AIDS who have resistance to nucleoside reverse
transcriptase inhibitors (NRTIs). The clinical trial is proposed to enroll
patients who are resistant to one or more NRTIs. We currently plan to
file an IND in the second quarter and initiate the clinical trial
in the second half 2006.
Thiovir preclinical studies for Influenza A and avian flu
We announced in the first quarter 2006 that a series of independent preclinical tests
confirmed inhibition of influenza A virus by Thiovir. We conducted preliminary preclinical research
on strains of influenza A, which includes the H5N1 avian flu strain. We filed a provisional patent
application with the US Patent and Trademark Office on January 27, 2006 in connection with these
findings. Additional preclinical studies are planned during 2006 to study Thiovir against strains
of influenza A, including the H5N1 avian flu.
Markets for our Products
Cancer Chemotherapy Market
On a worldwide basis, more than 11 million people each year are diagnosed with cancer and over
7 million people die each year from cancer, according to statistics published by the World Health
Organization. In the U.S., cancer is responsible for approximately 25% of all deaths according to
recent statistics. The American Cancer Society estimates that more than 1.3 million new cases of
cancer were diagnosed and over 570,000 people died due to cancer in 2005 in the U.S.
Treatment choices for the cancer patient depend on the stage of the cancerous tumor, and
whether and/or how far the cancer has spread. Treatment options include surgery, radiation,
chemotherapy, hormone therapy and immunotherapy. Treatment of cancer with chemicals is referred to
as chemotherapy, which represents a current market in the U.S. of approximately $9 billion ($15
billion worldwide) per year, according to Frost & Sullivan Market Research and IMS Market Research.
Market for CoFactor
Chemotherapy is highly individualized, depending on the type of disease and its progression,
the action of the agents used, and the side effects in the patient, and may be used alone or in
combination with other cancer therapies, such as surgery or radiation. Most chemotherapy drugs are
chemical agents that are extremely toxic, are generally not curative, and historically achieve poor
results in extending patient survival. The antimetabolite, 5-fluorouracil (5-FU) is a widely used
chemotherapeutic agent. Primary use of 5-FU includes treatment of colorectal,
breast, gastric and hepatic cancers. 5-FU is sometimes used to treat other cancers, such as
ovarian, pancreatic, prostate, bladder, cervical and head and neck cancers.
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Chemotherapy regimens for diseases such as metastatic colorectal cancer now include the
addition of toxic agents, such as Camptosar® (CPT-11, irinotecan) and Eloxatin® (oxaliplatin), to
5-FU and the drug Leucovorin. Newer, antibody-based drugs, such as Erbitux® (cetuximab) and
Avastin® (bevacizumab) may also be added to 5-FU and Leucovorin or be used as a monotherapy (as in
the case of Erbitux).
In order for 5-FU to work more effectively, the folate-based compound Leucovorin, is often
administered to the cancer patient. Results from multiple clinical trials have shown that
Leucovorin in combination with 5-FU is only modestly effective in improving clinical outcomes in
cancer patients. Leucovorin efficiency is reduced since the drug must undergo several metabolic
steps to the active form of folate. Our drug, CoFactor, bypasses the chemical pathway required for
Leucovorin metabolism. This biochemical strategy delivers the correct form of folate that allows
5-FU to kill cancer cells more effectively while reducing 5-FU-associated toxicity. We believe
that CoFactor overcomes the limitations of Leucovorin and will lead to developments that will
increase patient survival, while reducing side effects and improving the quality of life of
patients on chemotherapy.
Worldwide sales of Leucovorin in 2005 were over $320M according to IMS Health. We believe that
if CoFactor shows improved clinical benefit and patient survival, it may be widely used as a
replacement for Leucovorin in 5-FU based cancer therapies.
Market for ANX-530 (vinorelbine emulsion)
Our drug ANX-530 is a novel, emulsion formulation of vinorelbine tartrate that is designed to
reduce vein irritation associated with the drugs intravenous administration. Vinorelbine is a
marketed chemotherapeutic agent indicated as a single agent or in combination with cisplatin for
treatment of advanced non-small cell lung cancer (NSCLC). Vinorelbine also shows activity in
breast, ovarian and other cancers. Data from IMS Health show annual generic vinorelbine sales in
2005 of approximately $60 million in the United States and approximately $120 million outside the
U.S. and annual unit sales growth of greater than 10% worldwide. Two
NSCLC clinical studies published in 2005 (ANITA trial results,
presented by J. Douillard at 2005 ASCO Annual Meeting and Winton, et
al, published in NEJM, June 23, 2005) showed an improvement in
survival in patients treated with vinorelbine plus cisplatin
following tumor resection. Based on these two studies, we believe
that adjuvant use of vinorelbine could increase. We believe we could capture an
increasing share of the total vinorelbine market following additional post-marketing clinical
trials demonstrating the benefits to patients and clinicians from reduced vein irritation from
ANX-530.
Market for Selone
Selone, which functions in part as an alkylating agent against cancer cell lines that exhibit
drug resistance to currently available alkylating and platinating agents, may serve as a useful new
anticancer drug. Alkylating agents as a class are the most broadly used anticancer agents in the
world, collectively surpassing the use of 5-FU as single agent. In recent years, they have been
used increasingly in dose intensification strategies, such as bone marrow transplant, and have
exhibited further promise when used with the thiophosphate protection agents. Approximately
one-half of all cancers can become resistant to treatment with current chemotherapy products.
Accordingly, we believe there is great potential for new products, such as Selone, that address
drug resistance in cancer therapy.
HIV Drug Therapy Market
The World Health Organization and the Centers for Disease Control report that there are 1.5
million HIV positive individuals in the U.S. and Europe where the vast majority of HIV drugs are
used. According to a report by the United Nations Program on HIV/AIDS (UNAIDS), more than 40
million adults and children in the world are living with HIV and there are thousands of new
infections each day.
Significant advancements have been made in the treatment of asymptomatic HIV positive patients
with highly active antiretroviral therapy (HAART) consisting of a three or four drug cocktail
that can reduce HIV viral load to below detectable levels. However, studies have shown that poor
patient treatment compliance, due to toxic side effects, number of pills and cost, will continue to
cause problems of viral resistance, rendering many drugs ineffective. HIV has the ability to mutate
into forms that are resistant to drug treatments. No one combination of drugs is effective for all
patients and therapies are continually modified based upon patient progress.
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According to Datamonitor, the global commercial market for HIV treatments is expected to grow
to almost $12 billion by 2012. The current HIV market consists of 5 different classes of drugs:
nucleoside reverse transcriptase inhibitors (NRTI), non-nucleoside reverse transcriptase inhibitors
(NNRTI), nucleotide reverse transcriptase inhibitors (NtRTIs) and protease inhibitors (PI), which
are dosed orally in various forms, as well as one entry inhibitor, which was approved in March 2003
and is dosed by injection. HIV entry inhibitors and maturation inhibitors are also currently under
development by various pharmaceutical companies. NNRTI sales were
approximately $972M in 2004 (NDC Health).
Market for Thiovir
HIV replicates rapidly and can readily mutate to eventually evade inhibitor drugs and drug
cocktails. Therefore, new drugs that target novel areas of the virus
or overcome drug resistance are
needed. We believe there is opportunity for Thiovir since its mechanism of action is different from
other NNRTIs on the market or in development. Thiovir does not bind
reverse transcriptase in the manner as currently-approved NNRTIs.
Competition
If we receive regulatory approval to market, distribute and sell any of our products, we will
face significant competition and believe significant long-term competition can be expected from
pharmaceutical companies, pharmaceutical divisions of chemical companies and biotechnology
companies. This competition can be expected to become more intense as commercial applications for
biotechnology products increase. Most competitors, particularly large pharmaceutical companies,
have greater clinical, regulatory and marketing resources and experience than we have. Many of
these companies have commercial arrangements with other companies in the biotechnology industry to
supplement their own research capabilities.
The introduction of new products or the development of new processes by competitors or new
information about our existing products may impact potential pricing of our products or cause us to
discontinue the development of one or more of our products, even for products protected by patents.
However, we believe our competitive position is enhanced by our commitment to research leading to
the discovery and development of new products.
Over the longer term, our and our collaborators abilities to successfully market, distribute
and sell current products, expand their usage and bring new products to the marketplace will depend
on many factors, including, but not limited to, the effectiveness and safety of the products, FDA
and foreign regulatory agencies approvals of new products and indications, the degree of patent
protection afforded to particular products and the effect of managed care as an important purchaser
of pharmaceutical products.
CoFactor
We intend to target replacement of Leucovorin with CoFactor in 5-FU/Leucovorin-based therapies
for various cancers. With an ongoing need for significant improvement in the clinical response of
tens of thousands of cancer patients, especially those with metastatic colorectal cancer where
we believe 5-FU/Leucovorin performs poorly and other regimens that are highly toxic, we currently believe
CoFactor could successfully compete against or be used in conjunction with other therapies.
We
know of no other company that is developing a metabolite of
Leucovorin to enhance 5-FU activity. Leucovorin is
marketed by more than a dozen companies as a generic drug for IV dosing in conjunction with 5-FU.
As an IV drug, Leucovorin represents competition to CoFactor based upon generic pricing.
Another source of competition for us is a branded prodrug (drug that activates in vivo) called
XelodaÒ (marketed by Roche), which is an oral formulation that converts to 5-FU. Xeloda may
be used with or without oral leucovorin. Since CoFactor is being currently developed as an IV drug,
generic forms of oral Leucovorin represent competition for CoFactor. To address this threat, we are
evaluating the development of an oral form for CoFactor. We have
performed preclinical studies that show benefit of CoFactor use with
Xeloda over that of Xeloda alone.
Clinical
studies in metastatic colorectal cancer are in progress or in the planning stages worldwide. In the clinical development for CoFactor, we will face competition from other
groups for the pool of metastatic colorectal cancer patients that are
eligible to enroll in our Phase III
pivotal clinical trial. We may not finish the clinical trial in a timely fashion if we cannot
readily recruit patients for this clinical trial.
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ANX-530
We intend to develop ANX-530 via a 505(b)(2) registration strategy to demonstrate
bioequivalency of ANX-530 and vinorelbine in patients with advanced solid tumors. While we intend
to further develop ANX-530 as a form of vinorelbine that reduces vein irritation, we initially will
market the drug as an equivalent or generic form of vinorelbine. There are approximately five
manufacturers of generic vinorelbine in addition to GlaxoSmithKline which markets Navelbineâ,
the branded version of vinorelbine. We will face price competition based on the generic status of
vinorelbine. Our 505(b)(2) registration strategy will only allow us to market the drug as
bioequivalent upon FDA marketing approval. In addition to generic competitors, there are companies
that have developed novel formulation technologies such as those utilizing liposomal carriers that
could develop or resume development of a novel formulation of vinorelbine. There is also an oral
formulation of vinorelbine approved for use in Europe against which we
would compete if ANX-530 were approved for use in Europe.
Thiovir
We currently intend to develop Thiovir as a component of HAART for HIV/AIDS. Thiovir would
compete in a large market of HAART drugs, and would be only one potential component of a three to
four drug cocktail, but classified as a non-nucleoside reverse transcriptase inhibitor. There are
currently three drugs approved in that specific sector with additional drugs under development.
We are also investigating the use of Thiovir as a treatment for avian flu. There are numerous
biotechnology and pharmaceutical companies also developing treatments for avian flu, representing
potential competition for Thiovir in this indication.
Marketing, Distribution and Sales
We have not received the necessary regulatory approval from the FDA or any other similar
government agency to commercially market, distribute or sell any of our products. We presently
have a Vice President of Business Development and a Director of Marketing with experience in
biotechnical business development and marketing functions. If we approach the point at which we
anticipate receiving regulatory approval to commercially market, distribute or sell any of our
products, we will likely arrange with third parties, such as pharmaceutical companies, to market,
distribute and sell our products. While we have held preliminary discussions on a number of
occasions with potential commercialization and marketing partners, we have not yet entered into any
binding agreements regarding the commercialization or marketing of any of our products.
Manufacturing
We do not have our own manufacturing facilities, and do not currently intend to establish
them. We contract with outside manufacturers in order to produce our clinical trial materials.
Raw
Materials
Raw materials and supplies required for the production of our products for clinical trials are
generally available from various suppliers in quantities adequate to meet our needs. However, we
will need to be selective with our choice of suppliers of raw materials for our products and use
only suppliers who have expertise in production of either chemical or biological formulations in
accordance with current Good Manufacturing Practices (cGMP).
Patents, Licensing and Research Agreements
Patents
Listed below are all of the issued patents which we have the exclusive right to use pursuant
to license agreements with the University of Southern California (USC). Our rights under these
patents are more fully described below.
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Where | Expiration | |||
Filed | Patent Title | Date | ||
CoFactor Patents | ||||
US
|
5,10-Methylene-Tetrahydrofolate as a Modulator of a Chemotherapeutic Agent | 12-23-13 | ||
US
|
5,10-Methylene-Tetrahydrofolate as a Modulator of a Chemotherapeutic Agent | 10-20-14 | ||
CA
|
5,10-Methylene-Tetrahydrofolate as a Modulator of a Chemotherapeutic Agent | 05-13-11 | ||
Thiovir Patents | ||||
US
|
Preparation and use of Thiophosphonates and Thio-analogues of Phosphonoformic Acid | 06-21-09 | ||
US
|
Preparation and use of Thiophosphonates and Thio-analogues of Phosphonoformic Acid | 09-30-11 | ||
US
|
Preparations of Thiophosphites and Thiophosphonates | 05-03-19 | ||
US
|
Preparations of Thiophosphites and Thiophosphonates | 11-01-20 | ||
EP
|
Preparation of Thiophosphonoformate Esters | 05-03-20 | ||
US
|
Derivatives and Analogs | 07-13-19 | ||
EP
|
Sulfur-containing Phosphonoformate Derivatives and their Uses | 07-13-19 | ||
US
|
Synthesis and Antiviral Activity of a Series of Pyrophosphate Analogs | 03-23-20 | ||
Selone Patent | ||||
US
|
Method of Treating Drug Resistant Tumor Cells using Organoselenones | 03-25-14 | ||
Other Patent | ||||
US
|
Preparation and Use of Alpha-Keto Bisphosphonates | 07-13-19 |
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In addition, we have filed three patent applications covering technology developed
pursuant to our research and development activities and have licensed the right to use certain
intellectual property from SD Pharmaceuticals, Inc which is covered in part by a pending patent
application (the SD Pharma Application).
We cannot assure that the claims in our pending patent applications or the SD Pharma
Application will be issued as patents, that any issued patents will provide us with significant
competitive advantages, or that the validity or enforceability of any of the patents we have the
right to practice will not be challenged or, if instituted, that these challenges will not be
successful. The cost of litigation to uphold the validity and prevent infringement of the patents
we have the right to practice could be substantial. Furthermore, we cannot assure that others
will not independently develop similar technologies or duplicate our technologies or design around
the patented aspects of our technologies. We can provide no assurance that our proposed
technologies will not infringe patents or rights owned by others, the licenses to which might not
be available to us.
In addition, the approval process for patent applications in foreign countries may differ
significantly from the process in the U.S. The patent authorities in each country administer that
countrys laws and regulations relating to patents independently of the laws and regulations of any
other country and the patents must be sought and obtained separately. Therefore, approval in one
country does not necessarily indicate that approval can be obtained in other countries.
Information regarding the status of our various research and development programs, and the
amounts spent on major programs through the last two fiscal years, can be found under the caption
Managements Discussion and Analysis of Financial Condition and Results of Operations.
License Agreements
USC Agreements
Under an Option and License Agreement with the University of Southern California (USC) dated
January 23, 1998 (as amended August 16, 2000), we hold exclusive rights to a number of patents that
have issued in the United States and Canada covering products (CoFactor® and Selone) and methods
intended for use in connection with cancer chemotherapy. Under another Option and License
Agreement with USC dated August 17, 2000 (as amended April 21, 2003), we hold exclusive rights to a
number of additional patents that have issued in the United States and Europe relating to the
antiviral product Thiovir and drugs useful for the treatment of HPV (human papillomavirus)
infections, HIV infections, HIV/HPV coinfections and other human therapeutic uses. Additional
patent applications relating to Thiovir are pending in Europe, Canada and Australia.
The first license from USC provides for the payment to USC of a 3% royalty (on net sales of
products made or sold in a country in which a patent has issued or is pending), while the second
license provides for the payment of a 1% royalty. Both require the Company to pay USC a share of
consideration received by the Company from any sublicensee as well as the cost of filing,
prosecuting and maintaining the licensed patents. Under the second license (as amended), milestone
payments will also be due based upon entry into human trials and regulatory approval for each drug
candidate developed ($75,000 at Phase I, $100,000 at Phase II, $125,000 at Phase III and $250,000
at market approval). No royalties have been paid to date under these licenses.
SD Pharmaceuticals Agreement
Under a License Agreement with SD Pharmaceuticals, Inc., dated April 29, 2005, we acquired an
exclusive license to commercially develop, use and sell within the United States an invention
relating to an emulsion composition for delivering highly water-soluble drugs, such as vinca
alkaloids. Based upon this license, we are currently developing ANX-530, a vinorelbine emulsion,
for use in the treatment of cancer. In consideration for the
rights to develop this invention, we agreed to pay SD Pharmaceuticals license fees, milestone
payments and royalties. No milestone payments or royalties have been paid to date.
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Sponsored Research Agreements
We periodically enter into sponsored research agreements pursuant to which an institution will
provide research service to us on a fee for services basis. We currently have no obligation to
make payments under any such sponsored research agreements.
Government Regulations
The manufacture, distribution, marketing and sale of therapeutic drugs are subject to
government regulation in the U.S. and in various foreign countries including Japan and the member
countries of the European Union. In the U.S., we must follow rules and regulations established by
the FDA requiring the presentation of data indicating that our products are safe and efficacious
and are manufactured in accordance with cGMP regulations. Japan, the member countries of the
European Union and various other countries have similar rules and regulation with which we must
comply.
The steps required to be taken before a new prescription drug may be marketed in the U.S.
include (i) preclinical laboratory and animal tests, (ii) the submission to the FDA of an IND
application, which must be evaluated and found acceptable by the FDA before human clinical trials
may commence, (iii) adequate and well-controlled human clinical trials to establish the safety and
effectiveness of the drug, (iv) the submission of a New Drug Application (NDA) to the FDA and (v)
FDA approval of the NDA. Prior to obtaining FDA approval of an NDA, the facilities that will be
used to manufacture the drug must undergo a preapproval inspection to ensure compliance with the
FDAs cGMP regulations.
Preclinical tests include laboratory evaluation of product chemistry or biology and animal
studies to assess the safety and effectiveness of the product and its formulation. The results of
the preclinical tests are submitted to the FDA as part of an IND application, and unless the FDA
objects, the IND application will become effective 30 days following its receipt by the FDA, after
which clinical trials can begin. If the FDA has concerns about the proposed clinical trial, it may
delay the trial and require modifications to the trial protocol prior to permitting the trial to
begin.
Clinical trials involve the administration of the pharmaceutical product to healthy volunteers
or to patients identified as having the condition for which the product is being tested. The
pharmaceutical product is administered under the supervision of a qualified principal investigator.
Clinical trials are conducted in accordance with protocols previously submitted to the FDA as part
of the IND application that detail the objectives of the trial, the parameters used to monitor
safety and the efficacy criteria that are being evaluated. Each clinical trial is conducted under
the auspices of an institutional review board (IRB) at the institution at which the trial is
conducted. The IRB considers, among other things, ethical factors, the safety of the human
subjects and the possible liability risk for the institution.
Clinical trials are typically conducted in three sequential phases that may or may not
overlap. In Phase I, the initial introduction of the pharmaceutical into healthy human volunteers,
the emphasis is on testing for safety (adverse effects), dosage tolerance, metabolism,
distribution, excretion and clinical pharmacology. Phase II involves trials in a limited patient
population to determine the effectiveness of the pharmaceutical for specific targeted indications,
to determine dosage tolerance and optimal dosage and to identify possible adverse side effects and
safety risks.
In clinical trials for cancer indications, Phase II typically denotes an uncontrolled study which
addresses primary response rate. Phase IIB studies are generally
larger, and controlled, and serve to finalize dosing regimens for
Phase III trials.
In serious diseases such as HIV/AIDS, patients suffering from the disease rather than healthy
volunteers are included in Phase I trials. In addition, Phase I trials may be divided between
Phase Ia, in which single doses of the drug are given, and Phase Ib, in which multiple doses are
given. In the latter instance, some efficacy data may be obtained if the subjects are patients
suffering from the disease rather than healthy volunteers, and these trials are referred to as
Phase Ib/IIa.
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After a compound has been shown in Phase II trials to have an acceptable safety profile and
probable effectiveness, Phase III trials are undertaken to evaluate clinical effectiveness further
and to further test for safety within an expanded patient population at multiple clinical study
sites. The FDA reviews both the clinical trial plans and the results of the trials at each phase,
and may discontinue the trials at any time if there are significant safety issues.
The sponsor of a clinical trial may request a special protocol assessment (SPA) from the FDA.
If an SPA is requested, the FDA will evaluate within 45 days certain protocols, including Phase III
clinical trial protocols, and issues relating to the protocols to assess whether they are adequate
to meet scientific and regulatory requirements identified by the sponsor. In a Phase III clinical
protocol SPA request, the sponsor requests that data used in a Phase III clinical trial form the
primary basis for an efficacy claim. The clinical protocols for Phase III trials can relate to
efficacy claims that will be part of an original new drug application (NDA) or biologics license
application (BLA) or that will be part of an efficacy supplement to an approved NDA or BLA.
The results of the preclinical tests and clinical trials are submitted to the FDA in the form
of an NDA for marketing approval. The testing and approval process requires substantial time and
effort, and FDA approval may not be granted on a timely basis or at all. The approval process is
affected by a number of factors, including the severity of the disease, the availability of
alternative treatments and the risks and benefits demonstrated in clinical trials. Additional
animal studies or clinical trials may be requested during the FDA review process and may delay
marketing approval.
Section 505(b)(2) of the US Food, Drug & Cosmetic Act allows the FDA to approve a follow-on
drug on the basis of data in the scientific literature or data used by the FDA in the approval of
other drugs. This procedure potentially makes it easier for drug manufacturers to obtain rapid
approval of new forms of drugs based on proprietary data of the original drug manufacturer. Some
examples of products that may be allowed to follow a 505(b)(2) path to approval are drugs which
have a new dosage form, strength, route of administration, formulation or indication.
Upon approval, a drug may be marketed only for the FDA-approved indications in the approved
dosage forms. Further clinical trials are necessary to gain approval for the use of the product
for any additional indications or dosage forms. The FDA may also require post-market reporting and
may require surveillance programs to monitor the side effects of the drug, which may result in
withdrawal of approval after marketing begins.
