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Filing
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-32157
ADVENTRX Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 84-1318182 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
6725 Mesa Ridge Road, Suite 100, San Diego, CA | 92121 | |
(Address of principal executive offices) | (Zip Code) |
(858) 552-0866
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer,
accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer: o | Accelerated filer: þ | Non-accelerated filer: o | Smaller reporting company: o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the registrants common stock, $0.001 par value, as of May 5,
2008 was 90,252,572.
TABLE OF CONTENTS
Page | ||||||||
PART I | ||||||||
Item 1. | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
Item 2. | 11 | |||||||
Item 3. | 17 | |||||||
Item 4. | 17 | |||||||
PART II | ||||||||
Item 1. | 18 | |||||||
Item 1A. | 18 | |||||||
Item 2. | 18 | |||||||
Item 3. | 18 | |||||||
Item 4. | 18 | |||||||
Item 5. | 18 | |||||||
Item 6. | 18 | |||||||
19 | ||||||||
EXHIBIT 10.4 | ||||||||
EXHIBIT 10.5 | ||||||||
EXHIBIT 31.1 | ||||||||
EXHIBIT 31.2 | ||||||||
EXHIBIT 32.1 |
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ADVENTRX Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
(Unaudited) | (Note) | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 20,299,364 | $ | 14,780,739 | ||||
Short-term investments |
8,507,787 | 18,682,417 | ||||||
Interest receivable |
| 72,029 | ||||||
Prepaid expenses |
670,072 | 615,691 | ||||||
Total current assets |
29,477,223 | 34,150,876 | ||||||
Property and equipment, net |
318,381 | 332,444 | ||||||
Other assets |
58,305 | 58,305 | ||||||
Total assets |
$ | 29,853,909 | $ | 34,541,625 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 300,188 | $ | 552,143 | ||||
Accrued liabilities |
2,611,372 | 2,317,910 | ||||||
Accrued compensation and payroll taxes |
1,181,766 | 622,762 | ||||||
Total current liabilities |
4,093,326 | 3,492,815 | ||||||
Long-term liabilities |
8,918 | 14,270 | ||||||
Total liabilities |
4,102,244 | 3,507,085 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.001 par value; 200,000,000 shares
authorized; 90,252,572 shares issued and outstanding at
March 31, 2008 and December 31, 2007 |
90,254 | 90,254 | ||||||
Additional paid-in capital |
130,784,645 | 130,140,549 | ||||||
Deficit accumulated during the development stage |
(105,132,037 | ) | (99,198,965 | ) | ||||
Accumulated other comprehensive income |
8,803 | 2,702 | ||||||
Total stockholders equity |
25,751,665 | 31,034,540 | ||||||
Total liabilities and stockholders equity |
$ | 29,853,909 | $ | 34,541,625 | ||||
Note: | The balance sheet at December 31, 2007 has been derived from audited financial statements at that date. It does not include, however, all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. |
See accompanying notes to unaudited condensed consolidated financial statements.
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ADVENTRX Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
Inception | ||||||||||||
(June 12, 1996) | ||||||||||||
through | ||||||||||||
Three months ended March 31, | March 31, | |||||||||||
2008 | 2007 | 2008 | ||||||||||
Licensing revenue |
$ | | $ | 500,000 | $ | 500,000 | ||||||
Net sales |
| | 174,830 | |||||||||
Grant revenue |
| | 129,733 | |||||||||
Total net revenue |
| 500,000 | 804,563 | |||||||||
Cost of net sales |
| | 51,094 | |||||||||
Gross margin |
| 500,000 | 753,469 | |||||||||
Operating expenses: |
||||||||||||
Research and development |
3,820,307 | 3,384,660 | 47,912,680 | |||||||||
Selling, general and administrative |
2,365,194 | 2,809,449 | 35,614,783 | |||||||||
Depreciation and amortization |
46,779 | 51,889 | 10,676,811 | |||||||||
In-process research and development |
| | 10,422,130 | |||||||||
Impairment loss write-off of goodwill |
| | 5,702,130 | |||||||||
Equity in loss of investee |
| | 178,936 | |||||||||
Total operating expenses |
6,232,280 | 6,245,998 | 110,507,470 | |||||||||
Loss from operations |
(6,232,280 | ) | (5,745,998 | ) | (109,754,001 | ) | ||||||
Interest income |
299,208 | 622,184 | 4,331,272 | |||||||||
Interest expense |
| | (179,090 | ) | ||||||||
Loss before cumulative effect of change in accounting principle |
(5,933,072 | ) | (5,123,814 | ) | (105,601,819 | ) | ||||||
Cumulative effect of change in accounting principle |
| | (25,821 | ) | ||||||||
Net loss |
(5,933,072 | ) | (5,123,814 | ) | (105,627,640 | ) | ||||||
Preferred stock dividends |
| | (621,240 | ) | ||||||||
Net loss applicable to common stock |
$ | (5,933,072 | ) | $ | (5,123,814 | ) | $ | (106,248,880 | ) | |||