The FDA has developed several regulatory procedures to accelerate the clinical testing and
approval of drugs intended to treat serious or life-threatening illnesses under certain
circumstances. We believe that CoFactor, Thiovir and Selone may be candidates for accelerated
development or approval under these procedures.
Once the sale of a product is approved, the FDA regulates the manufacturing and marketing of
the product. The FDA periodically inspects both domestic and foreign drug manufacturing facilities
to ensure compliance with applicable cGMP regulations and other requirements. In addition,
manufacturers in the U.S. must register with the FDA and submit a list of every drug in commercial
distribution. Foreign manufacturers are subject only to the drug listing requirement.
Post-marketing reports are also required to monitor the products usage and effects. Product
approvals may be withdrawn, or sanctions imposed, if compliance with regulatory requirements is not
maintained.
Many foreign countries also regulate the clinical testing, manufacturing, marketing and use of
pharmaceutical products. The requirements relating to the conduct of clinical trials, product
approval, manufacturing, marketing, pricing and reimbursement vary widely from country to country.
In addition to the import requirements of foreign countries, a company must also comply with U.S.
laws governing the export of FDA-regulated products.
Health Care Reform Measures and Third Party Reimbursement
Pharmaceutical companies are affected by the efforts of governments and third party payors to
contain or reduce the cost of health care through various means. A number of legislative and
regulatory proposals aimed at changing the health care system have been proposed in recent years
including the Medicare Modernization Act of 2003 (MMA). In addition, increasing emphasis on
managed care in the U.S. has and will continue to increase pressures on pharmaceutical pricing.
While we cannot predict whether legislative or regulatory proposals will be
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adopted or the effect such proposals or managed care efforts may have on our business, the
announcement or adoption of such proposals or efforts could have a material adverse effect on us.
In the U.S. and elsewhere, sales of prescription pharmaceuticals are dependent in large part on the
availability of reimbursement to the consumer from third party payors, such as government and
private insurance plans that mandate predetermined discounts from list prices.
Employees
As
of March 10, 2006 we employed 20 persons, including 12 engaged in research and
development activities, including preclinical research, clinical development, and regulatory
affairs, and eight in general and administrative functions such as marketing, accounting,
purchasing and investor relations. Our staff includes four employees with Ph.D. or M.D. degrees.
None of our employees are unionized and we believe that our relationship with our employees is
good.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 are available free of charge on our website (www.adventrx.com) as
soon as reasonably practicable after they are filed with, or furnished to, the Securities and
Exchange Commission.
ITEM 1A. RISK FACTORS
Risks Relating to Our Business
Readers and prospective investors in our securities should carefully consider the following
risk factors as well as the other information contained or incorporated by reference in this
report.
The risks and uncertainties described below are not the only ones facing us. Additional risks
and uncertainties that management is not aware of or focused on or that management currently deems
immaterial may also impair our business operations. This report is qualified in its entirety by
these risk factors.
If any of the following risks actually occur, the Companys financial condition and results of
operations could be materially and adversely affected. If this were to happen, the value of the
Companys securities could decline significantly, and you could lose all or part of your
investment.
We have a substantial accumulated deficit and limited working capital.
We
had an accumulated deficit of $59,964,840 as of December 31, 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 equity
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.
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It is uncertain that we will have access to future capital.
We do not expect to 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 equity
financing in the past, including 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, would 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 adequately and timely fund our
capital requirements would have a material adverse effect on us.
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 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 all 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.
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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
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 likely 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 and 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.
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, if
eventually approved for commercial distribution, 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.
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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.
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
the University of Southern California 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
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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 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.
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 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.
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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 and if 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 or other regulatory matters.
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 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.
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The market price of our shares, like that of many biotechnology companies, is highly volatile.
Market prices for 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 our common stock.
If we
cannot satisfy AMEXs listing requirements, it may delist our common stock and we may
not have an active public market for our common stock. The absence of an active trading market
would likely make the common stock an illiquid investment.
Our common stock is quoted on the American Stock Exchange. To continue to be listed, we are
required to maintain shareholders equity of $6,000,000 among other requirements. We do not satisfy
that requirement as of December 31, 2005. The AMEX may consider
delisting our common stock and suspend trading in the common stock in
which case our common stock would likely trade in the over-the-counter market in the so-called pink sheets or, if available, the OTC
Bulletin Board Service. As a result, an investor would likely find it significantly more difficult
to dispose of, or to obtain accurate quotations as to the value of, our shares. Our ability to
raise capital would most likely also be impaired due to our ineligibility to file resale
registration statements under the Securities Act.
If our
common stock is delisted, it may become subject to the SECs penny stock rules and more
difficult to sell.
SEC rules require brokers to provide information to purchasers of securities traded at less
than $5.00 and not traded on a national securities exchange or quoted on the Nasdaq Stock Market.
If our common stock becomes a penny stock that is not exempt from these SEC rules, these
disclosure requirements may have the effect of reducing trading activity in our common stock and
making it more difficult for investors to sell. The rules require a broker-dealer to deliver a
standardized risk disclosure document prepared by the SEC that provides information about penny
stocks and the nature and level of risks in the penny market. The broker must also give bid and
offer quotations and broker and salesperson compensation information to the customer orally or in
writing before or with the confirmation. The SEC rules also require a broker to make a special
written determination that the penny stock is a suitable investment for the purchaser and receive
the purchasers written agreement to the transaction before a transaction in a penny 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 extensively evaluate and report on, and our independent registered public
accounting firm to attest to, our internal controls. For example, we have incurred significant
expenses, and expect to incur additional expenses, in connection with the evaluation,
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 additional 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 fiscal year ending
December 31, 2005, we are required to include in our annual report our assessment of the
effectiveness of our internal control over financial reporting. Furthermore, our independent
registered public accounting firm is required to issue an opinion on whether our assessment of
the effectiveness of our internal control over financial reporting is fairly stated in all material
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 2. PROPERTIES
Our principal offices are located at 6725 Mesa Ridge Road, San Diego,
California 92121. Our principal offices consist of 12,038 square feet of office and lab space,
which we use pursuant to a lease which will expire on August 31, 2009. The base rent for this
space is currently $242,209 annually, with incremental operating cost adjustments.
We believe our facilities are in good operating condition and that the real property leased by
us is adequate for all present and near term uses. We believe any additional facilities we may
need in the foreseeable future can be obtained with our capital resources.
We do not have any investments in and do not plan to make any investments in any real estate,
real estate mortgages or securities of or interests in persons primarily engaged in real estate
activities. We do not own or have an interest in any real property the book value of which amounts
to 10% or more of our total assets.
ITEM 3. LEGAL PROCEEDINGS
From time to time we may be subject to legal proceedings and claims in the ordinary course of
business. These claims, even if not meritorious, could result in the expenditure of significant
financial and managerial resources. We are not currently involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the stockholders of the Company was held on November 15, 2005. At the
meeting, the stockholders approved (i) an amendment to our Certificate of Incorporation to prohibit
us from establishing a classified board; (ii) an amendment to our Certificate of Incorporation to
prohibit us from adopting or approving any rights plan, poison pill or other similar plan,
agreement or device; and (iii) an amendment and restatement of our Certificate of Incorporation
that, among other things, increased the number of shares of common stock we are authorized to issue
to 200,000,000. Each of the foregoing matters approved by the stockholders are described in
further detail in our Proxy Statement filed with the Securities and Exchange Commission on October
18, 2005.
The following table shows the tabulation of the votes cast in connection with these matters:
Votes | ||||||||||||
Proposal | Votes For | Against/Withheld | Votes Abstained | |||||||||
Amendment to
Certificate of
Incorporation
regarding
classified board
prohibition |
47,268,567 | 392,146 | 1,062,676 | |||||||||
Amendment to
Certificate of
Incorporation
regarding poison
pill prohibition |
47,453,882 | 204,481 | 1,065,026 | |||||||||
Amendment and
restatement of
Certificate of
Incorporation to
increase authorized
shares of common
stock, among other
things |
46,437,170 | 1,287,043 | 999,176 |
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PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock trades under the symbol ANX on the American Stock Exchange (the AMEX).
The following table sets forth the high and low closing sales prices for our common stock in each
of the quarters over the past two fiscal years, as quoted on the AMEX.
Common Stock Price | ||||||||||||||||
Fiscal 2005 | Fiscal 2004 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter |
$ | 1.69 | $ | 0.90 | $ | 2.40 | $ | 0.87 | ||||||||
Second Quarter |
$ | 3.12 | $ | 1.61 | $ | 2.30 | $ | 1.55 | ||||||||
Third Quarter |
$ | 4.13 | $ | 2.18 | $ | 1.74 | $ | 0.99 | ||||||||
Fourth Quarter |
$ | 3.65 | $ | 2.68 | $ | 1.19 | $ | 0.82 |
On
March 13, 2006, the closing sales price of Common Stock was $4.22 per share.
As
of March 10, 2006, we had approximately 7,021 stockholders, including
246 holders of record and
an estimated 6,775 beneficial owners. We have not paid any dividends on our common stock since our
inception and do not expect to pay dividends on our common stock in the foreseeable future.
Dividend Policy
We have not declared or paid cash dividends on our common stock and do not anticipate paying
any cash dividends in the foreseeable future. We expect to retain future earnings, if any, to fund
the development and growth of our business. Our board of directors will determine future dividends,
if any.
Equity Compensation Plan Information
The following table provides information as of December 31, 2005 regarding equity compensation
plans approved by the Companys securityholders. The Company does not have any equity compensation
plans that have not been approved by our securityholders.
Number of securities | ||||||||||||
remaining available for | ||||||||||||
future issuance under | ||||||||||||
equity compensation | ||||||||||||
Number of securities to | Weighted-average | plans | ||||||||||
be issued upon exercise | exercise price of | (excluding securities | ||||||||||
of outstanding options, | outstanding options, | reflected in second | ||||||||||
Plan Category | warrants and rights | warrants and rights | column) | |||||||||
2005 Equity Incentive Plan |
2,457,000 | $ | 1.45 | 3,258,000 | ||||||||
2005 Employee Stock
Purchase Plan |
0 | $ | 0 | 2,000,000 |
Recent Sales of Unregistered Securities
From
February 24, 2006 through March 13, 2006, we issued 509,124 shares of common stock to
six of our warrant holders in connection with their exercise of outstanding warrants. We received
gross proceeds of $683,979 upon exercise of these warrants. 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.
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 owe Burnham Hill Partners approximately $16,353 in connection with the exercises of warrants
from February 24, 2006 through March 13, 2006. No other commission or other remuneration was
paid or given directly or indirectly in connection with these warrant exercises.
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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below at December 31, 2005 and 2004, and
for the fiscal years ended December 31, 2005, 2004 and 2003, are derived from our audited
consolidated financial statements included elsewhere in this report. This information should be
read in conjunction with those consolidated financial statements, the notes thereto, and the report
of independent registered public accounting firm thereon, and with Managements Discussion and
Analysis of Financial Condition and Results of Operations. The selected consolidated financial
data set forth below at December 31, 2003, 2002 and 2001, and for the years ended December 30, 2002
and 2001, are derived from our audited consolidated financial statements that are contained in
reports previously filed with the SEC. The quarterly consolidated financial data are derived from
unaudited financial statements included in our Quarterly Reports on Form 10-Q.
Summary Financial Information
Fiscal Years Ended December 31, | ||||||||||||||||||||
Statement of operations data: | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||
Loss from
operations |
$ | (13,202,986 | ) | $ | (6,701,048 | ) | $ | (2,332,077 | ) | $ | (2,105,727 | ) | $ | (16,339,120 | ) | |||||
Net loss |
$ | (24,782,646 | ) | $ | (6,701,048 | ) | $ | (2,369,917 | ) | $ | (2,347,927 | ) | $ | (16,595,120 | ) | |||||
Basic and diluted net loss per share |
$ | (0.41 | ) | $ | (0.13 | ) | $ | (0.07 | ) | $ | (0.15 | ) | $ | (1.12 | ) | |||||
Weighted average number of shares of
common stock outstanding: |
||||||||||||||||||||
Basic and diluted |
59,828,357 | 50,720,180 | 31,797,986 | 15,681,743 | 14,805,150 | |||||||||||||||
Cash dividends declared per share |
$ | | $ | | $ | | $ | | $ | |
December 31, | ||||||||||||||||||||
Balance sheet data: | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||
Cash and cash equivalents |
$ | 14,634,618 | $ | 13,032,263 | $ | 4,226,397 | $ | 103,928 | $ | 164,476 | ||||||||||
Short-term investments |
7,958,458 | | | | | |||||||||||||||
Total cash, cash
equivalents and short-term
investments |
22,593,076 | 13,032,263 | 4,226,397 | 103,928 | 164,476 | |||||||||||||||
Working capital |
(8,534,219 | ) | 12,047,819 | 4,091,730 | (822,274 | ) | (686,151 | ) | ||||||||||||
Total assets |
23,621,773 | 13,608,787 | 4,283,356 | 130,345 | 278,006 | |||||||||||||||
Long-term obligations |
57,078 | | | 56,873 | | |||||||||||||||
Total liabilities |
31,450,389 | 1,218,396 | 163,043 | 983,075 | 916,492 | |||||||||||||||
Shareholders equity/(deficit) |
(7,828,616 | ) | 12,390,391 | 4,120,313 | (852,730 | ) | (638,486 | ) |
Fiscal Quarters Ended | ||||||||||||||||
Quarterly statement of operations data | September 30, | |||||||||||||||
for fiscal 2005: | March 31, 2005 | June 30, 2005 | 2005 | December 31, 2005 | ||||||||||||
Loss from
operations |
$ | (2,844,934 | ) | $ | (3,330,554 | ) | $ | (3,482,475 | ) | $ | (3,545,023 | ) | ||||
Net loss |
$ | (2,844,934 | ) | $ | (3,330,554 | ) | $ | (16,454,867 | ) | $ | (2,152,291 | ) | ||||
Basic and diluted net loss per share |
$ | (0.05 | ) | $ | (0.26 | ) | $ | (0.26 | ) | $ | (0.03 | ) | ||||
Basic and diluted weighted average
number of shares of common stock
outstanding |
53,967,933 | 54,821,480 | 63,255,407 | 67,194,366 |
Fiscal Quarters Ended | ||||||||||||||||
Quarterly statement of operations data | September 30, | |||||||||||||||
for fiscal 2004: | March 31, 2005 | June 30, 2005 | 2004 | December 31, 2004 | ||||||||||||
Net loss |
$ | (710,463 | ) | $ | (1,509,254 | ) | $ | (2,123,807 | ) | $ | (2,357,524 | ) | ||||
Basic and diluted net loss per share |
$ | (0.02 | ) | $ | (0.03 | ) | $ | (0.04 | ) | $ | (0.04 | ) | ||||
Basic and diluted weighted average
number of shares of common stock
outstanding |
42,886,237 | 52,560,875 | 53,811,072 | 53,811,072 |
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ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This annual report on Form 10-K contains forward-looking statements concerning future events and
performance of our company. When used in this report, the words intend, estimate,
anticipate, believe, plan and expect and similar expressions as they relate to Adventrx
are included to identify forward-looking statements. You should not rely on these
forward-looking statements, because they are only predictions based on our current expectations and
assumptions. Many factors could cause our actual results to differ materially from those indicated
in these forward-looking statements. You should review carefully the factors identified in this
report in Part I., Item 1A,BusinessRisk Factors, those set forth below under Critical
Accounting Policies and Estimates and elsewhere in this report.. We disclaim any obligation to
update or announce revisions to any forward-looking statements to reflect actual events or
developments.
Overview
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with accounting principles generally
accepted in the United States requires that management make a number of assumptions and estimates
that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated
financial statements and accompanying notes. Management bases its estimates on historical
information and assumptions believed to be reasonable. Although these estimates are based on
managements best knowledge of current events and circumstances that may impact us in the future,
actual results may differ from these estimates.
Our critical accounting policies are those that affect our financial statements materially and
involve a significant level of judgment by management. Our critical accounting policies regarding
revenue recognition are in the following areas: license and research contracts, royalty revenues,
sale of rights to future royalties, grant revenues and product sales, however, since inception we
have not recognized a material amount of revenue. Our critical accounting policies also include
recognition of expenses in research contracts and research and development expenses.
Recognition of Expenses in Research Contracts
Pursuant to managements assessment of the services that have been performed on clinical
trials and other contracts, we recognize expenses as the services are provided. Such management
assessments generally consist of, but are not limited to, an evaluation by the project manager of
the work that has been completed during the period, measurement of progress prepared internally
and/or provided by the third-party service provider, analysis of data that justifies the progress,
and finally, managements judgment. Several of our contracts extend across multiple reporting
periods.
Research and Development Expenses
Research and development expenses consist of expenses incurred in performing research and
development activities including salaries and benefits, facilities and other overhead expenses,
clinical trials, contract services and other outside expenses. Research and development expenses
are charged to operations as they are incurred.
Acquired contractual rights. Payments to acquire contractual rights to a licensed technology or
drug candidate are expensed as incurred when there is uncertainty in receiving future economic
benefits from the acquired contractual rights. We consider the future economic benefits from the
acquired contractual rights to a drug candidate to be uncertain until such drug candidate is
approved by the FDA or when other significant risk factors are abated. To date, for expense
accounting purposes management has viewed future economic benefits for all of our drug candidates
to be uncertain.
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NATURE OF OPERATING EXPENSES
Our total operating expenses are influenced substantially by the amount of spending devoted to
research and development. During the past two years, we have expanded our drug development
pipeline, which requires that we allocate significant amounts of our resources to such programs,
including increased spending on clinical trials as those programs advance in their development. We
expect research and development expenses will represent approximately 65% to 70% of our
operating expenses for fiscal 2006. We expect that general and administrative expenses
for fiscal 2006 will represent approximately 35% of our operating expenses.
Our business is exposed to significant risks, as discussed in the section entitled Risk
Factors, which may result in additional expenses, delays and lost opportunities that could have a
material adverse effect on our results of operations and financial condition.
RESULTS OF OPERATIONS
We operate our business on the basis of a single reportable segment discovery, development
and commercialization of novel therapeutics for chronic diseases.
Comparison of Fiscal 2005 and 2004
Operating
Expenses 2005 vs. 2004
Total operating expenses amounted to $13.7 million in fiscal 2005, compared to $6.8 million in
fiscal 2004. The $6.9 million or 101% increase in operating expenses was due to a $5.9 million or
216% increase in research and development expenses, a $900,000 or 22% increase in general and
administrative expenses and a $74,000 or 180% increase in depreciation and amortization expense.
Explanations of operating expenses in both fiscal 2005 and fiscal 2004 are described more fully in
the paragraphs that follow.
Operating Expenses | ||||||||||||
Years Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Research and development |
63 | % | 40 | % | 32 | % | ||||||
General and administrative |
36 | % | 59 | % | 68 | % | ||||||
Depreciation and amortization |
1 | % | 1 | % | 0 | % | ||||||
Total operating expenses |
100 | % | 100 | % | 100 | % | ||||||
Research and development (R&D) expenses. R&D expenses increased to $8.7 million in fiscal 2005
from $2.7 million in fiscal 2004. The increase is primarily due to $3.5 million of expenses
incurred for our Phase II and Phase IIB CoFactor clinical trials, an increase in preclinical
expenditures of $1.2 million related to CoFactor, ANX-530 (vinorelbine emulsion) and Thiovir, an
increase in wages and related employee expenses of $500,000 due to the hiring of additional
clinical personnel, an increase in outside services expense of $225,000 related to clinical support
efforts and an increase in stock compensation expense related to employee options of $584,000.
General and administrative (G&A) expenses. G&A expenses increased to $4.9 million in fiscal 2005
from $4.0 million in fiscal 2004. The increase is primarily due to an increase of $300,000 in
wages and related employee expenses due to the hiring of finance and development personnel, an
increase in outside consulting of $280,000 related to efforts to comply with the Sarbanes-Oxley Act
of 2002 and related system implementation efforts, and an increase in facilities cost of $115,000
due to an increase in the amount of space leased.
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Interest
Income. Interest
income increased by $393,000, or 381%, to $496,000 in fiscal 2005 from $103,000 in
fiscal 2004. The increase is primarily due to the investment of the proceeds of an equity
financing which occurred in July 2005 with net proceeds of $19 million which resulted in an
increase in the average balance of investments in fiscal 2005, compared to fiscal 2004. In
addition, we experienced a rise in interest rates in the second half of 2005.
Loss
from Operations. Loss
from operations was $13.2 million in fiscal 2005 compared to a net loss of $6.7
million in fiscal 2004. The increase in net loss was due to a large increase
in R&D expenses related to our Phase II trial of CoFactor and increased preclinical expenses
related to CoFactor and other drugs in development.
We expect to continue to pursue our drug development strategy focused on the development of
CoFactor, ANX-530 (vinorelbine emulsion) and Thiovir followed by other programs in earlier stages
of development. To help fund and develop our product development efforts, we may elect to license
certain of our technologies and drug candidates to third parties. These potential license
arrangements could materially change our outlook for future revenues and costs. However, the
timing of such potential arrangements is unpredictable.
Net
Loss. Net
loss was $24.8 million or $(0.41) per share in fiscal 2005
compared to a net loss of $6.7 million or $0.13 per share
in fiscal 2004. The increase was due to reasons discussed above under
Loss from Operations and an $11.6 million loss booked in the
fourth quarter to book warrants issued in conjunction with financing
at fair market value.
Comparison of Fiscal 2004 and 2003
Operating
Expenses 2004 vs. 2003
Total operating expenses amounted to $6.8 million in fiscal 2004, compared to $2.3 million in
fiscal 2003. The $4.5 million, or 190%, increase in operating expenses is discussed in the
paragraphs below.
Research and development expenses. R&D expenses totaled $2.7 million in fiscal 2004 compared to
$749,000 in fiscal 2003. The increase of $2.0 million or 266% was primarily related to costs
incurred for our Phase II CoFactor trial which commenced in May 2004 as well as additional
personnel costs due to the hiring of clinical and preclinical personnel in 2004.
General and administrative expenses. Our general and administrative expenses
increased to $4.0 million in fiscal 2004, compared to $1.6 million in fiscal 2003. The increase of
$2.4 million or 153% is primarily related to the hiring of a significant number of personnel
including two executive level positions. In addition, occupancy, insurance and related costs all
increased in 2004 as we leased more office and lab space and ramped up for our clinical trials.
Interest
Income. Interest income increased to $103,000 in 2004 as compared to $9,000 in 2003. The increase of
$94,000 was due to an increase in our cash balances due to the investment of the proceeds of an
equity financing which closed in April 2004.
Net
Loss. Net loss was $6.7 million, or $0.13 per share, in fiscal 2004 compared to a net loss of $2.4
million, or $0.07 per share, in fiscal 2003. The increase of $4.3 million or 183% in net loss was
due to large increases in research and development and general and
administrative costs which included the hiring of ten people including two executive level positions.
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Liquidity and Capital Resources
Historically, we have funded our operations primarily through sales of our equity securities.
As of December 31, 2005, we had cash, cash equivalents and
short-term investments in securities totaling $22.6
million, including cash and cash equivalents of $14.6 million and short-term investments of $8.0
million. Our net working capital balance as of December 31, 2005
was ($8.5) million. As of
December 31, 2004, we had cash and cash equivalents totaling $13.0 million. Our net working capital
balance as of December 31, 2004 was $12.0 million. Explanations of net cash provided by or used
in operating, investing and financing activities are provided below.
Increase | ||||||||||||
December 31, | (Decrease) | December 31, | ||||||||||
2005 | During Period | 2004 | ||||||||||
Cash, cash
equivalents and investments |
$ | 22,593,076 | $ | 9,560,813 | $ | 13,032,263 | ||||||
Cash and cash equivalents |
14,634,618 | 1,602,355 | 13,032,263 | |||||||||
Net working capital |
$ | (8,534,219 | ) | 9,114,373 | 12,047,819 |
Year Ended | Change | Year Ended | ||||||||||
December 31, | Between | December 31, | ||||||||||
2005 | Periods | 2004 | ||||||||||
Net cash
used in operating activities |
$ | (11,646,829 | ) | $ | (6,471,439 | ) | $ | (5,175,390 | ) | |||
Net cash
used in investing activities |
(8,086,005 | ) | (7,780,232 | ) | (305,773 | ) | ||||||
Net cash provided by financing activities |
21,335,189 | 7,048,160 | 14,287,029 | |||||||||
Net increase in cash and cash equivalents |
$ | 1,602,355 | $ | (7,203,511 | ) | $ | 8,805,866 | |||||
Operating activities. Net cash used for operating activities was $11.6 million in fiscal
2005, compared to $5.2 million in fiscal 2004. The increase in cash used for operating activities
was mainly due to the increase in our research and development and general and administrative
expenses.
Net cash used for operating activities in fiscal 2004 was $5.2 million, compared to net cash
provided by operating activities of $2.2 million in fiscal 2003. The increase in cash used for
operating activities was mainly due to our increased research and development and general and
administrative expenses.
Investing activities. Net cash used by investing activities was $8.1 million in fiscal 2005,
compared to $300,000 in fiscal 2004 and $16,000 in fiscal 2003. The increase in fiscal 2005 was
mainly due to net purchases of short-term investments of $7.8 million. The increase in fiscal 2004
was due to purchases of fixed assets (office furniture and computer hardware).
Financing activities. Net cash provided by financing activities was $21.3 million in fiscal 2005,
consisting primarily of $18.1 million in net proceeds from sales of our common stock through
private placements and $3.0 million from exercises of warrants to purchase our common stock. Net
cash provided by financing activities amounted to $14.3 million in the fiscal 2004, consisting of
$14.3 million received from the sale of our common stock.
As of December 31, 2005, we have contractual obligations for operating leases and
purchase obligations, as summarized in the table that follows. We anticipate being able to satisfy
the obligations described below out of cash, cash equivalents and investments in securities held by
the Company as of December 31, 2005. We do not have any off balance sheet arrangements and no
commitments for any significant additional capital expenditures.
Payments Due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 years | ||||||||||||||||
Operating lease
obligations |
$ | 935,651 | $ | 248,364 | $ | 687,287 | $ | 0 | $ | 0 | ||||||||||
Purchase obligations |
$ | 423,934 | $ | 423,934 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Total |
$ | 1,359,585 | $ | 672,298 | $ | 687,287 | $ | 0 | $ | 0 | ||||||||||
26
Table of Contents
Management Outlook
We
believe that cash, cash equivalents, and short-term investments of approximately $22.6
million at December 31, 2005, should be sufficient to sustain our planned level of operations for
at least the next 12 months.
If we are unable to raise capital as needed to fund our operations then we may need to slow
the rate of development of some of our programs or sell the rights to one or more of our drug
candidates. For information regarding the risks associated with our need to raise capital to fund
our ongoing and planned operations, please see Risk Factors.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies Recent Accounting Pronouncements,
in the Notes to Consolidated Financial Statements for a discussion of recent accounting
pronouncements and their effect, if any, on the Company.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As described below, we are exposed to market risk related to changes in interest rates.
Because substantially all our expenses, and capital purchasing activities are transacted in U.S.
dollars, our exposure to foreign currency exchange rates is immaterial. Until such time as we are
faced with material amounts of foreign currency exchange rate risks, we do not plan to use
derivative financial instruments, which can be used to hedge such risks. We will evaluate the use
of derivative financial instruments to hedge our exposures as the needs and risks should arise.
Interest Rate Sensitivity
Our investment portfolio consists primarily of government or investment grade fixed income
instruments with an average duration of under 60 days. The primary objective of our investments in
debt securities is to preserve principal while achieving attractive yields, without significantly
increasing risk. We classify our investments in securities as of December 31, 2005 as
available-for-sale. These
available-for-sale securities are subject to interest rate risk. Due to the short average duration
as of December 31, 2005 the interest rate risks were not significant.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Our financial statements are annexed to this report beginning on page F-1.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
With the supervision and with the participation of our management, including the principal
executive officer and principal financial officer, we have evaluated the effectiveness of our
disclosure controls and procedures (as defined under Exchange Act Rules 13a-15(e) and 15(d)-15(e)),
as of the end of the period covered by this report. Based on that evaluation, the principal
executive officer and principal financial officer have concluded that these disclosure controls and
procedures were effective as of the end of the period covered by this report. Additionally, there
was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) that occurred during the fiscal quarter ended December 31, 2005 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
27
Table of Contents
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under
the supervision and with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
our evaluation under the framework in Internal Control Integrated Framework, our management
concluded that our internal control over financial reporting was effective as of December 31, 2005.
Our assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2005 has been audited by J.H. Cohn LLP, an independent registered public accounting
firm, as stated in their report, which is set forth below in this Item 9A.
Report of Independent Registered Public Accounting Firm
To
Board of Directors and Shareholders
Adventrx Pharmaceuticals, Inc.
Adventrx Pharmaceuticals, Inc.
We have audited managements assessment, included in Item 9A,
Managements Report on Internal Control
over Financial Reporting, that ADVENTRX Pharmaceuticals, Inc. and Subsidiary maintained effective internal control over financial
reporting as of December 31, 2005 based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
ADVENTRX Pharmaceuticals, Inc. and Subsidiarys management
is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express on opinion on managements
assessment and an opinion on the effectiveness of the Companys
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
companys internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation
of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America. A
companys internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with accounting principles generally
accepted in the United States of America, and receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the companys assets that could have a material effect on the financial statements.
Because of
inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, managements assessment that ADVENTRX Pharmaceuticals,
Inc. and Subsidiary maintained effective internal control
over financial reporting as of December 31, 2005, is fairly stated,
in all material respects, based on the criteria established in
Internal Control - Integrated Framework issued by the Committee of the Sponsoring
Organizations of the Treadway Commission. Also, in our opinion,
ADVENTRX Pharmaceuticals, Inc. and Subsidiary maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2005, based on such criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet of ADVENTRX
Pharmaceuticals, Inc. and Subsidiary as of
December 31, 2005, and
the related consolidated statements of operations, shareholders equity and cash flows for the year then
ended, and our report dated March 10, 2006 expressed an unqualified opinion thereon.
/s/ J. H.
Cohn LLP
San Diego, California
March 10, 2006
San Diego, California
March 10, 2006
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information relating to our executive officers and directors will be presented under the
caption Executive Officers and Directors in our definitive proxy statement in connection with our
2006 Annual Meeting of Stockholders to be held on or about May 15, 2006. That information is
incorporated into this report by reference.
Code of Ethics
We have adopted a code of business conduct and ethics for employees, executive officers and
directors. This code of business conduct and ethics is available on the investors section of our
website at www.adventrx.com. Any waivers from or amendments to the code of ethics will be filed
with the SEC on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the information under
the caption Executive Compensation contained in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
The information required by this item is incorporated by reference to the information under
the caption Security Ownership of Certain Beneficial Owners and Management and Equity
Compensation Plan Information contained in the Proxy Statement.
28
Table of Contents
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the information under
the caption Certain Relationships and Related Transactions contained in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to the information under
the caption Fees for Independent Registered Public Accounting Firm contained in the Proxy
Statement.
29
Table of Contents
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
(a) Financial Statements and Schedules
(1) Index to consolidated financial statements appears on page F-1.
The list of exhibits required by this Item is incorporated by reference to the Exhibit Index filed
as part of this report.
30
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ADVENTRX Pharmaceuticals | ||||||
By: | /s/ Evan M. Levine | |||||
Evan M. Levine | ||||||
President and Chief Executive Officer |
Date:
March 16, 2006
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Evan Levine and Carrie Carlander as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature | Title | Date | ||
/s/ Evan M. Levine
|
President and Chief Executive Officer | March 16, 2006 | ||
Evan M. Levine
|
(Principal Executive Officer) | |||
Chief Financial Officer, Senior Vice | ||||
/s/ Carrie Carlander
|
President, Finance, Secretary and Treasurer | March 16, 2006 | ||
Carrie Carlander
|
(Principal Financial and Accounting Officer) | |||
/s/
Robert A. Daniel
|
Controller | March 16, 2006 | ||
Robert
A. Daniel
|
(Principal Accounting Officer) | |||
/s/ M. Ross Johnson
|
Chairman of the Board | March 16, 2006 | ||
M. Ross Johnson |
||||
/s/ Michael M. Goldberg
|
Director | March 16, 2006 | ||
Michael M. Goldberg |
||||
/s/ Mark J. Pykett
|
Director | March 16, 2006 | ||
Mark J. Pykett |
||||
/s/ Mark Bagnall
|
Director | March 16, 2006 | ||
Mark Bagnall |
||||
/s/ Keith Meister
|
Director | March 16, 2006 | ||
Keith Meister |
31
Index to Consolidated Financial Statements
Page | ||
F-2 | ||
F-3 | ||
F-4 | ||
F-5 F-6 | ||
F-7 F-8 | ||
F-9 F-24 |
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
ADVENTRX Pharmaceuticals, Inc.
ADVENTRX Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of ADVENTRX Pharmaceuticals, Inc. and
Subsidiary (a development stage enterprise) as of December 31, 2005 and 2004, and the related
consolidated statements of operations, shareholders equity and
cash flows for each of the three years in the period ended December
31, 2005 and for the period from June 12, 1996 (date of inception) to December 31, 2005. These consolidated
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. The consolidated
financial statements for the period from June 12, 1996 (date of inception) to December 31, 2001
were audited by other auditors whose report, dated April 10, 2003, expressed an unqualified opinion
and included an explanatory paragraph concerning the Companys ability to continue as a going
concern. Our opinion on the consolidated statements of operations, shareholders equity and cash
flows for the period from June 12, 1996 (date of inception) to December 31, 2005, insofar as it
relates to amounts for the period for June 12, 1996 (date of inception) to December 31, 2001, is
based solely on the report of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated
financial statements referred to above present fairly, in all material respects, the financial
position of ADVENTRX Pharmaceuticals, Inc. and Subsidiary (a development stage enterprise) as of
December 31, 2005 and 2004, and their results of operations and
cash flows for each of the three years in the period ended December
31, 2005 and for the period from June 12, 1996 (date of inception) to December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
We also
have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of
ADVENTRX Pharmaceuticals, Inc. and subsidiarys internal control
over financial reporting as of December 31, 2005, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 10, 2006 expressed an
unqualified opinion thereon.
/s/ J.H. Cohn LLP
San Diego, California
March 10, 2006
March 10, 2006
F-2
Table of Contents
ADVENTRX
PHARMACEUTICALS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
Consolidated Balance Sheets
December 31, | ||||||||
2005 | 2004 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 14,634,618 | $ | 13,032,263 | ||||
Accrued interest income |
10,214 | 10,808 | ||||||
Prepaid expenses |
255,802 | 115,144 | ||||||
Short-term investments |
7,958,458 | | ||||||
Assets available for sale |
| 108,000 | ||||||
Total current assets |
22,859,092 | 13,266,215 | ||||||
Property and equipment, net |
407,544 | 285,304 | ||||||
Other assets |
355,137 | 57,268 | ||||||
Total assets |
$ | 23,621,773 | $ | 13,608,787 | ||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
593,228 | 532,327 | ||||||
Accrued liabilities |
930,274 | 628,754 | ||||||
Accrued salary and related taxes |
173,398 | 57,315 | ||||||
Warrant liability |
29,696,411 | | ||||||
Total current liabilities |
31,393,311 | 1,218,396 | ||||||
Other long-term liabilities |
57,078 | | ||||||
Total liabilities |
31,450,389 | 1,218,396 | ||||||
Committments and contingencies |
| | ||||||
Temporary equity: |
||||||||
Common stock subject to continuing registration,
$.001 par value; 10,810,809 shares issued and outstanding |
| | ||||||
Shareholders equity/(deficit): |
||||||||
Common stock, $0.001 par value; authorized 200,000,000,
issued and outstanding 56,529,388 and 53,834,237 shares in
2005 and 2004 |
67,364 | 53,835 | ||||||
Additional paid-in capital |
52,105,329 | 47,553,497 | ||||||
Deficit accumulated during the development stage |
(59,964,840 | ) | (35,182,194 | ) | ||||
Accumulated other comprehensive gains (losses) |
(1,722 | ) | | |||||
Treasury stock, at cost |
(34,747 | ) | (34,747 | ) | ||||
Total shareholders equity |
(7,828,616 | ) | 12,390,391 | |||||
Total liabilities and shareholders equity |
$ | 23,621,773 | $ | 13,608,787 | ||||
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
ADVENTRX
PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly Biokeys Pharmaceuticals, Inc.)
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Formerly Biokeys Pharmaceuticals, Inc.)
(A Development Stage Enterprise)
Consolidated Statements of Operations
Inception | ||||||||||||||||
(June 12, 1996) | ||||||||||||||||
through | ||||||||||||||||
Years Ended December 31, | December 31, | |||||||||||||||
2005 | 2004 | 2003 | 2005 | |||||||||||||
Net sales |
$ | | $ | | $ | | $ | 174,830 | ||||||||
Cost of goods sold |
| | | 51,094 | ||||||||||||
Gross margin |
| | | 123,736 | ||||||||||||
Grant revenue |
| | 3,603 | 129,733 | ||||||||||||
Interest income |
496,059 | 103,042 | 9,269 | 698,337 | ||||||||||||
Total revenue |
496,059 | 103,042 | 12,872 | 951,806 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
8,682,498 | 2,744,328 | 748,997 | 16,156,752 | ||||||||||||
General and administrative |
4,901,002 | 4,018,453 | 1,585,596 | 17,334,299 | ||||||||||||
Depreciation and amortization |
115,545 | 41,309 | 8,970 | 10,255,561 | ||||||||||||
Impairment
loss writeoff
of goodwill |
| | | 5,702,130 | ||||||||||||
Interest expense |
| | 1,386 | 179,090 | ||||||||||||
Equity in loss of investee |
| | | 178,936 | ||||||||||||
Total operating expenses |
13,699,045 | 6,804,090 | 2,344,949 | 49,806,768 | ||||||||||||
Loss from operations |
(13,202,986 | ) | (6,701,048 | ) | (2,332,077 | ) | (48,854,962 | ) | ||||||||
Loss on fair value of warrants |
(11,579,660 | ) | | | (11,579,660 | ) | ||||||||||
Loss before cumulative effect of change in accounting principle |
(24,782,646 | ) | (6,701,048 | ) | (2,332,077 | ) | (60,434,622 | ) | ||||||||
Cumulative effect of change in accounting principle |
| | | (25,821 | ) | |||||||||||
Net loss |
(24,782,646 | ) | (6,701,048 | ) | (2,332,077 | ) | (60,460,443 | ) | ||||||||
Preferred stock dividends |
| | (37,840 | ) | (621,240 | ) | ||||||||||
Net loss applicable to common stock |
(24,782,646 | ) | (6,701,048 | ) | (2,369,917 | ) | $ | (61,081,683 | ) | |||||||
Loss per common share- basic and diluted |
$ | (0.41 | ) | $ | (0.13 | ) | $ | (0.07 | ) | |||||||
Weighted average shares outstanding- basic and diluted |
59,828,357 | 50,720,180 | 31,797,986 | |||||||||||||
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
ADVENTRX PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Shareholders Equity
Inception (June 12, 1996) through December 31, 2005
(A Development Stage Enterprise)
Consolidated Statements of Shareholders Equity
Inception (June 12, 1996) through December 31, 2005
Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated | accumulated | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative convertible | Cumulative convertible | Cumulative convertible | Additional | other | during the | Treasury | shareholders' | |||||||||||||||||||||||||||||||||||||||||||||
preferred stock, series A | preferred stock, series B | preferred stock, 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 | ) | |||||||||||||||||||||||||||||||||||||
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 | ) | |||||||||||||||||||||||||||||||||||||
Dividends payable on preferred stock |
| | | | | | | | (242,400 | ) | | | | (242,400 | ) | |||||||||||||||||||||||||||||||||||||
Repurchase of warrants |
| | | | | | | | | | | | |
F-5
Table of Contents
Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated | accumulated | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative convertible | Cumulative convertible | Cumulative convertible | Additional | other | during the | Treasury | shareholders' | |||||||||||||||||||||||||||||||||||||||||||||
preferred stock, series A | preferred stock, series B | preferred stock, 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 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 per share |
| | 200,000 | 2,000 | | | | | 298,000 | | | | 300,000 | |||||||||||||||||||||||||||||||||||||||
Sale of preferred stock at $10.00 per share |
| | | | 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 | ) | |||||||||||||||||||||||||||||||||||||
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 |
| | | | | | | | | | (24,782,646 | ) | | (24,782,646 | ) | |||||||||||||||||||||||||||||||||||||
Effect of
change in fair value of available for sale
securities |
| | | | | | | | | (1,722 | ) | | | (1,722 | ) | |||||||||||||||||||||||||||||||||||||
Total
comprehensive loss |
| | | | | | | | | | | | (24,784,368 | ) | ||||||||||||||||||||||||||||||||||||||
Par value of shares issued in conjunction with mezzanine financing |
| | | | | | 10,810,809 | 10,811 | (10,811 | ) | | | | | ||||||||||||||||||||||||||||||||||||||
Exercise of warrants |
| | | | | | 2,408,316 | 2,408 | 3,071,030 | | | | 3,073,438 | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
185,000 | 185 | 144,815 | | | | 145,000 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of stock options to employees |
| | | | | | | | 994,874 | | | | 994,874 | |||||||||||||||||||||||||||||||||||||||
Issuance of stock options to non-employee |
| | | | | | | | 93,549 | | | 93,549 | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to vendor |
| | | | | | 125,000 | 125 | 258,375 | | | | 258,500 | |||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2005 |
| $ | | | $ | | | $ | | 67,363,362 | $ | 67,364 | $ | 52,105,329 | $ | (1,722 | ) | $ | (59,964,840 | ) | $ | (34,747 | ) | $ | (7,828,616 | ) | ||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
ADVENTRX
PHARMACEUTICALS, INC. AND SUBSIDIARY
(Formerly Biokeys Pharmaceuticals, Inc.)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Formerly Biokeys Pharmaceuticals, Inc.)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Inception | ||||||||||||||||
(June 12, 1996) | ||||||||||||||||
through | ||||||||||||||||
Years ended December 31, | December 31, | |||||||||||||||
2005 | 2004 | 2003 | 2005 | |||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net loss |
$ | (24,782,646 | ) | $ | (6,701,048 | ) | $ | (2,332,077 | ) | $ | (60,460,443 | ) | ||||
Adjustments to reconcile net loss to
net cash used in operating activities: |
||||||||||||||||
Depreciation and amortization |
115,545 | 41,309 | 8,970 | 9,805,561 | ||||||||||||
Fair value of warrant liability |
11,579,660 | | | 11,578,971 | ||||||||||||
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 | 156,735 | 573,357 | ||||||||||||
Expenses paid by preferred stock |
| | | 142,501 | ||||||||||||
Expenses related to stock warrants issued |
| | | 612,000 | ||||||||||||
Expenses related to employee stock options issued |
994,874 | 524,922 | 286,033 | 2,135,125 | ||||||||||||
Expenses related to options issued to non-employees |
93,549 | | | 93,549 | ||||||||||||
Expenses paid by issuance of common stock |
101,833 | | 206,799 | 919,381 | ||||||||||||
Equity in loss of investee |
| | | 178,936 | ||||||||||||
Write-off of license agreement |
| | | 152,866 | ||||||||||||
Write-off assets available for sale |
108,000 | | | 108,000 | ||||||||||||
Cumulative effect of change in accounting principle |
| | | 25,821 | ||||||||||||
Accretion of discount |
(111,960 | ) | | | (111,960 | ) | ||||||||||
Changes in assets and liabilities, net of effect of
acquisitions: |
||||||||||||||||
Increase in prepaid and other assets |
(281,266 | ) | (255,101 | ) | (23,136 | ) | (711,854 | ) | ||||||||
Increase (decrease) in accounts payable and
accrued liabilities |
478,504 | 1,128,153 | (550,433 | ) | 1,175,629 | |||||||||||
Increase in long-term liabilities |
57,078 | | | 57,078 |
F-7
Table of Contents
Inception | ||||||||||||||||
(June 12, 1996) | ||||||||||||||||
through | ||||||||||||||||
Years ended December 31, | December 31, | |||||||||||||||
2005 | 2004 | 2003 | 2005 | |||||||||||||
Increase in sponsored research payable and
license obligation |
| | | 924,318 | ||||||||||||
Net cash used in operating activities |
(11,646,829 | ) | (5,175,390 | ) | (2,247,109 | ) | (26,618,309 | ) | ||||||||
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 |
(237,785 | ) | (305,773 | ) | (16,376 | ) | (666,027 | ) | ||||||||
Purchase of short-term investments |
(13,123,220 | ) | | | (13,123,220 | ) | ||||||||||
Proceeds from sales of short-term investments |
5,275,000 | | | 5,275,000 | ||||||||||||
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 |
(8,086,005 | ) | (305,773 | ) | (16,376 | ) | (8,065,221 | ) | ||||||||
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 | 6,590,181 | 44,152,593 | ||||||||||||
Proceeds from exercise of stock options |
145,000 | | | 145,000 | ||||||||||||
Proceeds from sale or exercise of warrants |
3,073,438 | 27,353 | | 3,485,028 | ||||||||||||
Repurchase of warrants |
| | 49,721 | (55,279 | ) | |||||||||||
Payment of financing and offering costs |
(1,883,246 | ) | (1,366,774 | ) | | (3,348,996 | ) | |||||||||
Payments of notes payable and long-term debt |
| | (253,948 | ) | (605,909 | ) | ||||||||||
Proceeds from issuance of notes payable and detachable
warrants |
| | | 1,344,718 | ||||||||||||
Net cash provided by financing activities |
21,335,189 | 14,287,029 | 6,385,954 | 49,318,148 | ||||||||||||
Net increase in cash and cash equivalents |
1,602,355 | 8,805,866 | 4,122,469 | 14,634,618 | ||||||||||||
Cash and cash equivalents at beginning of period |
13,032,263 | 4,226,397 | 103,928 | | ||||||||||||
Cash and cash equivalents at end of period |
$ | 14,634,618 | $ | 13,032,263 | $ | 4,226,397 | $ | 14,634,618 | ||||||||
See accompanying notes to consolidated financial statements.