Loss per common share basic and diluted |
$ | (0.07 | ) | $ | (0.06 | ) | ||||||
Weighted average shares outstanding basic and diluted |
90,252,572 | 89,676,739 | ||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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ADVENTRX Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Inception | ||||||||||||
(June 12, 1996) | ||||||||||||
through | ||||||||||||
Three months ended March 31, | March 31, | |||||||||||
2008 | 2007 | 2008 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (5,933,072 | ) | $ | (5,123,814 | ) | $ | (105,627,640 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Depreciation and amortization |
46,779 | 51,889 | 10,226,811 | |||||||||
In-process research and development |
| | 10,422,130 | |||||||||
Share-based compensation for employee awards |
638,416 | 600,009 | 7,081,745 | |||||||||
Expense related to stock options issued to non-employees |
5,680 | 25,549 | 205,362 | |||||||||
Expenses paid by issuance of common stock |
| 19,583 | 1,144,697 | |||||||||
Expenses paid by issuance of warrants |
| | 573,357 | |||||||||
Expenses paid by issuance of preferred stock |
| | 142,501 | |||||||||
Expenses related to stock warrants issued |
| | 612,000 | |||||||||
Accretion of discount on investments in securities |
(131,929 | ) | (282,792 | ) | (1,528,320 | ) | ||||||
Amortization of debt discount |
| | 450,000 | |||||||||
Loss on disposals of property and equipment |
188 | | 188 | |||||||||
Forgiveness of employee receivable |
| | 30,036 | |||||||||
Impairment loss write-off of goodwill |
| | 5,702,130 | |||||||||
Equity in loss of investee |
| | 178,936 | |||||||||
Write-off of license agreement |
| | 152,866 | |||||||||
Write-off of assets available-for-sale |
| | 108,000 | |||||||||
Cumulative effect of change in accounting principle |
| | 25,821 | |||||||||
Changes in assets and liabilities, net of effect of acquisitions: |
||||||||||||
Increase (decrease) in prepaid expenses and other assets |
17,648 | (171,728 | ) | (975,746 | ) | |||||||
Increase in accounts payable and accrued liabilities |
588,129 | 334,684 | 4,257,651 | |||||||||
Increase (decrease) in other long-term liabilities |
(5,352 | ) | (5,351 | ) | 8,918 | |||||||
Net cash used in operating activities |
(4,773,513 | ) | (4,551,971 | ) | (66,808,557 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchases of short-term investments |
(6,437,340 | ) | (13,681,067 | ) | (103,265,440 | ) | ||||||
Proceeds from sales and maturities of short-term investments |
16,750,000 | 13,250,000 | 96,294,776 | |||||||||
Purchases of property and equipment |
(20,522 | ) | (36,430 | ) | (985,920 | ) | ||||||
Purchase of certificate of deposit |
| | (1,016,330 | ) | ||||||||
Maturity of certificate of deposit |
| | 1,016,330 | |||||||||
Payment on obligation under license agreement |
| | (106,250 | ) | ||||||||
Cash acquired from acquisitions, net of cash paid |
| | 32,395 | |||||||||
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 provided by (used in) investing activities |
10,292,138 | (467,497 | ) | (7,539,396 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from sale of preferred stock |
| | 4,200,993 | |||||||||
Proceeds from sale of common stock |
| | 84,151,342 | |||||||||
Proceeds from exercise of stock options |
| | 712,367 | |||||||||
Proceeds from sale or exercise of warrants |
| | 11,382,894 | |||||||||
Repurchase of warrants |
| | (55,279 | ) | ||||||||
Payment of financing and offering costs |
| | (6,483,809 | ) | ||||||||
Payments of notes payable and long-term debt |
| | (605,909 | ) | ||||||||
Proceeds from issuance of notes payable and detachable warrants |
| | 1,344,718 | |||||||||
Net cash provided by financing activities |
| | 94,647,317 | |||||||||
Net increase (decrease) in cash and cash equivalents |
5,518,625 | (5,019,468 | ) | 20,299,364 | ||||||||
Cash and cash equivalents at beginning of period |
14,780,739 | 25,974,041 | | |||||||||
Cash and cash equivalents at end of period |
$ | 20,299,364 | $ | 20,954,573 | $ | 20,299,364 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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ADVENTRX Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. | Basis of Presentation | |
ADVENTRX Pharmaceuticals, Inc., a Delaware corporation (ADVENTRX, we or the Company), prepared the unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual audited financial statements and should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 2007 included in our Annual Report on Form 10-K filed with the SEC on March 17, 2008 (2007 Annual Report). The condensed consolidated balance sheet as of December 31, 2007 has been derived from the audited consolidated financial statements included in the 2007 Annual Report. In the opinion of management, these consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results of operations for the interim periods shown in this report are not necessarily indicative of results expected for the full year. | ||