F-8
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
December 31, 2005
Notes to Consolidated Financial Statements
December 31, 2005
(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 surpass the performance and safety of existing drugs and address significant problems such as drug metabolism, toxicity, bioavailability and resistance. The Company currently does not manufacture, market, sell or distribute any product. Through our license agreements with the University of Southern California (USC) and SD Pharmaceuticals, Inc., the Company has rights to drug candidates in varying early 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) | Summary of Significant Accounting Policies | |
Use of Estimates | ||
The preparation of financial statements in conformity with accounting principles generally accepted in the U. S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | ||
Accounting for Stock-Based Compensation | ||
The Company applies Statement of Financial Accounting Standards No. 123 and related interpretations in accounting for employee stock-based compensation, and includes the required footnote disclosures thereon. | ||
Cash Equivalents | ||
Highly liquid investments with original maturities of three months or less when purchased are considered to be cash equivalents. | ||
Short-term Investments | ||
We account for and report our investments in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. Investments are comprised of marketable |
F-9
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
securities consisting primarily of certificates of deposit, federal, state and municipal government obligations and corporate bonds. All marketable securities are held in our name and primarily under the custodianship of two major financial institutions. Our policy is to protect the principal value of our investment portfolio and minimize principal risk. Our marketable securities are classified as available-for-sale and stated at fair value, with net unrealized gains or losses recorded as a component of accumulated other comprehensive loss. Short-term investments are marketable securities with maturities of less than one year from the balance sheet date. Marketable securities are evaluated periodically for impairment. If it is determined that a decline of any investment is other than temporary, then the investment basis would be written down to fair value and the write-down would be included in earnings as a loss. | ||
Concentrations | ||
Substantially all of our cash and cash equivalents are maintained with two major financial institutions in the United States. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. At December 31, 2005, cash and cash equivalents with banks exceeded federally insured limits by approximately $14,714,000. | ||
Financial instruments that potentially subject us to concentrations of credit risk consist principally of marketable securities and interest rate instruments. The counterparties to our investment securities and interest rate instruments are various major corporations and financial institutions of high credit standing. | ||
During 2005, approximately 20% of our total vendor payments were made to a contract research organization that is assisting us in our clinical trial administration and data management. In the event we lost this vendor, we could experience delays in continuing our trial efforts which would result in increased costs as well as delays in obtaining FDA approvals. | ||
Fair Value of Financial Instruments | ||
At December 31, 2005 and 2004, our financial instruments included cash and cash equivalents, short-term investments, accounts payable, accrued expenses, and accrued compensation and payroll taxes. The carrying amount of cash and cash equivalents, accounts payable, accrued expenses and accrued compensation and payroll taxes approximates fair value due to the short-term maturities of these instruments. Our short-term investments in securities are carried at fair value based on quoted market prices. | ||
Property and Equipment | ||
Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. The costs of improvements that extend the lives of the assets are capitalized. Repairs and maintenance are expensed as incurred. | ||
Revenue Recognition | ||
In the past the Company has recognized revenue at the time service is performed on commercial contracts and ability to collect was reasonably assured. Revenue from government grants was a reimbursement for expenditures associated with the research. The Company submitted bills to the grant agency and revenue was recognized at the time reimbursement is requested. | ||
Research and Development Costs | ||
All research and development costs are expensed as incurred, including Company-sponsored research and development and cost of patent rights and technology rights under license agreements that have no alternative future use when incurred. |
F-10
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Impairment of Long-lived Assets | ||
In the event that facts and circumstances indicate that property and equipment and intangible or other long-lived assets with finite lives may be impaired, an evaluation of the recoverability of currently recorded costs will be made. If an evaluation is required, the estimated value of undiscounted future net cash flows associated with the asset is compared to the assets carrying value to determine if impairment exists. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. | ||
Marketing Expenses | ||
Marketing costs are expensed as incurred. Marketing costs charged to operations for the years ended December 31, 2005, 2004 and 2003 totaled $33,064, $67,782 and $88,221 respectively. | ||
Income Taxes | ||
Income taxes are accounted for using the asset and liability method under which deferred tax assets and liabilities are recognized for estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax expense or benefit is recognized as a result of the change in the asset or liability during the period. | ||
Supplementary Cash Flow Information | ||
No interest was paid during the years ended December 31, 2005 and 2004. Interest of $1,386 was paid during the year ended December 31, 2003. No income taxes were paid during 2005, 2004 or 2003. | ||
Noncash investing and financing transactions excluded from the consolidated statements of cash flows for the years ended December 31, 2005, 2004, and 2003 and for the period from Inception (June 12, 1996) to December 31, 2005 are as follows: |
F-11
Table of Contents
Inception | ||||||||||||||||
(June 12, 1996) | ||||||||||||||||
Years ended December 31, | through | |||||||||||||||
2005 | 2004 | 2003 | December 31, 2005 | |||||||||||||
Issuance of warrants, common
stock and preferred stock
for: |
||||||||||||||||
Conversion of
notes payable and
accrued interest |
$ | | $ | | $ | 53,491 | $ | 1,213,988 | ||||||||
Payment of operating
expenses |
258,500 | | | 1,482,781 | ||||||||||||
Conversion of
preferred stock |
| 2,004 | 701 | 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 | | 86,375 | ||||||||||||
Acquisition of treasury
stock in settlement of a
claim |
| 34,747 | | 34,747 | ||||||||||||
Assumptions of liabilities
in acquisitions |
| | | 1,009,567 | ||||||||||||
Acquisition of license
agreement for long-term debt |
| | | 161,180 | ||||||||||||
Cashless exercise of warrants |
150 | 465 | 2,360 | 3,892 | ||||||||||||
Dividends accrued |
| | 37,840 | 621,040 | ||||||||||||
Trade asset converted to
available for sale asset |
| 108,000 | | 108,000 | ||||||||||||
Dividends extinguished |
| 72,800 | 0 | 408,240 | ||||||||||||
Trade payable converted to
note payable |
| | | 83,948 | ||||||||||||
Issuance of warrants for
return of common stock |
| | 50,852 | 50,852 | ||||||||||||
Detachable warrants issued
with notes payable |
| | | 450,000 | ||||||||||||
Unrealized loss on
short-term investments |
1,722 | | | 1,722 |
F-12
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
New Accounting Pronouncements |
In
December 2004, the FASB issued SFAS No. 123 (R),
Share-Based Payment. SFAS
No. 123 (R) establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services. SFAS No. 123 (R) focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment transactions. SFAS
No. 123 (R) requires that the fair value of such equity instruments be recognized as expense in the
historical financial statements as services are performed. Prior to SFAS No. 123 (R), only certain
pro forma disclosures of fair value were required. SFAS No.123 (R) shall be effective for all of
the Companys interim and annual reporting periods commencing on January 1, 2006 and is not
expected to have a material impact on the financial statements of the Company during the fiscal
year 2007 and thereafter as the Company has already adopted SFAS No. 123.
In
November 2004, the FASB issued SFAS No. 151,
Inventory Costs. SFAS No. 151 clarifies the
accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage) that previously stated that . . . under some circumstances, items such as
idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal
as to require treatment as current period charges. . . . SFAS No. 151 requires that those items
be recognized as current-period charges regardless of whether they meet the criterion of so
abnormal. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production facilities. The adoption of
this new accounting pronouncement did not have a material impact on the Companys financial
statements.
In
December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets. SFAS
No.153 is based on the principle that exchanges of nonmonetary assets should be measured based on
the fair value of the assets exchanged. The guidance in APB Opinion 29, however, included certain
exceptions to that principle. SFAS No. 153 amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to change significantly as
a result of the exchange. The adoption of this new accounting pronouncement did not have a material
impact on the Companys financial statements.
In
May 2005, the FASB issued SFAS No. 154 Accounting
Changes and Error Corrections for the accounting for and reporting of a change in accounting
principles. SFAS No.154 applies to all voluntary changes in
accounting principles. It also applies to
changes required by an accounting pronouncement in the unusual instance that the pronouncement does
not include specific transition provisions. Under the provisions of APB Opinion 20, most accounting
changes were recognized by including in net income of the period of the change the cumulative
effect of changing to the newly adopted accounting principle. SFAS No.154 improves financial
reporting because its requirement to report voluntary changes in accounting principles via
retrospective application, unless impractical, enhances the consistency of financial information
between periods. That improved consistency enhances the usefulness of the financial information,
especially by facilitating analysis and understanding of comparative accounting data. Also, in
instances in which full retrospective application is impracticable, SFAS No. 154 improves
consistency of financial information between periods by requiring that a new accounting principle
be applied as of the earliest date practicable. The adoption of this
new accounting principle did not have a material impact on the
Companys financial statements.
F-13
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
SFAS No. 154 also requires that a change in depreciation, amortization or depletion methods for
long-lived, nonfinancial assets be accounted for as a change in accounting estimate that is
effected by a change in accounting principles. The provisions of SFAS No. 154 better reflect the fact
that an entity should change its depreciation, amortization or depletion methods only in
recognition of changes in estimated future benefits of an asset, in the pattern of consumption of
those benefits, or in the information available to the entity about those benefits. The adoption of
this new accounting pronouncement did not have a material impact on the Companys financial
statements.
(3) | Short-term investments |
The following table summarizes our investments in securities, all of which are classified as
available for sale.
2005 | ||||||||||||
Gross Unrealized | ||||||||||||
Cost | Gains (Losses) | Fair Value | ||||||||||
Government debt securities |
$ | 1,443,845 | $ | 165 | $ | 1,444,010 | ||||||
Commercial paper |
6,215,397 | (1,690 | ) | 6,213,707 | ||||||||
Corporate bonds |
300,938 | (197 | ) | 300,741 | ||||||||
$ | 7,960,180 | $ | (1,722 | ) | $ | 7,958,458 | ||||||
(4) | Property and Equipment | |
Property and equipment at December 31, 2005 and 2004 were as follows: |
Useful | ||||||||||||
lives | 2005 | 2004 | ||||||||||
Office furniture, computer
and lab equipment |
3 - 5 years | $ | 513,222 | $ | 333,286 | |||||||
Computer software |
3 years | 64,559 | 11,845 | |||||||||
577,781 | 345,131 | |||||||||||
Less accumulated
depreciation and
amortization |
(170,237 | ) | (59,827 | ) | ||||||||
$ | 407,544 | $ | 285,304 | |||||||||
F-14
Table of Contents
(5) | Income Taxes | |
Due to the Companys net loss position for the years ended December 31, 2005, 2004 and 2003, and as the Company has recorded a full valuation allowance against deferred tax assets, there was no provision or benefit for income taxes recorded. There were no components of current or deferred federal, state or foreign tax provisions for the years ended December 31, 2005, 2004 and 2003. | ||
The income tax provision is different from that which would be obtained by applying the statutory Federal income tax rate (34%) to income before income tax expense. The items causing this difference for the period are as follows: |
2005 | 2004 | 2003 | ||||||||||
Income tax expense at federal statutory rate |
$ | 4,489,000 | $ | 2,278,000 | $ | 793,000 | ||||||
State tax on continuing operations |
1,000 | 1,000 | 1,000 | |||||||||
Other |
371,000 | (19,000 | ) | 3,000 | ||||||||
Change in federal valuation allowance |
(4,861,000 | ) | (1,778,000 | ) | (797,000 | ) | ||||||
Stock options previously expensed |
| (112,000 | ) | | ||||||||
$ | | $ | | $ | | |||||||
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets and liabilities at December 31, 2005 and 2004 are as follows: |
December 31, | ||||||||
2005 | 2004 | |||||||
Deferred tax assets: |
||||||||
Accrued expenses |
$ | 47,028 | $ | 231,000 | ||||
Stock
options expense under SFAS No. 123 |
772,919 | 292,000 | ||||||
Net operating loss carryforwards |
11,068,149 | 6,864,000 | ||||||
Income tax credit carryforwards |
844,509 | | ||||||
Property, plant and equipment |
5,628 | 2,000 | ||||||
Intangibles |
600,162 | | ||||||
Other |
577 | 1,000 | ||||||
Total deferred tax assets |
13,338,972 | 7,390,000 | ||||||
Less: valuation allowance |
(13,338,972 | ) | (7,390,000 | ) | ||||
Total deferred tax assets, net of valuation allowance |
$ | | $ | | ||||
The Company has established a valuation allowance against its deferred tax asset due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax asset. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced. The Company has recorded a valuation allowance of $13,338,972 as of December 31, 2005 to reflect the estimated amount of deferred taxes that may not be realized. The Company increased its valuation allowance by $5,948,972 for the year ended December 31, 2005. The valuation allowance includes approximately $50,000 related to stock option deductions, the benefit of which may eventually be credited to equity. |
F-15
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
At December 31, 2005 the Company had federal and California tax loss carryforwards of approximately $29,263,000 and $19,113,000 respectively. The federal net operating loss carryforwards begin to expire in 2011 and 2013 respectively, if unused. At December 31, 2005, the Company had federal and state tax credit carryforwards of approximately $565,000 and $424,000 respectively. The federal credits will begin to expire in 2024. | ||
The utilization of net operating loss carryforwards and tax credit carryforwards is dependent on the future profitability of the Company. Furthermore, the Internal Revenue Code imposes a substantial restriction on the utilization of net operating loss and tax credit carryforwards in the event of an ownership change of more than 50 percentage points during any three year period. As a result of the change in ownership provisions, utilization of net operating loss and tax credit carryforwards may be subject to an annual limitation in future periods. As a result of an annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce future taxable income or income tax. The extent of such limitations, if any, are not known. | ||
(6) | Financing Activities | |
On July 21, 2005, the Company entered into a Securities Purchase Agreement with Icahn Partners LP, Icahn Partners Master Fund LP, High River Limited Partnership, Viking Global Equities LP, VGE III Portfolio Ltd., North Sound Legacy Institutional Fund LLC, North Sound Legacy International Ltd. and the Royal Bank of Canada for the sale of 10,810,809 shares of Common Stock at a purchase price of $1.85 per share for aggregate gross proceeds of $19,999,996.65, and the issuance of 7-year warrants to purchase 10,810,809 shares of Common Stock at an exercise price of $2.26 per share. The Company received net proceeds of $18,116,751 as of July 21, 2005, which increased by $197,000 to $18,313,751 the fourth quarter. The private placement consisted of accredited institutional investors. | ||
Pursuant to the terms of the Securities Purchase Agreement entered into in connection with the transaction, if (i) a Registration Statement covering (A) all of the Shares and the Warrant Shares and (B) any other shares of Common Stock issued or issuable in respect to the Shares and the Warrant Shares because of stock splits, stock dividends, reclassifications, recapitalizations or similar events (together, the Registrable Shares) required to be covered thereby and required to be filed by the Company is (A) not filed with the SEC on or before forty-five (45) days after the Closing Date (a Filing Failure) or (B) if such Registration Statement is not declared effective by the SEC on or before (1) ninety (90) days after the Closing Date (an Effectiveness Failure) or (ii) on any day after the effective date of the Registration Statement sales of all the Registrable Shares required to be included on such Registration Statement cannot be made (other than as permitted during a suspension pursuant to this Agreement) pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to such Registration Statement or to register sufficient shares of Shares) (a Maintenance Failure), then, the Company shall pay as liquidated damages (the Liquidated Damages) for such failure and not as a penalty to any Purchaser an amount in cash determined in accordance with the formula set forth below: | ||
For each 30-day period that a Filing Failure, Effectiveness Failure or Maintenance Failure remains uncured, the Company shall pay an amount equal to the purchase price paid to the Company for all Shares then held by such Purchaser multiplied by 1% for the first 30-day period or any portion thereof and increasing by an additional 1% with regard to each additional 30-day period until such Filing Failure, Effectiveness Failure or Maintenance Failure is cured. For any partial 30-day period in which a Filing Failure, Effectiveness Failure or Maintenance Failure exists but is cured prior to the end of the 30-day period, the Company shall pay the Purchasers a pro rata portion of the amount which would be due if the failure continued for the entire 30-day period. For example, if the purchase price paid for all Shares then held by a Purchaser is $5,000,000, then, (a) at the end of the 30th day, the Liquidated Damages would be 1% or $50,000, (b) at the end of the 60th day, the Liquidated Damages for the first 30-day period would have been 1% or $50,000 and for the second 30-day period would be 2% or $100,000, and (c) at the end of the 105th day, the Liquidated Damages for the first 30-day period would have been 1% or $50,000, for the second 30-day period 2% or $100,000, for the third 30-day period 3% or $150,000, and for the final 15-day period, 4% applied pro rata to such 15 days, or $100,000. | ||
Payments to be made pursuant to this Agreement shall be due and payable to the Purchasers at the end of each calendar month during which Liquidated Damages shall have accrued. No Liquidated Damages shall be due or payable to a Purchaser in any event if as of the date of the Filing Failure, Effectiveness Failure or Maintenance Failure such Purchaser could sell all of the Registrable Shares such Purchaser then holds without registration by reason of Rule 144(k) of the Securities Act. | ||
The registration statement was filed and declared effective by the SEC within the allowed time. The Company has not yet been required to pay any liquidated damages in connection with the filing or effectiveness of the registration. | ||
In accordance with Emerging Issues Task Force (EITF) Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Companys Own Stock, and the SECs December 2005 interpretation the terms of the warrants and the transaction documents, the fair value of the warrants was accounted for as a liability, with an offsetting reduction to additional paid-in capital at the closing date (July 21, 2005). At the end of each reporting period, the value of the warrants will be remeasured based on the fair market value of the underlying shares, and changes to the warrant liability and related gain or loss will be made appropriately. The warrant liability will be reclassified to equity when the registration statement is no longer subject to risk for Maintenance Failures. | ||
The fair value of the warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: no dividends; risk-free (10-year Treasury yield) interest rate of 4.39%; the contractual life of 7 years and volatility of 90%. The fair value of the warrants was estimated to be $19,439,185 on the closing date of the transaction. The difference between the fair value of the warrants of $19,439,185 and the gross proceeds from the offering was classified as Loss on fair value of warrants in the Companys statement of operations, and included in Warrant liability on the Companys balance sheet. The fair value of the warrants was then re-measured at December 31, 2005 and estimated to be $29,695,722 with the increase in fair value due to the increase in the market value of the Companys common stock. The increase in fair value of the warrants of $10,256,537 from the transaction date to December 31, 2005 was recorded as Loss on fair value of warrants in the Companys statement of operations, and included in Warrant liability on the Companys balance sheet. | ||
The Company paid the placement agents $1,600,000 in cash as fees for services performed in conjunction with the private placement. The Company also incurred $283,246 in other legal and accounting fees. In the fourth quarter, $197,000 of the placement agent fees was refunded to the Company, reducing our fees for placement services to $1,403,000. | ||
The adjustments required by EITF Issue No. 00-19 as interpreted by the SEC in December 2005 were triggered by the terms of the Companys agreements for the private placement it completed in July 2005, specifically related to the potential penalties if the Company did not timely register the common stock underlying the warrants issued in the transaction, and remain effective during the registration period. The adjustments for EITF Issue No. 00-19 had no impact on the Companys cash flow, liquidity, or business operations. | ||
The Company intends to utilize the net proceeds of $18,313,751 to fund pivotal clinical trials for its various compounds, and meet working capital needs through December 31, 2005. | ||
(7) | Equity Transactions | |
In January 2003, the Company paid accrued interest on notes payable through the issuance of 119,454 shares of Common Stock, having a fair market value on the date of issuance of $26,646. | ||
In January 2003, the Company completed a private placement of 1,589,856 shares of Common Stock and warrants to purchase an additional 476,962 shares of Common Stock at $0.40 per share to investors for gross proceeds of $635,949 in cash. | ||
In March 2003, the holders of 70,109.3 shares of Series C convertible Preferred Stock elected to convert their shares of Series C Preferred Stock into 14,021,860 shares of Common Stock. | ||
In March 2003, the Company paid two consulting firms for services rendered with 125,000 shares of Common Stock with a fair market value on the date of issuance of $68,750, and two warrants to purchase 37,500 shares of Common Stock at an exercise price of $0.50 per share. The fair market value of the warrants on the date of issuance was $33,777. | ||
In March 2003, the Company issued three warrants to three individuals in consideration of certain investment banking advice. The three warrants represent the right to purchase 50,000, 50,000 and 10,000 shares of Common Stock at an exercise price of $0.50 per share. The fair market value of the warrants on the date of issuance was $52,886. | ||
In March 2003, the Company issued a warrant to a former executive in consideration of certain covenants related to his separation from the Company. The warrant represents the right to purchase 150,000 shares of Common Stock at an exercise price of $1.25 per share. The Company recognized compensation expense of $50,852 in connection with the issuance of this warrant. | ||
During the three months ended March 31, 2003, $10,955 was recognized in conjunction with the vesting of warrants previously issued for consulting services. | ||
In April 2003, the Company paid accrued interest on notes payable through the issuance of 46,376 shares of Common Stock, having a fair market value on the date of issuance of $26,845. | ||
In June 2003, the Company completed a private placement of 5,027,328 shares of Common Stock and warrants to purchase an additional 1,508,199 shares of Common Stock at $0.60 per share to private investors for gross proceeds of $2,010,931 in cash. | ||
The Company paid cash commissions of $49,400 in connection with the private placement. |
F-16
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
In June 2003 the Company issued 59,535 shares of Common Stock as commissions on the private placement. The value of the commission was $56,099. | ||
In June 2003 the Company issued warrants to purchase 43,422 shares of Common Stock at $0.60 per share and warrants to purchase 86,844 shares of Common Stock at $0.01 per share as commissions on the private placement. The value of these warrants was $129,521. | ||
In June 2003, the Company paid a consulting firm for services rendered with 75,000 shares of Common Stock with a fair market value on the date of issuance of $91,500. | ||
Between August 2003 and October 2003, the Company completed a private placement of 2,691,990 shares of Common Stock and warrants to purchase an additional 834,600 shares of Common Stock at $1.25 per share to private investors for gross proceeds of $2,691,990 in cash. | ||
The Company paid cash commissions of $124,500 in connection with the private placement. | ||
In September 2003 the Company issued 124,200 shares of Common Stock as commissions on the private placement. The value of the commission was $188,596. | ||
In September 2003, a warrant to purchase a total of 150,000 shares of Common Stock at $1.25 per share was exercised in a cashless exchange for 23,165 shares of Common Stock. | ||
In November 2003, the Company paid a consulting firm for services rendered with 30,000 shares of Common Stock with a fair market value on the date of issuance of $46,549. | ||
In December 2003, the Company completed a private placement of 849,561 shares of Common Stock, 649,797 shares of treasury stock, and warrants to purchase an additional 435,000 shares of Common Stock at $1.25 per share to private investors for gross proceeds of $1,488,961. | ||
In December 2003, the Company paid $63,750 and issued warrants to purchase 63,750 shares of Common Stock as commissions on the private placement. The value of the commission was $56,478. | ||
In December 2003, warrants to purchase a total of 244,526 shares of Common Stock at between $0.01 and $0.60 per share were exercised. Warrants representing 175,100 shares of Common Stock were issued for proceeds of $49,721. The remaining warrants representing 69,426 shares of Common Stock were exchanged for a total of 37,026 shares in a cashless exchange. | ||
In March 2004, a warrant to purchase 3,750 shares of Common Stock at $0.60 per share was exercised for proceeds of $2,250 and the Company issued 38,372 shares of Common Stock upon the cashless exercise of a warrant to purchase 50,000 shares of Common Stock at $0.50 per share. | ||
In March 2004, 473 shares of Series A cumulative convertible Preferred Stock, representing all of the Series A cumulative convertible Preferred Stock then outstanding, were converted into 236,500 shares of Common Stock. In conjunction with the conversion, dividends payable of $72,800 at December 31, 2003, were extinguished. | ||
In March 2004, 200,000 shares of Series B convertible Preferred Stock, representing all of the Series B convertible Preferred Stock then outstanding, were converted into 200,000 shares of Common Stock. | ||
In April 2004, the Company sold 10,417,624 shares of Common Stock at $1.50 per share and issued warrants to purchase 3,125,272 shares of Common Stock at $2.00 and warrants to purchase 2,083,518 shares of Common Stock at $2.50 per share in a private placement for aggregate gross proceeds of $15,626,450 in cash. In connection with the private placement, the Company paid cash commissions of $900,452 and other related expenses of $466,322 and issued warrants to purchase 632,547 shares of Common Stock at $2.00 per share to two placement agents, having a fair market value of $890,963 on the date of issuance. |
F-17
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
In April 2004, the Company engaged W.R. Hambrecht + Co., LLC for financial advisory and investment banking services related to the private placement, and in connection with that engagement, issued to it a warrant to purchase 175,000 shares of Common Stock at $2.00 per share, having a fair market value of $246,493 on the date of issuance. | ||
In May 2004, a warrant to purchase 20,082 shares of Common Stock at $1.25 per share was exercised for gross proceeds of $25,103. | ||
In May 2004, the Company issued 46,784 shares of Common Stock upon the cashless exercise of two warrants to purchase a total of 60,000 shares of Common Stock at $0.50 per share. | ||
In June 2004, the Company issued 379,417 shares of Common Stock upon the cashless exercise of a warrant to purchase 502,528 shares of Common Stock at $0.49 per share. | ||
In October 2004, the Company issued a warrant to purchase 300,000 shares of Common Stock at an exercise price of $2.50 in settlement of a claim. The warrant had a value of $86,375 on the date of issuance. | ||
In April 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. | ||
In July 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 $78,333 for the year ended December 31, 2005. | ||
In July 2005, the Company issued 10,810,809 shares in conjunction with a private placement which resulted in net proceeds of $18,116,751. The net proceeds increased by $197,000 in the fourth quarter of 2005 due to a partial refund of commissions paid. The Company also issued warrants to purchase 10,810,809 shares of Common Stock at an exercise price of $2.26 per share with this placement. | ||
In 2005, Company employees exercised vested stock options for total proceeds of $145,000 and were issued 185,000 shares of Common Stock. Over the same period, investors exercised warrants for total proceeds of $3,073,438 and were issued 2,408,316 shares of Common Stock. There were also 125,000 shares of Common Stock issued to vendors and consultants in 2005. | ||
Nonemployee stock-based compensation that is not valued at the fair value of consideration received is valued, as of the grant date, using the Black-Scholes pricing model with the following assumptions for grants in 2005, 2004 and 2003: no dividend yield for either year; expected volatility of 81% to 199%; risk-free interest rates 2.78% to 4.74%; and expected lives of three and seven years, respectively. |
F-18
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
At December 31, 2005, there were outstanding warrants to purchase a total of 19,629,933
shares of Common Stock as follows:
Warrants | Exercise price | Expiration date | ||||||||||||||
1,305,025 | $ | 0.60 | May-06 | |||||||||||||
502,528 | $ | 0.49 | Jun-06 | |||||||||||||
49,118 | $ | 10.00 | Jun-06 | |||||||||||||
811,693 | $ | 1.25 | Oct-06 | |||||||||||||
165,601 | $ | 0.50 | Nov-06 | |||||||||||||
250,000 | $ | 0.50 | Dec-06 | |||||||||||||
309,750 | $ | 1.25 | Dec-06 | |||||||||||||
100,000 | $ | 3.00 | Dec-06 | |||||||||||||
50,000 | $ | 2.50 | Apr-07 | |||||||||||||
300,000 | $ | 2.50 | Oct-07 | |||||||||||||
2,689,536 | $ | 1.98 | Apr-09 | |||||||||||||
1,705,826 | $ | 2.38 | Apr-09 | |||||||||||||
580,047 | $ | 1.98 | Jun-09 | |||||||||||||
10,810,809 | $ | 2.26 | Jul-12 | |||||||||||||
19,629,933 | ||||||||||||||||
(8) | Stock Compensation Plans |
In October 2002, the Company granted two non-statutory stock options to purchase an
aggregate of 1,500,000 shares and one non-statutory stock option to purchase 165,000 shares
of Common Stock at $0.20 and $0.50 per share, respectively. The value of the options on the
date of the grant was $329,296. In July 2004, stock options to purchase an aggregate of
1,665,000 shares of Common Stock were forfeited.
In March 2003, the Company granted four non-statutory stock options to purchase an aggregate
of 1,900,000 shares of the Companys Common Stock at $0.50 per share. The options were
valued using the Black-Scholes pricing model. The value of the options on the date of the
grant was $948,846. In April and June 2003, the Company and four of our option holders
agreed to revise the vesting schedules of the non-statutory stock options held by such
optionholders. No other terms were changed. In addition, in June 2003 one non-statutory
stock option was modified such that any portion of the option that was not vested as of July
1, 2003 was cancelled in exchange for cash compensation.
In
July 2003, the Company formed a Scientific Advisory Board
(the SAB). Each of the three initial SAB members was granted an option to purchase 30,000 shares of Common Stock at a purchase
price of $1.25 per share. The value of the options on the date of grant, July 1, 2003, was
$97,086.
In November 2003, the Company granted a non-statutory stock option to purchase 50,000 shares
of the Companys Common Stock at $1.25 per share. The value of the option on the date of
grant was $68,088.
In January and February 2004, three individuals became members of the Companys board of
directors. Each new director was granted an option to purchase 50,000 shares of Common
Stock at a purchase price of $1.50 per share. The options expire
on December 30, 2008. The value of the options on the dates of grant was $223,826.
F-19
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
In
February 2004, an individual became a member of the SAB.
The new SAB member was granted an option to purchase 30,000 shares of Common Stock at a purchase
price of $1.50 per share. The option will vest in equal installments over eight quarters,
starting March 1, 2004. The value of the
option on the date of grant was $45,350.
In March 2004, the Company granted an option to purchase 100,000 shares of Common Stock at a
purchase price of $1.50 per share to the Companys Vice President of Clinical and Medical
Affairs. The option will vest in three installments over three years starting March 2004.
The value of the option on the date of grant was $88,627.
In April 2004, the Company granted an option to purchase 30,000 shares of Common Stock at a
purchase price of $1.50 per share to the Director of Antiviral Research. The option will
vest in three installments over three years starting April 2004. The value of the option on
the date of grant was $37,600.
In the period May 2004 through August 2004, the Company granted options to purchase an
aggregate of 66,000 shares of Common Stock at purchase prices of $1.20 to $1.80 per share to
employees. AMEX listing requirements prohibit granting equity without a shareholder vote or
an approved stock option plan; therefore, the options were rescinded in February 2005.
Accordingly, the financial statement effect of the options granted has been reversed in
2004.
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 at the time of adoption was 6,000,000. This maximum number is
subject to an annual automatic increase beginning on January 1, 2006
equal to the lesser of (i) 1% 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.
In
July 2005, the Company granted 1,625,000 options to employees
under the 2005 Plan to replace
pre-existing options that were not issued under the 2005 Plan or any
other incentive plan approved by the Companys stockholders. In addition in July 2005, the Company granted 1,103,000 new
options to employees and board members under the 2005 Plan. In December 2005, the exercise prices on
743,000 of the 1,103,000 options were increased to equal the fair market value
of Common Stock on the date of grant in July 2005. In addition, the
exercise prices on 730,000 of the pre-existing options were
increased to equal the fair market value of Common Stock on the
original grant dates. There was no material impact to the
compensation expense as a result of this change. The Company has
acknowledged that this increase in exercise prices could adversely
impact affected employees morale and the Companys ability
to retain these employees. However, the Company has not yet taken any
action to remedy any such impact. 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 200,000 options in the year ended
December 31, 2005 related to terminated employees. The Company recognized compensation expense of $994,874, $524,922 and $286,033 in the years
ended December 31, 2005 and 2004, respectively, related to the portion of the options that
vested in that period.
In July 2005, the Company granted 114,000 options to consultants. These option grants were
valued as of December 31, 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 $93,549 in compensation expense for
these options in the year ended December 31, 2005.
F-20
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
There were 1,557,503 options exercisable at year end. The weighted average fair value of
options granted during the year was $2.34.
Weighted | ||||||||
Average | ||||||||
Exercise | ||||||||
Stock Options | Shares (000) | Price | ||||||
Outstanding
at January 1, 2003 |
1,690 | $ | 0.23 | |||||
Granted |
2,040 | $ | 0.58 | |||||
Forfeited |
(750 | ) | $ | 0.50 | ||||
Outstanding at December 31, 2003 |
2,980 | $ | 0.38 | |||||
Granted |
310 | $ | 1.50 | |||||
Exercised |
| |||||||
Forfeited |
(1,665 | ) | $ | 0.23 | ||||
Outstanding at December 31, 2004 |
1,625 | $ | 0.75 | |||||
Granted |
1,217 | $ | 2.34 | |||||
Exercised |
(185 | ) | $ | 0.78 | ||||
Forfeited |
(200 | ) | $ | 1.41 | ||||
Outstanding at December 31, 2005 |
2,457 | $ | 1.45 | |||||
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
Average | Weighted- | Weighted- | ||||||||||||||||||
Number | Remaining | Average | Number | Average | ||||||||||||||||
Outstanding | Contractual | Exercise | Exercisable | Exercise | ||||||||||||||||
Range of Exercise Price | at 12/31/05 (000) | Life | Price | at 12/31/05 (000) | Price | |||||||||||||||
$0.50 to $2.04 |
1,400 | 2.96 | $ | 0.77 | 1,307 | $ | 0.78 | |||||||||||||
$2.30 |
757 | 8.68 | $ | 2.30 | 168 | $ | 2.30 | |||||||||||||
$2.42 to $2.50 |
300 | 7.86 | $ | 2.45 | 83 | $ | 2.42 | |||||||||||||
2,457 | 5.32 | $ | 1.45 | 1,558 | $ | 1.03 | ||||||||||||||
F-21
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
(9) | Net Loss per Common Share |
2005 | 2004 | 2003 | ||||||||||
Numerator: |
||||||||||||
Net loss |
$ | (24,782,646 | ) | $ | (6,701,048 | ) | $ | (2,332,077 | ) | |||
Preferred Stock dividends |
| | (37,840 | ) | ||||||||
Numerator for basic and diluted loss per common share |
$ | (24,782,646 | ) | $ | (6,701,048 | ) | (2,369,917 | ) | ||||
Denominator for basic and and diluted loss per share-
weighted average common shares outstanding |
59,828,357 | 50,720,180 | 31,797,986 | |||||||||
Loss per common share- basic and diluted |
$ | (0.41 | ) | $ | (0.13 | ) | $ | (0.07 | ) | |||
Net loss per common share is calculated according to Statement of Financial Accounting 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
anti-dilutive due to the Companys net losses in 2005, 2004 and 2003:
2005 | 2004 | 2003 | ||||||||||
Preferred stock |
| | 318,250 | |||||||||
Warrants |
19,629,933 | 11,154,964 | 5,474,987 | |||||||||
Options |
2,457,000 | 1,625,000 | 2,980,000 | |||||||||
22,086,933 | 12,779,964 | 8,773,237 | ||||||||||
F-22
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
(10) | License Agreements |
M.D. Anderson
Pursuant
to a patent and technology license agreement dated June 14, 1996
between M.D. Anderson and the Company (the M.D. Anderson License
Agreement), the Company acquired a license to seven patents and
patent applications related to technology for HIV/AIDS therapy and
prevention. Under the M.D. Anderson License Agreement, the Company was
obligated to pay M.D. Anderson for all out-of-pocket expenses
incurred in filing, prosecuting, enforcing, and maintaining the
licensed patent rights and all future patent-related expenses paid by
M.D. Anderson as long as the M.D. Anderson License Agreement remained
in effect. In 2005, the Company terminated this agreement.
USC
Agreement
Under
an Option and License Agreement with the University of Southern California (USC)
dated January 23, 1998 (as amended August 16, 2000), the Company holds exclusive rights to a
number of patents that have issued in the United States and Canada covering products
(CoFactor® and Selone) and methods intended for use in connection with cancer chemotherapy.
Under another Option and License Agreement with USC dated August 17, 2000 (as amended April
21, 2003), the Company holds exclusive rights to a number of additional patents that have
issued in the United States and Europe relating to the antiviral product Thiovir and drugs
useful for the treatment of HPV (human papillomavirus) infections, HIV infections, HIV/HPV
coinfections and other human therapeutic uses. Additional patent applications relating to
Thiovir are pending in Europe, Canada and Australia.
The first license from USC provides for the payment to USC of a 3% royalty (on net sales of
products made or sold in a country in which a patent has issued or is pending), while the
second license provides for the payment of a 1% royalty. Both require the Company to pay USC
a share of consideration received by the Company from any sublicensee as well as the cost of
filing, prosecuting and maintaining the licensed patents. Under the second license (as
amended), milestone payments will also be due based upon entry into human trials and
regulatory approval for each drug candidate developed ($75,000 at Phase I, $100,000 at Phase
II, $125,000 at Phase III and $250,000 at market approval). No royalties have been paid to
date under these licenses.
NIH Agreement
During
December 2002, the Company entered into a worldwide exclusive patent
license agreement with the Public Health Service National Institutes
of Health (NIH) concerning composition of matter for BlockAide/CR, a
drug we were previously developing. Under the terms of the agreement,
the Company agreed to pay
minimum royalty payments during the first year of the license and
minimum annual royalties thereafter or the higher amount based upon a
percentage of net sales. In addition, there were benchmark
royalties based upon: initiation of Phase I trials, initiation of
Phase II trials, initiation of Phase III trials, and upon first
approval of a Product License Application for an HIV therapeutic or
vaccine in the U.S. and for first approval in Europe. No material
amount was paid under this agreement. In 2005, the Company terminated
this agreement.
SD
Pharma Agreement
We
signed an exclusive license agreement in the third quarter of 2005 with SD
Pharmaceuticals, Inc. (SD Pharma) for
rights to a patent application which describes an invention relating
to an emulsion composition for delivering highly water-soluble vinca
alkaloid drugs (the Invention). The rights include the
right to commercial development, use, and sale of the Invention. ANX-530
(vinorelbine emulsion) is included in the license agreement and is
the drug which we currently plan to develop. In consideration for
these rights, we agreed to pay SD Pharma a license fee,
milestone payments and royalties.
F-23
Table of Contents
ADVENTRX
Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
Notes to Consolidated Financial Statements (Continued)
December 31, 2005
(11) | Commitments and Contingencies |
Operating Leases
The Company is obligated under operating leases for office space and equipment. In July
2004, the Company entered into a lease for its current office space in San Diego, California. In June 2005, the Company
leased additional space in the same facility. Based on a straight-line basis, the lease
requires a monthly payment of $20,798. The lease expires in August 2009. Rent expense was
$220,517, $118,966 and $40,648 during the years ended December 31, 2005, 2004 and 2003,
respectively.
Future rental commitments under all operating leases amounts are as follows:
Year Ending | ||||
December 31, | ||||
2006 |
$ | 248,364 | ||
2007 |
255,630 | |||
2008 |
256,959 | |||
2009 |
174,698 | |||
Total |
$ | 935,651 | ||
(12) | 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. Management is not aware of any pending or threatened lawsuit or
proceeding that would have a material adverse effect on the Companys financial position,
results of operations or cash flows.
(13) | 401(k) Plan |
In
January 2005, the Company adopted a plan intended to qualify as a
qualified cash or deferred arrangement under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the 401(k)
Plan). Under the provisions of the 401(k) Plan, the Company is
required to make matching contributions in the amount of 100% of
salary deferrals up to 3% and 50% of salary deferrals between 3% and
5% of the annual salary of the contributing employee. During 2005, the Company incurred a total charge of
$61,354 in employer matching contributions.
(14) | Preferred Stock |
In
November 2005, at a special meeting of the Companys
stockholders, the stockholders approved a proposal to increase the number
of shares of Common Stock the Company is authorized to issue to
200,000,000 shares. The number of authorized shares of Preferred
Stock remains unchanged at 1,000,000 shares. The Series A, Series B
and Series C Preferred Stock were eliminated, and the Company is no
longer authorized to issue any such series of Preferred Stock as
previously designated. We have no present plans to issue any new
shares or designate any series of Preferred Stock.
F-24
Table of Contents
Exhibit Index
Exhibit
|
Description | |
3.1
|
Amended and Restated Certificate of Incorporation | |
3.2 (1)
|
Amended and Restated Bylaws of Biokeys Pharmaceuticals, Inc. | |
4.1
(2)
|
Common Stock and Warrant Purchase Agreement, dated as of April 5, 2004, among the Company and the Investors named therein | |
4.2 (2)
|
A-1 Warrant to Purchase Common Stock issued to Investors pursuant to the Common Stock and Warrant Purchase Agreement with the Investors | |
4.3 (2)
|
A-2 Warrant to Purchase Common Stock issued to Investors pursuant to the Common Stock and Warrant Purchase Agreement with the Investors | |
4.4 (3)
|
Common Stock and Warrant Purchase Agreement, dated April 8, 2004, between the Company and CD Investment Partners, Ltd. | |
4.5 (3)
|
A-1 Warrant to Purchase Common Stock issued to CD Investment Partners, Ltd. | |
4.6 (3)
|
A-2 Warrant to Purchase Common Stock issued to CD Investment Partners, Ltd. | |
4.7 (3)
|
Warrant to Purchase Common Stock issued on April 8, 2004 to Burnham Hill Partners | |
4.8 (3)
|
Warrant to Purchase Common Stock issued on April 8, 2004 to Ernest Pernet | |
4.9 (3)
|
Warrant to Purchase Common Stock issued on April 8, 2004 to W.R. Hambrecht + Co., LLC | |
4.10 (2)
|
Registration Rights Agreement, dated as of April 5, 2004, among the Company and the Investors named therein | |
4.11 (3)
|
Registration Rights Agreement, dated as of April 8, 2004, between the Company and CD Investment Partners, Ltd. | |
4.14
(4)
|
Common Stock and Warrant Purchase Agreement, dated April 19, 2004, between the Company and Franklin Berger | |
4.15 (4)
|
A-1 Warrant to Purchase Common Stock issued to Franklin Berger | |
4.16 (4)
|
A-2 Warrant to Purchase Common Stock issued to Franklin Berger | |
4.17 (4)
|
Registration Rights Agreement, dated as of April 19, 2004, between the Company and Franklin Berger | |
4.18
(2)
|
Registration Rights Agreement, dated ___, 2001, between the Company and certain stockholders | |
4.19 (2)
|
Warrant to Purchase Common Stock issued by the Company | |
4.20 (2)
|
Stock Subscription Agreement | |
4.21 (2)
|
Warrant to Purchase Common Stock issued by the Company | |
4.22 (2)
|
Warrant for the Purchase of Shares of Common Stock No. WA-2A issued June 14, 2001 to Robert J. Neborsky and Sandra S. Neborsky, JTWROS | |
4.23
(5)
|
Securities Purchase Agreement, dated July 21, 2005, among the Registrant and the Purchasers named therein | |
4.24 (5)
|
Rights Agreement, dated July 27, 2005, among the Registrant and the Purchasers named therein | |
4.25 (5)
|
Common Stock Warrants Nos. WP-1 to WP-5 and WP-8 | |
4.26 (5)
|
Common Stock Warrants Nos. WP-6 and WP-7 | |
4.31
(6)
|
Warrant to Purchase Common Stock, No. WC-290, issued to Robert J. Neborsky MD Inc Combination Retirement Trust | |
4.32
(6)
|
Warrant to Purchase Common Stock, No. WC-291, issued to S. Neborsky and R Neborsky TTEE Robert J. Neborsky MD Inc Comb Retirement Trust | |
4.33
(6)
|
Warrant to Purchase Common Stock, No. WC-292, issued to S. Neborsky and R Neborsky TTEE Robert J. Neborsky MD Inc Comb Retirement Trust | |
4.34
(6)
|
Warrant to Purchase Common Stock, No. WC-287, issued to Thomas J. DePetrillo | |
10.1
(7)
|
2005 Equity Incentive Plan | |
10.2 (7)
|
Form of Stock Option Agreement under the 2005 Equity Incentive Plan | |
10.3 (7)
|
2005 Employee Stock Purchase Plan | |
10.4 (7)
|
Form of Subscription Agreement under the 2005 Employee Stock Purchase Plan | |
10.5
(8)
|
Option and License Agreement, dated January 23, 1998, between the Company and the University of Southern California (Request for confidential treatment of certain data) | |
10.6
(1)
|
First Amendment to License Agreement, dated August 16, 2000, between the Company and the University of Southern California (Request for confidential treatment of certain data) | |
10.7
(8)
|
Option and License Agreement, dated August 17, 2000, between the Company and the University of Southern California (Request for confidential treatment of certain data) | |
10.8
(9)
|
Amendment to Option and License Agreement, dated April 21, 2003, the Company and the University of Southern California |
Table of Contents
10.9
(10)
|
License Agreement, effective April 29, 2005, between the Company and SD Pharmaceuticals, Inc | |
10.10
|
Agreement, effective as of May 1, 2005, between the Company and Pharm-Olam International Ltd. | |
10.11
|
Amendment dated July 19, 2005 to the Agreement between the Company and Pharm-Olam International Ltd. | |
10.12
(11)
|
Standard Multi-Tenant Office Lease Gross, dated June 3, 2004, between the Company and George V. Casey & Ellen M. Casey, Trustees of the Casey Family Trust dated June 22, 1998 | |
10.13
|
First Amendment to the Standard Multi-Tenant Office Lease Gross, dated June 3, 2004 between the Company and George V. & Ellen M. Casey, Trustees of the Casey Family Trust dated June 22, 1998 | |
10.14 (12)
|
Offer Letter, dated March 5, 2003, from the Company to Joan M. Robbins, Ph.D. | |
10.15
(13)
|
Offer Letter, dated November 15, 2004, from the Company to Brian Culley | |
10.16
(14)
|
Offer Letter, dated November 17, 2004, from the Company to Carrie Carlander | |
10.17
|
Offer Letter, dated October 30, 2003, from the Company to Mark Cantwell | |
10.19
|
Form of Restricted Share Award Agreement under the 2005 Equity Incentive Plan | |
21.1
|
List of Subsidiaries | |
23.1
|
Consent of JH Cohn LLP, Independent Registered Public Accounting Firm | |
31.1
|
Rule 13a-14(a)/15d-14(a) Certification | |
31.2
|
Rule 13a-14(a)/15d-14(a) Certification | |
32.1
|
Section 1350 Certification | |
32.2
|
Section 1350 Certification |
(1) | Incorporated by reference to the same-numbered exhibit to the Companys Registration Statement on Form 10-SB, filed October 2, 2001. | |
(2) | Incorporated by reference to the same-numbered exhibit to the Companys Registration Statement on Form S-3, filed June 30, 2004. | |
(3) | Incorporated by reference to the same-numbered exhibit to the Companys Current Report on Form 8-K, filed April 13, 2004. | |
(4) | Incorporated by reference to the same-numbered exhibit to the Companys Quarterly Report on Form 10-QSB, filed May 12, 2004. | |
(5) | Incorporated by reference to the same-numbered exhibit to the Companys Quarterly Report on Form 10-QSB, filed August 12, 2005. | |
(6) | Incorporated by reference to the same-numbered exhibit to the Companys Registration Statement on Form S-3, filed August 26, 2005. | |
(7) | Incorporated by reference to the same-numbered exhibit to the Companys Registration Statement on Form S-8, filed August 26, 2005. | |
(8) | Incorporated by reference to the same-numbered exhibit to the Companys Registration Statement on Form 10-SB/A, filed January 14, 2002. | |
(9) | Incorporated by reference to Exhibit 10.6 to the Companys Quarterly Report on Form 10-QSB, filed August 14, 2003. | |
(10) | Incorporated by reference to Exhibit 10.14 to the Companys Quarterly Report on Form 10-QSB, filed November 14, 2005. | |
(11) | Incorporated by reference to the same-numbered exhibit to the Companys Quarterly Report on Form 10-QSB, filed August 10, 2004. | |
(12) | Incorporated by reference to the same-numbered exhibit to the Companys Annual Report on Form 10-KSB, filed April 16, 2003 | |
(13) | Incorporated by reference to Exhibit 10.12 to the Companys Annual Report on Form 10-KSB, filed March 31, 2005. | |
(14) | Incorporated by reference to Exhibit 10.13 to the Companys Annual Report on Form 10-KSB, filed march 31, 2005. |
Exhibit 3.1
Amended and Restated Certificate of Incorporation
of
ADVENTRX Pharmaceuticals, Inc.