Since our inception, we have reported accumulated net losses of approximately $105.6 million and recurring negative cash flows from operations. In order to maintain sufficient cash and investments to fund future operations, and to continue developing our existing product candidates, we may need or choose to seek additional capital in the next 12 months through collaborations, licensing arrangements or other strategic transactions, public or private sales of our equity securities, and/or debt financings. The balance of securities available-for-sale under our existing shelf registration was approximately $60.0 million as of March 31, 2008, but we may be subject to limitations with respect to the number of securities we can sell under this shelf registration. If we are unable to raise capital as needed to fund future operations, then we may defer or abandon one or more of our research and development programs and may need to take additional cost-cutting measures. | ||
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, SD Pharmaceuticals, Inc. and ADVENTRX (Europe) Ltd. All intercompany accounts and transactions have been eliminated in consolidation. | ||
2. | Use of Estimates | |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. | ||
3. | Fair Value | |
Effective January 1, 2008, we adopted Statement of Financial Accounting Standards (FAS) No. 157, Fair Value Measurements (FAS 157). In February 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-2, Effective Date of FASB Statement No. 157, which provides a one year deferral of the effective date of FAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, we have adopted the provisions of FAS 157 with respect to our financial assets and liabilities only. The adoption of FAS 157 did not have a material impact on our consolidated results of operations or financial condition. | ||
FAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under FAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following: |
|
Level 1 - | Quoted prices in active markets for identical assets or liabilities. |
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|
Level 2 - | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
|
Level 3 - | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The following table represents our fair value hierarchy for our financial assets (cash equivalents and short-term investments in securities) measured at fair value on a recurring basis as of March 31, 2008: |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Money market funds |
$ | 16,082,306 | $ | | $ | | $ | 16,082,306 | ||||||||
U.S. Government debt securities |
9,464,524 | | | 9,464,524 | ||||||||||||
Commercial paper |
| 2,536,934 | | 2,536,934 | ||||||||||||
Total |
$ | 25,546,830 | $ | 2,536,934 | $ | | $ | 28,083,764 | ||||||||
Effective January 1, 2008, we adopted FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159). FAS 159 allows an entity the irrevocable option to elect to measure specified financial assets and liabilities in their entirety at fair value on a contract-by-contract basis. If an entity elects the fair value option for an eligible item, changes in the items fair value must be reported as unrealized gains and losses in earnings at each subsequent reporting date. In adopting FAS 159, we did not elect the fair value option for any of our financial assets or financial liabilities. | ||
4. | Share-Based Payments | |
Estimated share-based compensation expense related to equity awards granted to employees for the three months ended March 31, 2008 and 2007 was as follows: |
Three Months Ended March 31, | ||||||||
2008 | 2007 | |||||||
Selling, general and administrative expense |
$ | 332,720 | $ | 346,305 | ||||
Research and development expense |
305,696 | 253,704 | ||||||
Share-based compensation expense before taxes |
638,416 | 600,009 | ||||||
Related income tax benefits |
| | ||||||
Share-based compensation expense |
$ | 638,416 | $ | 600,009 | ||||
Net share-based compensation expense per common share basic and diluted |
$ | 0.01 | $ | 0.01 | ||||
Since we have a net operating loss carryforward as of March 31, 2008, no excess tax benefits for
the tax deductions related to share-based awards were recognized in the condensed consolidated
statement of operations. There were no employee stock options exercised in the three months ended
March 31, 2008 and 2007.