The undersigned, Evan M. Levine and Carrie E. Carlander, hereby certify that:
1. They are the duly elected and acting President and Treasurer, respectively, of ADVENTRX
Pharmaceuticals, Inc., a Delaware corporation (the Corporation).
2. The Certificate of Incorporation of the Corporation was originally filed with the Secretary
of State of Delaware on December 1, 1995, and the name under which the Corporation was originally
incorporated was Victoria Enterprises, Inc.
3. Pursuant to Sections 242 and 245 of the Delaware General Corporation Law (the
DGCL), the Amended and Restated Certificate of Incorporation attached hereto as
Appendix I (the Amended and Restated Charter) restates, integrates and amends the
provisions of the Corporations Certificate of Incorporation in its entirety as heretofore amended
or supplemented.
4. The Amended and Restated Charter has been duly adopted by the Corporations Board of
Directors and stockholders in accordance with the applicable provisions of Sections 242 and 245 of
the DGCL and the Corporations Certificate of Incorporation.
Executed at San Diego, California, on November 14, 2005.
/s/Evan M. Levine | ||
Evan M. Levine, President | ||
/s/Carrie E. Carlander | ||
Carrie E. Carlander, Secretary |
Appendix I
Amended and Restated Certificate of Incorporation
of
ADVENTRX Pharmaceuticals, Inc.
ARTICLE I
The name of this corporation is ADVENTRX Pharmaceuticals, Inc. (the Corporation).
ARTICLE II
The address of the Corporations registered office in the State of Delaware is Corporation
Service Company, 2711 Centerville Road, Suite 400, Wilmington, County of New Castle, Delaware
19808. The name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the Delaware General Corporation Law (the DGCL).
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two classes of stock to
be designated, respectively, Common Stock and Preferred Stock. The total number of shares
which the Corporation is authorized to issue is Two Hundred One Million (201,000,000) shares, each
with a par value of $0.001 per share. Two Hundred Million (200,000,000) shares shall be Common
Stock, and One Million (1,000,000) shares shall be Preferred Stock.
(B) Preferred Stock. Except as otherwise provided in any certificate(s) of
designations duly filed with the Secretary of State of the State of Delaware, the Board of
Directors of the Corporation (the Board) is hereby expressly authorized to provide for
the issuance, in one or more series, of all or any of the shares of Preferred Stock and to fix or
alter the rights, preferences, privileges and restrictions granted to or imposed upon such series
of Preferred Stock, and the number of shares constituting any such series and the designations
thereof, or of any of them, such designations, preferences, and relative, participating, optional
or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions adopted by the Board providing for the issuance of
such shares and as may be permitted by the DGCL. The rights, privileges, preferences and
restrictions of any such series of Preferred Stock may be subordinated to, pari
passu with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption or approval of matters by vote or written
consent), or senior to any of those of any present or future class or series of Preferred Stock or
Common Stock. The Board is also expressly authorized to increase or decrease the number of shares
of any series prior or subsequent to the issue of that series, but not below the number of shares
of such series then outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had prior to the adoption
of the resolution originally fixing the number of shares of such series.
ARTICLE V
The Board shall not be divided into classes and the Board may not by resolution or otherwise
divide the Board into classes. Each director that shall be elected or appointed to the Board shall
hold office until the next annual meeting of stockholders of the Corporation following such
election or appointment and until their successor shall have been elected and qualified.
Notwithstanding the foregoing, this Article V shall be of no further force or effect upon the
earlier to occur of (i) July 27, 2012; (ii) the date that Icahn Partners LP, Icahn Partners Master
Fund LP, High River Limited Partnership, Viking Global Equities LP and VGE III Portfolio Ltd.
(together, the Icahn/Viking Investors), collectively, hold in the aggregate (either of
record or beneficially) less than 4,054,053 of the shares of common stock of the Corporation (as
adjusted for stock splits, stock dividends, reorganizations and other similar events) that the
Icahn/Viking Investors purchased (or for which they exercise warrants for common stock issued)
pursuant to the Securities Purchase Agreement, dated July 21, 2005, among the Corporation, the
Icahn/Viking Investors and the other investors named therein; and (iii) the time of (A) any
acquisition of the Corporation (whether or not the Corporation is the surviving corporation) by
means of merger, consolidation or other form of corporate reorganization (other than a
reincorporation transaction or change of domicile) following which the holders of the outstanding
voting securities of the Corporation immediately prior to such merger, consolidation or other
reorganization do not hold (in their capacity as such) equity securities representing a majority of
the voting power of the surviving or resulting entity immediately following such merger,
consolidation or other reorganization or (B) a sale of all or substantially all of the assets of
the Corporation other than to a buyer in which the holders of the outstanding voting securities of
the Corporation immediately prior to such sale hold (in their capacity as such) equity securities
representing a majority of the voting power immediately following such sale (such earlier date set
forth in (i), (ii) and (iii), the Prohibition Termination Date). For purposes of this
Article V, the determination of the Prohibition Termination Date and without limitation, the
holdings of common stock of the Icahn/Viking Investors will be determined on a net basis after
giving effect to any sale or other disposition, contract or option to sell any shares of common
stock, and any swap or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of shares of common stock, whether such arrangement provides for
settlement by delivery of securities, the payment of cash or otherwise.
ARTICLE VI
The Corporation shall not adopt or approve any rights plan, poison pill or other similar
plan, agreement or device designed to prevent or make more difficult a hostile takeover of the
Corporation by increasing the cost to a potential acquirer of such a takeover either through the
issuance of new rights, shares of common stock or preferred stock or any other security or device
that may be issued to stockholders of the Corporation other than all stockholders of the
Corporation that carry severe redemption provisions, favorable purchase provisions or otherwise.
Notwithstanding the foregoing, this Article VI shall be of no further force or effect upon the
Prohibition Termination Date.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by statutes, the Board is
expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation.
ARTICLE VIII
The business and affairs of the Corporation shall be managed by or under the direction of the
Board. In addition to the powers and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the Board is hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or done by the
Corporation. Elections of members of the Board need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE IX
(A) To the fullest extent permitted by the DGCL, as the same exists or as may hereafter be
amended, a director shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law any person made or
threatened to be made a party to an action or proceeding, whether criminal, civil, administrative
or investigative, by reason of the fact that such person, such persons testator or intestate is or
was a director or officer of the Corporation or any predecessor of the Corporation, or serves or
served at any other enterprise as a director or officer of the Corporation at the request of the
Corporation or any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article IX, nor the adoption of any provision of
the Corporations Certificate of Incorporation inconsistent with this Article IX, shall eliminate
or reduce the effect of this Article IX in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article IX, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
The Corporation reserves the right at any time, and from time to time, to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, and other provisions
authorized by the laws of the State of Delaware at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and
pursuant to this Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the rights reserved in this Article X.
Exhibit 10.10
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. [***]. A complete copy of this agreement, including the
confidential information has been filed separately with the
securities and Exchange Commission.
ADVENTRX PHARMACEUTICALS, INC.
AND
PHARM-OLAM INTERNATIONAL LTD.
AGREEMENT
Protocol Number 03-CoFactor
TABLE OF CONTENTS
Introduction | 1 | |||||||
1.
|
Definitions | 1 | ||||||
2.
|
Interpretation | 4 | ||||||
3.
|
Appointment of Pharm-Olam | 4 | ||||||
4.
|
Pharm-Olams Obligations | 4 | ||||||
5.
|
The Companys Obligations | 5 | ||||||
6.
|
Payment | 6 | ||||||
7.
|
VAT | 7 | ||||||
8.
|
Confidentiality | 7 | ||||||
9.
|
Publication | 8 | ||||||
10.
|
Intellectual Property | 8 | ||||||
11.
|
Warranties | 8 | ||||||
12.
|
Indemnity | 8 | ||||||
13.
|
Insurance | 9 | ||||||
14.
|
Liability | 9 | ||||||
15.
|
Term and Termination | 10 | ||||||
16.
|
Consequences of Termination | 10 | ||||||
17.
|
Sub-Contracting and Assignment | 11 | ||||||
18.
|
Non Solicitation of Staff | 11 | ||||||
19.
|
Variation | 11 | ||||||
20.
|
Relationship of Parties | 11 | ||||||
21.
|
Waiver | 12 | ||||||
22.
|
Severance | 12 | ||||||
23.
|
Force Majeure | 12 | ||||||
24.
|
Entire Agreement | 12 | ||||||
25.
|
Notices | 12 | ||||||
26.
|
Change Of Address | 13 | ||||||
27.
|
Further Assurance | 13 | ||||||
28.
|
Applicable Law | 13 |
Schedule 1: Clinical Trial Protocol
Schedule 2: Division of Responsibilities
Schedule 3: Consideration and Cost Calculation
Schedule 4: Reporting/Collection Timelines
Schedule 2: Division of Responsibilities
Schedule 3: Consideration and Cost Calculation
Schedule 4: Reporting/Collection Timelines
This Agreement is made on the: Tuesday, March 29, 2005
Between:
(1) | Adventrx Pharmaceuticals, Inc., whose principal place of business is at 6725 Mesa Ridge Road, Suite 100, San Diego, CA 92121, U.S.A. (ADVENTRX) and | |
(2) | Pharm-Olam International Ltd., whose principal place of business is at 450 N. Sam Houston Parkway, Suite 250, Houston, TX 77060, U.S.A. (Pharm-Olam). |
Introduction
(A) | ADVENTRX is involved in the research and development of pharmaceutical products. | |
(B) | Pharm-Olam is a contract research organization involved in the planning, implementation, managing and conducting of clinical research and clinical trials | |
(C) | ADVENTRX wishes to engage Pharm-Olam to carry out Services (as hereinafter defined) upon the terms and conditions below, and Pharm-Olam is willing and has agreed to perform such Services. |
The parties hereby agree as follows:
1. | DEFINITIONS | |
1.1 | Words and terms defined in the Protocol shall have the same meaning in this Agreement. In addition, the following words which begin with capital letters have the precise meanings set out below. For the avoidance of doubt, where a defined word or term used in this Agreement is also used in the Protocol, the defined word or term used in this Agreement shall apply: |
1.1.1 | Adverse Event means any untoward medical occurrence in a patient or clinical investigation subject to whom a Pharmaceutical Product has been administered | ||
1.1.2 | Company Obligations means the obligations of ADVENTRX set out in the Table of Responsibilities. | ||
1.1.3 | Confidential Information means any information provided under or in connection with this Agreement from either party to the other including (without limitation) and relating to: |
1.1.3.1 | Products, the Study and details of this Agreement or the involvement of either party in it; | ||
1.1.3.2 | ADVENTRXS proprietary information, including information relating to its research results, proprietary methods, technologies, processes and products; | ||
1.1.3.3 | ADVENTRXS know how, accounts, budgets, ledgers, account records and other information of ADVENTRX, any Group Company or Pharm-Olam; | ||
1.1.3.4 | Documents, letters and memoranda of ADVENTRX, any Group Company or Pharm-Olam; | ||
1.1.3.5 | Information (whether or not in writing) which is obtained during or as a consequence of any negotiations or discussions relating to this Agreement; and |
1.1.3.6 | Information in relation to which any member of the Pharm-Olam and its associated companies owes a duty of confidentiality to a third party, provided that Pharm-Olam notifies ADVENTRX of the confidential nature of that information. | ||
save to the extent that information is Public Information. |
1.1.4 | Consideration means the amounts payable to Pharm-Olam as set out in Schedule 3. | ||
1.1.5 | CRF means the case report form relating to each subject in the Study. | ||
1.1.6 | Currency means US dollars, unless otherwise specified. | ||
1.1.7 | Effective Date means May 1, 2005. | ||
1.1.8 | Final Study Report means the document prepared at the end of the Study that describes the objectives, design, methodology, statistical analysis, results and conclusions of the Study including the CRFs. | ||
1.1.9 | Force Majeure Event means an event beyond the reasonable control of the relevant party including without limitation: |
1.1.9.1 | Strikes, lockouts, or other industrial action taken by the employees of any party or any third party; | ||
1.1.9.2 | Civil commotion, embargo, governmental legislation or regulation, riot, invasion, war, threat of preparation of war; | ||
1.1.9.3 | Fire, explosion, storm, flood, earthquake, subsidence, epidemic or other natural physical disaster; or | ||
1.1.9.4 | The refusal or withdrawal by any relevant governing regulatory body or ethics committee of its approval of the Study. |
1.1.10 | Good Clinical Practice means, a standard for the design, conduct, performance, monitoring, auditing, recording, analyses and reporting of clinical trials that provides assurance that the data and reported results are credible and accurate, and that the rights, integrity and confidentiality of trial subjects are protected as are generally accepted as standard in the industry at Effective Date and as specified by World Medical Association Declaration of Helsinki. | ||
1.1.11 | Group means (as constituted at the date of this Agreement or subsequently): |
1.1.11.1 | Pharm-Olam; | ||
1.1.11.2 | Any subsidiary of Pharm-Olam; | ||
1.1.11.3 | Any Company over which Pharm-Olam has control within the meaning of section 840 of the Income and Corporation Taxes Act 1988; and | ||
1.1.11.4 | Any Company which is an associated Company of Pharm-Olam as defined in section 13 of the Income and Corporation Taxes Act 1988. |
1.1.12 | Investigator(s) means person(s) responsible for the conduct of a trial at a Study site. | ||
1.1.13 | Life Threatening Event means an event in which the subject is at serious risk of death at the time of the event; | ||
1.1.14 | Investigational Product means the product which is the subject of the Study as described in the Protocol. |
1.1.15 | Protocol means a document that describes the objective(s), design, methodology, statistical considerations and organization of the Study as set out at Schedule 1. | ||
1.1.16 | Public Information means: |
1.1.16.1 | Information that is generally available to third parties (unless available as a result of a breach of the terms of this Agreement or any other confidentiality undertaking); or | |
1.1.16.2 | Which was lawfully in both parties possession prior to the date of this Agreement and not acquired directly or indirectly from the other party. |
1.1.17 | Regulatory Requirements means those laws, regulations and guidelines that are current during the Term and which are applicable to the countries in which the Study is being conducted or are applicable to the class of pharmaceutical product being tested or the clinical specialty involved. | ||
1.1.18 | Serious Adverse Event means an untoward medical occurrence that at any dose: |
1.1.18.1 | May produce a congenital anomaly or birth defect; | ||
1.1.18.2 | Is a Life Threatening Event; | ||
1.1.18.3 | Requires in-patient hospitalization or prolongation of existing hospitalization; | ||
1.1.18.4 | Results in death; | ||
1.1.18.5 | Results in persistent or significant disability or incapacity. |
1.1.19 | Services means the Service to be provided by Pharm-Olam in connection with the Study as set out in this Agreement including Pharm-Olams Obligations. | ||
1.1.20 | Standard Operating Procedures means Pharm-Olams internal procedures in force designed to achieve measured, consistent and controlled performance of a specific function. | ||
1.1.21 | Study means the Investigational Product trial, details of which are set out in Schedule 1. | ||
1.1.22 | Study Documents means documents produced by Pharm-Olam in its conduct of the Study necessary for production of the Final Report. | ||
1.1.23 | Division of Responsibilities means the obligations, requirements and responsibilities of both parties as set out in Schedule 2. | ||
1.1.24 | Term means the duration of this Agreement as set out in clause 15. | ||
1.1.25 | Timescales means the times set out in Schedules 1-4 within which the parties intend to perform their respective obligations. | ||
1.1.26 | Pharm-Olams Obligations means the obligations of Pharm-Olam set out in the Division of Responsibilities, Schedule 2. |
2. | Interpretation | |
2.1 | Where appropriate, the singular includes the plural and vice versa. |
2.2 | Unless otherwise stated, any reference to a provision of any legislation or regulation is a reference to that provision as amended, extended or re-enacted by any subsequent legislation. | |
2.3 | The headings in this Agreement are for convenience only and shall not affect its interpretation. | |
2.4 | References to clauses and Schedules are to the clauses of, and schedules to, this Agreement. | |
2.5 | The Schedules are deemed to be incorporated and form part of this Agreement and the term Agreement shall be construed accordingly. | |
3. | appointment of Pharm-Olam | |
3.1 | ADVENTRX hereby appoints Pharm-Olam, and Pharm-Olam agrees to provide, for the Consideration, the Services in accordance with the Protocol. | |
4. | Pharm-Olams Obligations | |
4.1 | Pharm-Olam shall apply to the Study systems of quality control to Standard Operating Procedures to ensure that as far as is reasonably practicable the Study is conducted, that data is generated, recorded and reported, and the last investigative center is closed, in compliance with the Protocol, Good Clinical Practice and all applicable Regulatory Requirements. To the extent that there should be any conflict between the provisions of Regulatory Requirements, Good Clinical Practice, the Protocol and this Agreement in relation to the conduct of the Study, they shall prevail in that order. | |
4.2 | Pharm-Olam shall use all reasonable endeavours to ensure that: |
4.2.1 | The Services including Pharm-Olams Obligations are performed within the Timescales; and | ||
4.2.2 | The trial centers, the Investigators and the staff employed by Pharm-Olam and involved in the Study comply with the Protocol, their responsibilities under Good Clinical Practice, and all applicable Regulatory Requirements; and | ||
4.2.3 | Patient Recruitment Targets are met within the agreed study timelines. However, there is no implied guarantee contained in this Agreement that Patient Recruitment Targets will be met as this may be subject to factors outside Pharm-Olams control. |
4.3 | Subject to the provisions of Section 4.1, Pharm-Olam shall conduct the Study in accordance with applicable local laws and regulations of the countries in which the Study takes place. | |
4.4 | Before commencement of the Study, Pharm-Olam shall assign to the Study staff and at least one Investigator with suitable experience or training to perform the defined duties and functions required to fulfil the Services. Pharm-Olam shall not change the staff or Investigator assigned to the Study without ADVENTRXs prior written consent. | |
4.5 | Pharm-Olam shall return all material Study Documents to ADVENTRX following closure of the final investigative center. Pharm-Olam may retain one copy of all relevant documents for its own archiving purposes. | |
4.6 | ADVENTRX shall be entitled upon reasonable written notice of not less than 2 working days, and during normal working hours on any business day convenient to both parties and the investigator to: |
4.6.1 | Visit and co-monitor any of the Study sites; and | ||
4.6.2 | Inspect and audit any of the Study Documents held by Pharm-Olam. |
4.7 | Pharm-Olam will provide ADVENTRX with written updates on the progress of the Services in accordance with the Timescales, or in default at monthly intervals. | |
4.8 | Pharm-Olam shall notify ADVENTRX in writing of all: |
4.8.1 | Adverse Events, periodically and at the end of the Study; and |
4.8.2 | Serious Adverse Events immediately after being aware of it, by phone and faxed report within 24 hours of Pharm-Olams discovery of such events. |
5. | The Companys obligations | |
5.1 | ADVENTRX agrees to comply with Company Obligations at its own expense within the Timescales and in any event in a timely manner. | |
5.2 | In particular, ADVENTRX will provide to Pharm-Olam at its own expense all timely help and assistance to Pharm-Olam which may be necessary or useful for the expedient fulfilment of the Services including without limitation provision of: |
5.2.1 | Investigational Product development information; | ||
5.2.2 | Investigational Product use guidelines; | ||
5.2.3 | Advice and guidance from ADVENTRX staff, agents and contractors; and | ||
5.2.4 | Clinical Trial Materials. | ||
5.2.5 | In the event that such assistance is necessary, Pharm-Olam will use all reasonable efforts to advise and inform ADVENTRX of needed assistance with sufficient time such that ADVENTRX can provide the requested assistance in a timely manner, understanding the particular importance of any matters raised as Serious Adverse Events as noted in Schedule 1. | ||
5.3 | In the event that the Study is delayed or suspended by ADVENTRX, ADVENTRX will agree to compensate Pharm-Olam for retention of the assigned study personnel on the specific ADVENTRX project. Pharm-Olam will immediately provide ADVENTRX with a list of such assigned study personnel. In such cases the assigned Pharm-Olam study personnel will not be re-assigned unless otherwise informed, in writing, by ADVENTRX. The said compensation will be in addition to the study budget and will be charged at the rates agreed for the period of the Study. The compensation period will last for a maximum of three months. Pharm-Olam will automatically re-assign its staff if the delay is longer than three months. In the event that Study personnel are reassigned to other POI projects or obligations, ADVENTRX is explicitly not responsible for compensation of reassigned personnel, except as to the extent that the reassigned personnel must perform certain limited duties to ensure that the Study will be able to be restarted. |
6. | Payment | |
6.1 | During the Term, in consideration of the Services ADVENTRX shall pay Pharm-Olam the Consideration in the manner set out in Schedule 3. |
6.1.1 | Beginning on the Effective Date, ADVENTRX shall pay equal monthly installments over the duration of the Study as a deposit against the net service fees charged by Pharm-Olam. In the event the reassignment provisions in Section 5.3 of this Agreement are triggered, any remaining deposit is to be applied to any amount ADVENTRX is responsible for under the terms of that reassignment Section. | ||
6.1.2 | All payments shall be in US dollars unless otherwise denoted in Schedule 3. | ||
6.1.3 | Pharm-Olam shall submit invoices to ADVENTRX on a monthly basis in respect of all fees and expenses due. ADVENTRX shall make full payment of such sums in cleared funds to such bank account in the United States as Pharm-Olam may reasonably specify from time to time, within 30 days of an invoice being submitted, without any deduction, set off or withholding except any tax which ADVENTRX is required by law to deduct or withhold. If ADVENTRX is required by law to make any such tax deduction or withholding, ADVENTRX shall do all things in its power which may be necessary to reasonably enable or assist Pharm-Olam to claim exemption from or, if that is not possible, a credit for the deduction or withholding under any applicable double taxation or similar agreement and from time to time give to Pharm-Olam proper evidence as to the deduction or withholding and payment over of the tax deducted or withheld; |
6.1.4 | At the end of each calendar quarter, Pharm-Olam shall submit a written report to ADVENTRX detailing the actual work performed by Pharm-Olam in providing the Services during that quarter, itemizing the work as set forth in Schedule 3. In each of May 2006 and May 2007, the parties shall meet to discuss whether the assumptions of Schedule 3 remain valid in light of the work actually performed until then, and shall negotiate in good faith a reasonable readjustment of the amount of the monthly installment should be necessary; | ||
6.1.5 | To the extent that any fees, expenses (within maximum 30 days) or other sums due under these terms are not paid by ADVENTRX on the due date, ADVENTRX shall, in addition, pay Pharm-Olam interest on such sums, both before and after any judgment, from the date due until the date on which such sums are actually paid (inclusive) at the rate of 2% over prime base lending rate from time to time; | ||
6.1.6 | ADVENTRX shall reimburse Pharm-Olam for all reasonable travelling, hotel subsistence and other expenses incurred by Pharm-Olam in the proper performance of the Services to be provided by Pharm-Olam; and | ||
6.1.7 | In the event that these terms may conflict with those in Schedule 3, then those terms stated in Schedule 3 will govern. |
7. | VAT | |
7.1 | All sums payable under this Agreement unless otherwise stated are exclusive of VAT and other duties or taxes. | |
7.2 | Any VAT or other duties or taxes payable in respect of such sums shall be payable in addition to such sums. | |
7.3 | Any VAT or other duties or taxes will be noted in Pharm-Olams monthly invoices. | |
8. | Confidentiality | |
8.1 | All documentation and Confidential Information disclosed by each party to the other during the period of this Agreement shall be regarded as between the parties as the property of the disclosing party, shall be kept confidential and shall be used solely and exclusively for the purposes of this Agreement and for no other purpose whatsoever. | |
8.2 | Neither party shall disclose any Confidential Information to any third party other than employees, agents or sub-contractors (including Investigators) duly appointed in accordance with this Agreement and in any event only for the proper performance of their duties. Both parties shall use all reasonable endeavours to ensure that all parties to whom Confidential Information is disclosed conform with the provisions of this clause 8 as if they were party to this Agreement. | |
8.3 | The parties agree fully to adhere to the principles of medical confidentiality in relation to the patients involved in the Study. | |
8.4 | Pharm-Olam may disclose such Confidential Information as necessary pursuant to a legal or regulatory requirement provided that as soon as Pharm-Olam is aware of each of the same, Pharm-Olam expressly notifies ADVENTRX in writing of respectively the requirement and relevant Confidential Information and in sufficient time to allow ADVENTRX to take such measures as may be available to limit the disclosure and preserve the Confidentiality of Information nevertheless required to be disclosed. Pharm-Olam will take all measures necessary to assist ADVENTRX in any effort ADVENTRX makes intended to limit disclosures and preserve Confidential Information. | |
9. | Publication | |
9.1 | Pharm-Olam agrees not to publish or present results of the Study or to contribute to any paper or article which utilizes any data generated from the Study or any other Confidential Information. |
10. | Intellectual Property | |
10.1 | Pharm-Olam acknowledges that, as between ADVENTRX and Pharm-Olam, any and all intellectual property rights that may arise in the Study itself, including Study data, shall belong solely to ADVENTRX. | |
11. | Warranties | |
11.1 | Pharm-Olam warrants to ADVENTRX that: |
11.1.1 | It has the authority to enter into this Agreement; and | ||
11.1.2 | It will perform the Services with all reasonable skill and care. | ||
11.2 | ADVENTRX warrants to Pharm-Olam that: | ||
11.2.1 | It has the authority to enter into this Agreement; | ||
11.2.2 | All consents and approvals required for the Study (except for the consent of individual patients used in the Study and local research ethics committee approvals) have been obtained and are current and effective as at the Effective Date and shall so remain during the Term: and | ||
11.2.3 | It will perform its obligations under this Agreement with all reasonable skill and care. |
12. | Indemnity | |
12.1 | Subject to clause 14.2, Pharm-Olam shall indemnify and keep ADVENTRX (and all its officers, servants and agents) fully and effectively indemnified on demand up to a total maximum aggregate liability [***] against all loss, liabilities, damages, costs and expenses (including without limitation reasonable legal fees) suffered or incurred by ADVENTRX as a result of Pharm-Olams negligence in performing the Services. | |
12.2 | ADVENTRX shall indemnify and keep Pharm-Olam (and all its officers, servants and agents, the study site and investigators) fully and effectively indemnified up to a total of $10 million against all loss, liabilities, damages, costs and expenses (including without limitation reasonable legal fees) suffered or incurred by Pharm-Olam, the study site and investigators as a result of: |
12.2.1 | Pharm-Olams proper use of the Investigational Product in the Study including any claim that such use infringes the rights of any third party; and | ||
12.2.2 | Any wilful misconduct or negligence of ADVENTRX, its employees or contractors in their involvement with the Study; | ||
12.2.3 | All the indemnities set out in this clause 12 shall be conditional upon the indemnified party: | ||
12.3.4 | Notifying the indemnifying party in writing of any claim or threatened claim; | ||
12.3.5 | Making no written admission as to liability in relation to any such claim without the indemnifying partys approval; and | ||
12.2.6 | Providing the indemnifying party with all reasonable assistance in relation to any such claim which the indemnifying party defends subject to the indemnifying party indemnifying the indemnified party against all costs and expenses that the indemnified party incurs in assisting the indemnifying party. |
13. | Insurance | |
13.1 | ADVENTRX and Pharm-Olam shall each effect and maintain adequate insurance with a reputable insurer in respect of their respective liabilities under this Agreement during, and for a period of 12 months after the Term. |
13.2 | Each party shall provide to the other a copy of the relevant insurance policies prior to the execution of this Agreement. Subsequent to the execution of this Agreement, each party shall, upon the request of the other, provide the other,, within 14 days of the same being requested, a certified copy of the insurance policy referred to in clause 13.1 and all amendments and renewals to the policy. | |
14. | Liability | |
14.1 | Notwithstanding anything else in this Agreement, nothing in this Agreement shall exclude or restrict Pharm-Olams liability in respect of death or personal injury caused by its negligence. | |
14.2 | For the avoidance of doubt, Pharm-Olam shall not be liable under this Agreement for any indirect or consequential loss including (without limitation) loss of profits, the value of lost contracts, or damage to goodwill, unless such loss or damage results from Pharm-Olam's gross negligence in providing the Services. | |
15. | TERM AND TERMINATION | |
15.1 | This Agreement shall commence on the Effective Date and (subject to the early termination provisions of this Agreement) shall continue until such time as the Services are completed. | |
15.2 | Either party may, without prejudice to any rights or remedies which it may have against the other party, by notice in writing to the other party forthwith terminate this Agreement if: |
15.2.1 | The other party shall be in material breach of any provision of this Agreement and such party has failed to remedy that breach (if capable of remedy) within 30 days after receiving notice of such breach; | ||
15.2.2 | An order is made or a resolution passed for the winding up or administration of a party (or if a receiver or administrative receiver is appointed in relation to all or any of the assets of the other party) other than for a voluntary liquidation for the purposes of a bona fide amalgamation or reconstruction; | ||
15.2.3 | The other party does or fails to do anything which will entitle any person to apply for any such matter referred to in clause 15.2.2 above to occur; | ||
15.2.4 | The other party is unable to pay its debts as and when they fall due or enters into any arrangement for the benefit of, or composition with, its creditors; | ||
15.2.5 | The other party ceases or threaten to cease to carry on its business or a substantial part of its business; and | ||
15.2.6 | If either party is reasonably of the opinion, after obtaining independent medical advice, that it is in the best interests of the patients involved in the Study for the Study to cease. Such termination shall be effective immediately upon notification by telephone, which shall then be followed by written confirmation; |
15.3 | ADVENTRX may terminate this Agreement for any reason including but not limited to the occurrence of a Serious Adverse Event upon sixty days written notice to Pharm-Olam. In the event of a Serious Adverse Event the parties will take all steps to preclude further liabilities, if any, from arising. | |
16. | CONSEQUENCES OF TERMINATION | |
16.1 | On the expiry or early termination of this Agreement, such expiry or termination shall be without prejudice to either of the partys rights that may have already accrued. | |
16.2 | All rights and obligations of the parties on termination or expiry shall cease forthwith except where it is expressly stated otherwise in this Agreement. | |
16.3 | In the event of this Agreement being terminated for reasons other than breach of Agreement by Pharm-Olam, Pharm-Olam shall be entitled to payment of all outstanding monies due including Consideration then due, and in addition all reasonable costs: |
16.3.1 | Including fees, expenses and disbursements irrevocably incurred and committed up to the date of termination; and |
*** Confidential treatment has been requested with respect to this
redacted portion of the agreement. A complete copy of this agreement, including this confidential information, has been filed separately
with the Securities and Exchange Commission.
16.3.2 | Required to complete activities associated with any termination and close out of the services including, for example, any activities necessary to satisfy the requirements of any competent authority. |
16.4 | Notwithstanding expiry or early termination of this Agreement, the provisions of this clause and clauses 8, 12, 13 18, 20 and 28 shall survive expiry or earlier termination of this Agreement. | |
16.5 | [***] | |
16.6 | Pharm-Olam will retain one copy of all relevant study documentation for its own files. All original study documentation will be returned to ADVENTRX. | |
17. | Sub-Contracting and Assignment | |
17.1 | This Agreement is personal to Pharm-Olam and ADVENTRX and neither shall without the others prior written consent assign or delegate or sub-contract any of its rights or obligations hereunder (consent not to be unreasonably withheld) provided that ADVENTRX may assign the whole or any part of this Agreement to any affiliate or any entity which enters into a licensing or other relationship with Adventrx in connection with the Investigational Product which affiliate or entity shall be bound by the terms and obligations of this Agreement. | |
18. | Non Solicitation of Staff | |
18.1 | Neither party shall during the term of this Agreement and for a period of twelve months following its termination, either directly or indirectly solicit or entice any employee, contractor or Investigator of the other party with whom it comes into contact as a result of participation on the Study, to be employed by it or any other person, firm or Company and shall not approach any such employee, contractor or Investigator for such purpose or authorize or approve the taking of such action by any other person. | |
19. | VARIATION | |
19.1 | No variation of this Agreement will be valid unless made in writing and signed by a duly authorized representative of each of the parties. | |
20. | Relationship of Parties | |
20.1 | Nothing in this Agreement shall be construed as creating a partnership, agency or joint venture between the parties. | |
21. | WAIVER | |
21.1 | The failure by any of the parties to enforce at any time or for any period any one or more of its rights under this Agreement shall not release the other party to this Agreement from any of the warranties, liabilities or obligations under this Agreement and any failure to enforce shall not be deemed to be a waiver of such rights or of any subsequent right to enforce any or all of the terms and conditions of this Agreement. | |
22. | SEVERANCE | |
22.1 | If any provision of the Agreement is held by any competent authority to be invalid or unenforceable in whole or in part, the validity of the other provisions of the Agreement and the remainder of the provisions in questions shall not be affected. | |
23. | FORCE MAJEURE | |
23.1 | Neither party shall be liable to the other for any delay in performance of its respective obligations under this Agreement to the extent that such performance is prevented by a Force Majeure Event. | |
24. | ENTIRE AGREEMENT | |
24.1 | This Agreement shall constitute the entire agreement between the parties and shall supersede all prior agreements, understandings and arrangements between them, whether oral or written, which relate to the subject matter of this Agreement. | |
24.2 | Each party warrants to the other that it has not been induced to enter into the Agreement by any prior oral or written innocent or negligent misrepresentation. | |
24.3 | Any changes or Amendments to this Agreement require the written consent of both parties. |
*** Confidential treatment has been requested with respect to this
redacted portion of the agreement. A complete copy of this agreement, including this confidential information, has been filed separately
with the Securities and Exchange Commission.
25. | NOTICES | |
25.1 | Any notice to be given pursuant to this Agreement shall be in writing in English and shall be delivered by courier, sent by post or sent by facsimile to the address of the facsimile number of the recipient set out below or as specified by the recipient from time to time in a written notice. | |
25.2 | Any notice given pursuant to this clause 26 shall be deemed to have been received: |
25.2.1 | In the case of delivery by courier, when delivered; | ||
25.2.2 | In the case of sending by post: |
25.2.2.1 | Where posted in the country of the addressee, on the second working day following posting: and | ||
25.2.2.2 | Where posted in any other country on the fifth working day following the day of posting providing, however, that such posting shall always be by airmail; or |
25.2.3 | In the case of facsimile, on acknowledgement by the recipients facsimile receiving equipment on a business day if the acknowledgement occurs before 1700 local time on a business day of the recipient and in any other case on the next following business day. |
25.3 | All notices to the Company shall be addressed to: | |
Joan Robbins, Ph.D. Chief Technology Officer Adventrx Pharmaceuticals, Inc. 6725 Mesa Ridge Road, Suite 100 San Diego, CA 92121 |
||
Fax:858 552 0876 | ||
25.4 | All notices to Pharm-Olam shall be addressed to: | |
Mr. John Hovre Executive Vice-President Pharm-Olam International Ltd. 450 N. Sam Houston Parkway Suite 250 Houston, TX 77060 |
||
Fax: 713 463 8281 |
26. | CHANGE OF ADDRESS | |
26.1 | The parties shall give notice to each other of any change of their address or telephone, facsimile or similar number at the earliest possible opportunity. | |
27. | FURTHER ASSURANCE | |
27.1 | Both parties shall at their own expense do all acts and execute all deeds and documents as may be necessary validly to transfer and to assure to the other all rights agreed respectively to be granted to the other under this Agreement. | |
28. | APPLICABLE LAW |
28.1 This Agreement shall be governed by and be construed under the laws of the State of
New York, without giving effect to its choice-of-law rules.
IN WITNESS of which the parties have signed this Agreement.
For and on behalf of Pharm-Olam International Ltd. the presence of :
/s/ John Hovre
Name: John Hovre
Title: E.V.P.
Date: 9/29/05
Name: John Hovre
Title: E.V.P.
Date: 9/29/05
For and on behalf of Adventrx Pharmaceuticals, Inc.
in the presence of :
/s/ Carrie Carlander
Name: Carrie Carlander
Title: CFO
Date: 11/15/2005
Name: Carrie Carlander
Title: CFO
Date: 11/15/2005
SCHEDULE 1
CONFIDENTIAL
CLINICAL TRIAL PROTOCOL
PROTOCOL TITLE:
|
A Multi-Center, Open Label, Parallel Group, Randomised, Phase IIB Clinical Trial to Evaluate the Safety and Efficacy of CoFactor and 5-FU versus Leucovorin and 5-FU in Subjects with Metastatic Colorectal Carcinoma | |
[***] |
*** Confidential treatment has been requested with respect to this
redacted portion of the agreement which consists of 60 pages. A complete copy of this agreement, including this confidential information, has been
filed separately
with the Securities and Exchange Commission.
SCHEDULE 2
Division of Responsibilities
[***]
*** Confidential treatment has been requested with respect to this
redacted portion of the agreement which consists of five pages. A complete copy of this agreement, including this confidential information, has been filed separately
with the Securities and Exchange Commission.
SCHEDULE 3
CONSIDERATION AND COST CALCULATION
SERVICE FEES
CONSIDERATION AND COST CALCULATION
SERVICE FEES
[***]
*** Confidential treatment has been requested with respect to this
redacted portion of the agreement which consists of three pages. A complete copy of this agreement, including this confidential information, has been filed separately
with the Securities and Exchange Commission.
SCHEDULE 4
Reporting/Collection Timelines
CRF collection CRFs to be sent to Adventrx as complete modules (Period 1 or Period 2)
CRFs to be sent to Adventrx on a regular basis and not less than every 4 weeks
Last subject CRFs to be sent to Adventrx within 10 days of the last subject visit
Data Resolution Forms Research
Site Visit Reports Finalized Report to be sent to Adventrx within 15 days of a site visit
Status Reports Monthly status reports to be sent to Adventrx on the 25th day of each month
Recruitment
|
Weekly updates on status of recruitment to be sent to Adventrx by e-mail or fax every Friday |
Exhibit 10.11
Amendment dated July 19th, 2005 to the Agreement dated March 29, 2005 regarding Protocol
Number 03-CoFactor, for Services provided by Pharm-Olam International Ltd. to Adventrx
In compliance with Section 25.3 of the Agreement, both Adventrx Pharmaceuticals, Inc.,
and Pharm-Olam International Ltd., agree that the following provisions are binding amendments to
that Agreement:
Section 4.9. As part of its monitoring duties outlined in Schedule 2 to this Agreement,
Pharm-Olam will visit each clinical site no less than once a month. Pharm-Olams reporting
regarding the monitoring visit shall be provided to Adventrx no later than three weeks from the
site visit. Request for payment due Pharm-Olam regarding monitoring visits and associated expenses
shall not be made until Adventrx received the above noted reporting.
Section 6.2. All supporting documentation evidencing payments due under Schedule 3 shall be
in English, or shall include an accurate English translation summary, and be attached to requests
for payment of invoices.
Section 6.2.1. Receipts and other documentation evidencing amounts due from Adventrx
as outlined in the Estimated Pass Through Costs table in Schedule 3 must be submitted to
Adventrx within 75 days of occurrence of the cost eligible for payment.
SIGNED by /s/ John Hovre
For and on behalf of Pharm-Olam International Ltd., in the presence of:
For and on behalf of Pharm-Olam International Ltd., in the presence of:
Witness:
Shari Milligan [print]
Signature: /s/ Shari Milligan
Name: Shari Milligan
Occupation:
Executive Administrator
Address: 450 N. Sam Houston Pkwy.
Suite 250
Houston, TX 77060
Suite 250
Houston, TX 77060
SIGNED
by /s/ Carrie Carlander
For and on behalf of Adventrx Pharmaceuticals, Inc.,
in the presence of:
Witness:
Beth Marion [print]
Signature: /s/ Beth Marion
Name: Beth Marion
Occupation:
Office Manager
Address: 6725 Mesa Ridge Rd #100
San Diego, CA 92121
San Diego, CA 92121
Exhibit
10.13
FIRST AMENDMENT TO LEASE
THIS
FIRST AMENDMENT TO LEASE IS MADE AND ENTERED INTO THIS
12TH
DAY OF MAY 2005, BY AND
BETWEEN GEORGE V. CASEY & ELLEN M. CASEY, TRUSTEES OF THE CASEY FAMILY TRUST DATED JUNE 22, 1998
(LESSOR) AND ADVENTRX PHARMACEUTICALS, INC., A DELAWARE CORPORATION (LESSEE)
RECITALS
WHEREAS, on June 3, 2004, George V. Casey & Ellen M. Casey (Lessor) and Adventrx Pharmaceuticals,
Inc. (Lessee), entered into that certain lease agreement (Lease) for leased premises consisting
of approximately 8,865 rentable square feet (rsf) on the first floor of that certain office
building (Building) located at 3725 Mesa Ridge Road, Suite 100, San Diego, California, 92121; and
WHEREAS, Lessor wishes to provide for an increase in the area of the Existing Premises, by adding
thereto the area known as 6275 Mesa Ridge Road, Suite 102, consisting of approximately 3,173 rsf
(the Expansion Premises) as depicted on the attached Exhibit A. The entire area of Premises
occupied by Lessee shall now contain approximately 12,038 rsf.
WHEREAS, the lease for the Existing Premises is scheduled to expire on August 31, 2009 (the
Existing Premises Lease Expiration Date).
NOW, THEREFORE, in consideration of the foregoing and intending to be legally bound, Lessor and
Lessee agree as follows:
1. COMMENCEMENT DATE AND DELIVERY OF THE EXPANSION PREMISES. The Commencement Date for
the Expansion Premises (Expansion Premise Commencement Date) shall be June 15, 2005.
Delivery of the Premises shall refer only to that portion of the Premises known a 6725 Mesa
Ridge Road, Suite 102. The estimated Delivery of the Expansion Premises (the Expansion
Premises Delivery Date) shall be the date on which Lessor delivers the Premises to Lessee,
subject to the terms and conditions of Sections 3.2 and 3.3 (Early Possession and Delay in
Possession), and shall occur upon: a) full execution of this First Amendment; b) delivery of a
check in the amount of $7,833.28 for Initial Monthly Base Rent (June 15 June 30, 2005) and
Security Deposit for the Expansion Premises; and c) evidence of liability insurance coverage
for the Expansion Premises. Such Early Possession shall be subject to all provisions of the
Lease excluding payment of Monthly Base Rent for such period (however not Lessees share of
Operating Expenses).
2. EXPANSION PREMISES. Lessor leases to Lessee and Lessee hires from Lessor for a term
beginning on the Expansion Premises Commencement Date and ending on August 31, 2009, the
Expansion Premises on all of the terms and conditions of the Lease; provided, however, that
monthly Base Rent for the entire Premises shall be as set forth in Paragraph 3 below.
The following table confirms the area of the Premises:
Area of Premises | RSF | |||
Existing Premises 6725 Mesa Ridge Road, Suite 100 |
8,865 | |||
Expansion Premises 6725 Mesa Ridge Road, Suite 102 |
3,173 | |||
Total Rentable Square Feet |
12,038 |
3. | MONTHLY BASE RENT. The flowing table sets forth the revised schedule of the monthly Base Rent (net of utilities and Operating Expenses) payable for both the Exhibiting Premises and the Expansion Premises: |
Month of Term | No. of | |||||||
Months | Existing | Expansion | Total Monthly | |||||
Payable | Premises | Premises | Base Rent | |||||
June 1, 2005 June 31, 2005 |
1 | $14,627.25 | $2,459.08 | $17,086.33 | ||||
June 1, 2005 August 31, 2005 |
2 | $14,627.25 | $4,918.15 | $19,545.40 | ||||
Sept 1, 2005 August 31, 2006 |
12 | $15,066.08 | $4,918.15 | $19,984.23 | ||||
Sept 1, 2006 August 31, 2007 |
12 | $15,518.05 | $5,065.70 | $20,583.75 | ||||
Sept 1, 2007 August 31, 2008 |
12 | $15,983.60 | $5,217.67 | $21,201.27 | ||||
Sept 1, 2008 August 31, 2009 |
12 | $16,463.10 | $5,374.20 | $21,837.30 |
4. TENANT IMPROVEMENTS. Prior to September 1, 2005, Lessee shall cause nonstructural,
permanent improvements to be made to the interior of the Premises, using building standard
materials, such as painting, carpet cleaning and the installation of ceiling tiles and voice
and data cabling (the Improvements), which Improvements shall be performed in a good and
workmanlike manner. Provided Lessee is not in default under this Lease, Lessor shall reimburse
Lessee up to %5,000 for the cost of such Improvements. The Improvements shall not include any
partitions or other personal property of Lessee. The cost of the Improvements shall be the
reasonable charges of third parties, unrelated to Lessee, for the construction of the
Improvements.
Not more often than once each calendar month and upon (i) receipt of copies of invoices paid by
Lessee for the Upgrades and Improvements, along with appropriate mechanics lien waivers for said
invoices and (ii) Lessors approval of the Upgrades and Improvements constructed thus far,
Lessor shall pay Lessee ninety percent (90%) of the total of said invoices. After October 15,
2005, provided Lessor has (i) received copies of invoices paid by Lessee totaling $5,000 for the
Improvements, along with appropriate mechanics lien waivers for said invoices and (ii) all
Upgrades and Improvements have been complete to Lessors reasonable satisfaction, Lessor shall
pay Lessee the remaining ten percent (10%) of such invoices if no mechanics lien or stop notice
claims have been made in connection with the Upgrades or Improvements. The forgoing
notwithstanding, nothing herein shall require Lessor to pay more than $5,000 for the cost of the
Improvements. Any cost of the Upgrades or Improvements in excess of those amounts shall be paid
by Lessee.
All plans and contracts for the Upgrades and Improvements and the contractor(s) selected to
constructed the Upgrades and Improvements shall be subject to Lessors prior approval, which
approval will not be unreasonably withheld.
5. OPERATING EXPENSES AND OTHER AREA DEPENDENT TERMS. On the Effective Date, Lessees
Share of Operating Expenses (as such term is defined in Section 1.6 of the Lease) shall be
increased by 9.77% for a total of 37.29% Lessee shall continue to pay Lessees Share of
Operating Expenses as set forth in Section 4.2 of the Lease.
6. PARKING. As a result of the addition of the Expansion Premises, on the Expansion
Premises Commencement Date, Lessees parking spaces shall be increased by twelve (12) spaces
to a total of forty-two (42) parking spaces. All parking shall be on a non-reserved basis.
7. SECURITY DEPOSIT. As a result of the addition of the Expansion Premise, concurrent
with Lessees execution and delivery of this First Amendment to Lessor, Lessee shall deposit
with Lessor an additional amount of $5,374.20 as an increase in the Security Deposit, with a
new total of $54,763.50, to be held by Lessor.
No Waiver: Lessors agreement to this Amendment is specifically conditioned upon the
agreement of Lessee that by entering into this Agreement, Lessor shall not charge, relinquish or
waive any of the Lessors rights under the Lease, except as specifically stated herein. Lessee
hereby agrees that no act or omission of Lessor as of the date hereof, including, but no limited to
Lessors agreement to the Amendment, constitutes or has resulted in a waiver of any or Lessors
rights or a breach of Lessors duties under the Lease.
ALL OF THE OTHER TERMS AND CONDITIONS OF THE ABOVE DESCRIBED LEASE SHALL REMAIN IN FULL FORCE AND
EFFECT EXCEPT AS MAY BE MODIFED HEREIN.
LESSOR: GEORGE V. CASEY & ELLEN M. CASEY, TRUSTEES OF THE CASEY FAMILY TRUST DATED JUNE 22, 1998
By:
|
[ILLEGIBLE] | |||
Title:
|
[ILLEGIBLE] | |||
Date:
|
6/1/05 | |||
LESSEE: ADVENTRX PHARMACEUTICALS, INC, A DELAWARE CORPORATION
By:
|
[ILLEGIBLE] | By: | [ILLEGIBLE] | |||
Title:
|
[ILLEGIBLE] | Title: | [ILLEGIBLE] | |||
Date:
|
5/26/05 | Date: | 6/1/05 | |||
2
Exhibit 10.17
![(ADVENTRX PHARMACEUTICALS LOGO)](https://cdn.kscope.io/ff4466a38234df0bd5b4c421c517d7c0-a17942a1794200.gif)
Mark J. Cantwell, Ph.D.
|
October 30, 2003 | |
Dear Mark,
Thank you for your comments today and your interest in working for us. This letter is to confirm
our offer to you to join ADVENTRX Pharmaceuticals as a full-time employee as of Monday, November
3, 2003.
You will begin employment as Director, Preclinical Programs, reporting directly to me, at a
starting salary of $90,000.00 annually, paid every two weeks on the 1st and
15th of each month. We have agreed to this level of compensation with the understanding
that you have opted to not participate in the Employee Benefits Program for Healthcare coverage.
You will receive a performance review on an annual basis, which will be based upon an assessment
of your ability to achieve agreed upon goals and the extent of your contribution to the overall
organization. Employment is on an at-will basis.
You will be responsible for conducting R & D activities both internally, once new laboratories are
in place, and externally to implement our testing and development programs to further our
preclinical and clinical projects. You will take primary responsibility for the implementation of
our new laboratory facilities and be in charge of managing laboratory budgets and expenditures
under my direction. A key responsibility will be to develop a plan and implementation schedule for
submitting and obtaining government and commercial grants to support our preclinical and clinical
programs. We expect you to work on grant proposals that are directed to the Company and grant
proposals that can be submitted in conjunction with our key outside researchers and clinicians.
You will assist me in efforts that will result in speaking engagements at research and clinical
meetings, assist me in the development of research and clinical protocols and lend assistance to
management on marketing and technical materials for the Company. You will also be expected to
assist me in technical searches, R&D planning, technology assessments and marketing research.
You will be awarded 50,000 stock options, under the currently approved Employee Stock Option
Program of ADVENTRX, at a price of $1.25 per share. The first 25,000 options will vest at the
first anniversary of your employment and the second 25,000 options will vest on your second
anniversary. There will also be the possibility to receive additional stock options in the future
based upon your performance and the overall success of the
9948 Hibert St., Suite 100 San Diego, CA 92131
Telephone (858) 271-9671 Fax (858-271-9678 www.adventrx.com OTCBB:AVRX
Telephone (858) 271-9671 Fax (858-271-9678 www.adventrx.com OTCBB:AVRX
Company. Your Non Statutory Stock Option Agreement is attached. It is subject to
acceptance of your employment offer and approval by the Board of Directors.
You are entitled to 2 weeks paid vacation per year during your first three years of
employment and 3 weeks paid vacation thereafter. You will also have time off on holidays
with full pay. In addition, based upon hours worked and expected fluctuations in schedules,
you will receive comp time based upon my recommendation and corporate approval.
In your new capacity you will play an instrumental role in the future success of the
Company, as we move from our preclinical to clinical development status. I would suggest
that we work together to define your job description in greater detail so that we are both
in agreement with objectives that will meet your personal goals and the overall goals of
ADVENTRX.
Please sign both copies of this letter with your acceptance and return one in the envelope
provided.
Sincerely,
/s/
Joan M. Robbins
|
||||
Joan M. Robbins, Ph. D
|
/s/ Mark J. Cantwell | 10-31-03 | ||
Chief Technical Officer
|
Acceptance Mark J. Cantwell, Ph.D. | date signed |
Exhibit 10.19
ADVENTRX Pharmaceuticals, Inc.
Restricted Share Award Agreement
This Restricted Share Award Agreement (this Agreement), dated as of ___
___, 200_, is entered into between ADVENTRX Pharmaceuticals, Inc., a Delaware corporation (the
Company), and ___, an individual (Grantee).
Background
The Company has established the 2005 Equity Incentive Plan (Plan), to provide
incentive awards, among other things.
Grantee has performed various services for the Company.
The Compensation Committee of the Board of Directors of the Company has determined that
Grantee be granted shares of Common Stock of the Company (Common Stock) under the Plan
subject to the restrictions stated below and as hereinafter set forth.
Agreement
The parties to this Agreement, intending to be legally bound, agree as follows:
1. Terms of Plan. All capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings ascribed thereto in the Plan. Grantee confirms and acknowledges
that Grantee has received and reviewed a copy of the Plan and the Information Statement, dated July
___, 2005, with respect to the Plan. Grantee and the Company agree that the terms and conditions of
the Plan are incorporated in this Agreement by this reference.
2. Grant of Shares. Subject to the terms and conditions of this Agreement and of the Plan,
including without limitation the vesting provisions set forth in Section 3, in consideration for
services previously rendered by Grantee, the Company hereby grants to Grantee
________ (___) shares of Common Stock (the Shares).
3. Lapse of Risk of Forfeiture of Shares. All of the Shares are subject to a Risk of
Forfeiture should Grantees Continuous Service be terminated. [At the end of each calendar month
after ___, 200_], subject to Grantees Continuous Service, the Risk of Forfeiture of the
Shares shall lapse with respect to ___ of the Shares and such portion of the Shares shall vest
and become free of any restriction pursuant to this Agreement. Upon the termination of Grantees
Continuous Service, all of the Shares which continue to be subject to a Risk of Forfeiture
(Forfeited Shares) immediately prior to such termination shall be forfeited by Grantee,
ownership of all such Forfeited Shares shall transfer back to the Company and Grantee shall have no
further rights with respect to any of such Forfeited Shares.
4. Restrictions Period. The Shares granted hereunder which are at any time subject to a Risk
of Forfeiture pursuant to Section 3, may not be sold, pledged, gifted or otherwise transferred
until such Shares are no longer subject to a Risk of Forfeiture pursuant to this
Agreement. The period of time prior to the date Shares are no longer subject to a Risk of
Forfeiture pursuant to this Agreement is referred to herein as the Restriction Period.
5. Legend. All certificates representing any Shares subject to a Risk of Forfeiture pursuant
to this Agreement (such Shares, the Unvested Shares) shall have endorsed thereon during
the Restriction Period the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION. |
6. Retention of Certificate. Any certificate or certificates evidencing any Unvested Shares
shall be deposited with the Secretary of the Company. The Unvested Shares may also be held in a
restricted book entry account in the name of Grantee. Any such certificates or such book entry
shares are to be held by the Company until such time as the Risk of Forfeiture of such Shares shall
lapse pursuant to Section 3, after which the Company shall release certificate(s) representing such
Shares to Grantee.
7. Grantee Stockholder Rights. During the Restriction Period, Grantee shall have all the
rights of a stockholder with respect to Unvested Shares except for the right to transfer the
Unvested Shares (as set forth in Section 4). Accordingly, Grantee shall have the right to vote the
Unvested Shares and receive any dividends payable with respect to Unvested Shares.
8. Taxes. Grantee shall be liable for any and all taxes, including withholding taxes, arising
out of the grant, issuance or lapse of the Risk of Forfeiture of Shares. Grantee shall be
responsible for filing with the Internal Revenue Service an appropriate written notice of election
pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, if Grantee wishes to
make such an election. Grantee shall notify the Company in writing if Grantee files such an
election (a form of which is attached hereto) within 30 days of the date of this Agreement. The
Company intends, in the event it does not receive from Grantee evidence of such filing, to claim a
tax deduction for any amount which would otherwise be taxable to Grantee in the absence of such an
election. GRANTEE ACKNOWLEDGES THAT IT IS GRANTEES SOLE RESPONSIBILITY AND NOT THE COMPANYS TO
FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF GRANTEE REQUESTS THE COMPANY OR ITS
REPRESENTATIVE TO MAKE THIS FILING ON GRANTEES BEHALF.
9. Fractional Shares. The Company shall not be required to deliver any fractional Shares the
Risk of Forfeiture of which may lapse pursuant to this Agreement. In lieu of any delivery of any
such fractional Share, the Company shall, promptly after Grantees written request received after
such time as such fractional Share would otherwise be deliverable, pay to Grantee an amount in cash
(rounded to the nearest whole cent) equal to product of (x) the closing price of a share of Common
Stock on the trading day immediately prior to such date multiplied by (y) the fraction of a
Share to which Grantee would otherwise be entitled.
10. Miscellaneous.
10.1. Transfers in Violation of Restrictions. The Company shall not be required (i) to
transfer on its books any Shares which shall have been sold or transferred in violation of any of
the provisions set forth in this Agreement, or (ii) to treat as owner of such shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom such shares shall
have been so transferred.
10.2. Further Assurances. The parties agree to execute such further instruments and to take
such action as may reasonably be necessary to carry out the intent of this Agreement.
10.3. Notices. Any notice required or permitted hereunder shall be given in writing and shall
be deemed effectively given upon delivery to Grantee at such Grantees address then on file with
the Company.
10.4. No Employment or Guarantee of Continued Relationship. Nothing contained in this
Agreement or the Plan will be construed as creating an employment relationship between the Company
and Grantee. Nothing contained in this Agreement or the Plan will be deemed to grant either party
any right, power or authority or create any obligation or duty, express or implied, to continue the
relationship between the parties.
10.5. Entire Agreement. This Agreement, including the Plan, constitute the entire agreement
of the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written
above.
ADVENTRX Pharmaceuticals, Inc.
|
Grantee | |||
By: |
||||
Name: |
||||
Its:
|
Name: | |||
(please print) |
SECTION 83(b) ELECTION
When you receive stock from the company in connection with your performance of services the
full enjoyment of which is conditioned upon the future performance of substantial services by you,
your income tax consequences are determined under Section 83 of the Internal Revenue Code.
The general rule of Section 83 is that you have a taxable event at the time the stock vests or
the risk of forfeiture lapses. At that time, you have ordinary income equal to the excess (the
delta) of the fair market value of the stock at the time of vesting over the price paid
by the person for the stock, if any. If the stock has appreciated between the time of acquisition
and the time of vesting, the appreciation would be ordinary income to you (as would any delta that
existed when the stock was acquired). The tax holding period of the stock commences when the stock
vests and any subsequent appreciation would be capital gain. If the stock is held for more than
one year from the vesting date any capital gain would be long-term capital gain.
You may view this tax treatment as undesirable for two reasons. First, the appreciation of
the shares between the grant date and the vesting date would be ordinary income to you. Ordinary
income is currently taxed at federal rates up to 35%, while the maximum federal rate on long-term
capital gain is currently 15%. Second, the taxable event that occurs on the vesting date may not
coincide with a liquidity event, such as the sale of the corporation or shares of the company. In
the absence of a liquidity event, you may have a taxable event but no cash with which to pay the
taxes.
For unvested stock, Section 83(b) of the Internal Revenue Code offers a solution to the
above-described tax consequences. A person who receives unvested stock may elect to be taxed at
the time the stock is granted. If you timely make the Section 83(b) election, you would have
ordinary income equal to the delta at the time of grant (rather than at the time the stock vests).
The holding period would commence at the grant date and any subsequent appreciation would be
capital gain. If the one-year tax holding period is satisfied, all of the gain would be long-term
capital gain. Thus, the Section 83(b) election can result in all of your gain being capital gain,
however, tax would be due with respect to the delta at the time you make the election.
In order to timely make an election under Section 83(b), you must file the Section 83(b)
election with the Internal Revenue Service Center where you file your income tax returns. You must
file the election not later than 30 days after the stock is granted. There is no relief for
failing to timely file the election. If you make this election, you must provide the election to
us and you must include a copy of the election with your tax return for the taxable year in which
the stock is acquired.
NOTE: The foregoing is not a complete or thorough discussion of income and other tax
consequences of the receipt of stock and the company is not hereby rendering any such advice. You
are strongly urged to consult their own tax advisors. Stock acquired from the exercise of stock
options may subject you to additional and different income and tax consequences, none of which are
discussed above.
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the Internal Revenue
Code of 1986, as amended (the Code), to include in taxpayers gross income or alternative minimum
taxable income (to the extent applicable under Section 83), as applicable, for the current taxable
year, the amount of any income that may be taxable to taxpayer in connection with taxpayers
receipt of the property described below:
1. | The name, address, taxpayer identification number and taxable year of the undersigned are as follows: |
NAME OF TAXPAYER: | ||||
NAME OF SPOUSE: | ||||
ADDRESS: | ||||
TAXPAYER IDENTIFICATION NO.: | ||||
SPOUSE IDENTIFICATION NO.: | ||||
TAXABLE YEAR: | ||||
2. The property with respect to which the election is made is described as follows:
___ shares of Common Stock of ADVENTRX Pharmaceuticals, Inc. (the Company) received pursuant to a Restricted Share Award Agreement, dated ___, between the Company and the taxpayer. |
3. The
date on which the property was transferred is:
_____ ____, 2006
4. The property is subject to the following restrictions:
The shares vest over time, subject to the taxpayers continuous relationship as a consultant or employee with the Company. Upon the termination of the taxpayers relationship with the Company, all of the unvested shares outstanding immediately prior to such termination shall be forfeited by the taxpayer, ownership of all such unvested shares shall transfer back to the Company and the taxpayer would have no further rights with respect to any of such unvested shares. |
5. | The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $___ per share for an aggregate fair market value of $___. | |
6. | The amount (if any) paid for such property: $0. |
The undersigned has submitted a copy of this statement to the person for whom the services were
performed in connection with the undersigneds receipt of the above-described property. The
transferee of such property is the person performing the services in connection with the transfer
of said property.
The undersigned understands that the foregoing election may not be revoked except with the
consent of the Commissioner.
Dated: |
||
Print Name: | ||
The undersigned spouse of taxpayer joins in this election. |
||
Dated: |
||
Spouse of Taxpayer | ||
Print Name: | ||
Exhibit 21.1
LIST OF SUBSIDIARIES
ADVENTRX (Europe) Ltd.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-3
(Nos. 333-117022 and 333-127857) and Form S-8 (No. 333-126551) of ADVENTRX Pharmaceuticals, Inc. of
our reports dated March 10, 2006 with respect to our audits of the consolidated financial statements of
ADVENTRX Pharmaceuticals, Inc. and Subsidiary as of December 31, 2005 and 2004 and for each of the years in the three-year period
ended December 31, 2005 and the effectiveness of ADVENTRX
Pharmaceuticals, Inc and Subsidiarys internal control over financial
reporting as of December 31, 2005, which reports appear in this
annual report on Form 10-K for the year ended December 31, 2005.
/s/ J.H. Cohn LLP
San Diego, California
March 10, 2006
San Diego, California
March 10, 2006
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934
I, Evan Levine, certify that:
1. I have reviewed this annual report on Form 10-K of ADVENTRX Pharmaceuticals, Inc.;
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 registrant as of, and for, the periods presented in this report;
4. The registrants 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
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f), for the registrant 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 registrant, 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) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrants 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
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants 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 registrants internal control over financial reporting.
Date
March 16, 2006
/s/ Evan Levine | ||||
Evan Levine | ||||
President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934
I, Carrie Carlander, certify that:
1. I have reviewed this annual report on Form 10-K of ADVENTRX Pharmaceuticals, Inc.;
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 registrant as of, and for, the periods presented in this report;
4. The registrants 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
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f), for the registrant 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 registrant, 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) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrants 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
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants 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 registrants internal control over financial reporting.
Date
March 16, 2006
/s/ Carrie Carlander | ||||
Carrie Carlander | ||||
Chief Financial Officer, Senior Vice
President, Finance, Secretary and Treasurer (Principal Financial Officer) |
Exhibit 32.1
Certification of CEO and CFO Furnished Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act of 2002
As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act of 2002
In connection with the Annual Report of ADVENTRX Pharmaceuticals, Inc. (the Company) on Form 10-K
for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the
date hereof, I, Evan Levine, Chief Executive Officer of the Company, certify for the purposes of
section 1350 of chapter 63 of title 18 of the United States Code that, to the best of my knowledge,
(i) the
Annual Report of the Company on Form 10-K for the year ended December 31, 2005
(the Report), fully complies with the requirements of section 13(a) of the Securities
Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
/s/ Evan Levine | ||||
Evan Levine | ||||
President and Chief Executive Officer March 16, 2006 |
||||
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
Exhibit 32.2
Certification of CEO and CFO Furnished Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act of 2002
As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act of 2002
In connection with the Annual Report of ADVENTRX Pharmaceuticals, Inc. (the Company) on Form 10-K
for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the
date hereof, I, Carrie Carlander, Chief Financial Officer of the Company, certify for the purposes
of section 1350 of chapter 63 of title 18 of the United States Code that, to the best of my
knowledge,
(i) the
Annual Report of the Company on Form 10-K for the year ended December 31, 2005
(the Report), fully complies with the requirements of section 13(a) of the Securities
Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
/s/ Carrie Carlander | ||||
Carrie Carlander | ||||
Chief Financial Officer, Senior Vice
President, Finance, Secretary and Treasurer March 16, 2006 |
||||
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.