At March 31, 2008, total unrecognized estimated compensation cost related to non-vested employee
share-based awards granted prior to that date was $3.5 million, which is expected to be
recognized over a weighted-average period of 3.1 years. During the three months ended March 31,
2008 and 2007, we granted 1,802,500 and 652,333 stock options, respectively, to our employees
with the estimated weighted-average grant-date fair value of $0.51 and $2.51 per share,
respectively.
Three Months Ended March 31, | ||||||||
2008 | 2007 | |||||||
Weighted expected volatility |
147.9 | % | 138.1 | % | ||||
Average expected term (in years) |
6.3 | 6.1 | ||||||
Average risk-free interest rate |
2.9 | % | 4.7 | % | ||||
Dividend yield |
0 | 0 |
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Estimated share-based compensation expense related to equity awards granted to non-employee consultants was approximately $6,000 and $26,000 for the three months ended March 31, 2008 and 2007, respectively. | ||
5. | Net Loss Per Common Share | |
We calculate basic and diluted net loss per common share in accordance with the FAS No. 128, Earnings Per Share. Basic net loss per common share was calculated by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive. Because of the net loss, all of the options and warrants were excluded from the calculation. | ||
We have excluded the following options and warrants from the calculation of diluted net loss per common share for the three months ended March 31, 2008 and 2007 which, because of the net loss, their effect is anti-dilutive: |
2008 | 2007 | |||||||
Warrants |
13,373,549 | 13,458,549 | ||||||
Options |
5,589,483 | 4,297,957 | ||||||
18,963,032 | 17,756,506 | |||||||
6. | Comprehensive Loss | |
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on short-term investments. Our components of comprehensive loss consist of net loss and unrealized gains or losses on short-term investments in securities. For the three months ended March 31, 2008 and 2007, comprehensive loss was $5.9 million and $5.1 million, respectively. | ||
7. | Recent Accounting Pronouncements | |
In March 2008, the FASB issued FAS No. 161, Disclosures About Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133 (FAS 161). FAS 161 expands quarterly disclosure requirements in FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, about an entitys derivative instruments and hedging activities. FAS 161 is effective for fiscal years beginning after November 15, 2008. We do not expect the adoption of FAS 161 will have a material impact on our consolidated results of operations or financial position. | ||
8. | License Fee Revenue | |
In October 2006, we entered into a license agreement with Theragenex, LLC (Theragenex). Under the agreement, we granted Theragenex exclusive rights to develop and commercialize ANX-211 in the U.S. in exchange for a licensing fee of $1.0 million ($500,000 of which we received in January 2007 and $500,000 of which was due in June 2007 but remains unpaid), milestone payments and royalties. In May 2007, we received a letter from TRx Pharma, a subsidiary of Theragenex, that we believe was intended to constitute notice of termination of the agreement with Theragenex, though the letter did not explicitly state that it constituted notice of termination. In its letter, TRx Pharma requested a refund of the initial $500,000 payment and, in subsequent discussions, has indicated that it does not intend to pay the remaining $500,000. On July 3, 2007, we notified Theragenex that, among other things, its failure to make the final $500,000 payment constituted a material breach of the agreement. On August 9, 2007, we delivered a letter to Theragenex confirming our termination of the agreement as a result of Theragenexs breach, pursuant to the terms of the agreement. See Note 10, Commitments and Contingencies, for further discussion. | ||
For the three months ended March 31, 2007, we recognized $500,000 in license fee revenue, which we received in January 2007, because our performance obligations were complete, collectibility was reasonably assured and we had no continuing obligations for performance under the agreement. No license revenue was recognized in the three months ended March 31, 2008. We do not intend to refund the initial $500,000 payment from Theragenex and we intend to pursue appropriate action to collect payment of the final $500,000 payment due in June 2007; however, in accordance with the provisions of the SECs Staff Accounting Bulletin Topic 13, Revenue Recognition, (Topic 13), we will not recognize revenue with respect to the uncollected amount until collectibility is reasonably assured. |
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9. | Supplementary Cash Flow Information | |
Noncash investing and financing transactions excluded from the condensed consolidated statements of cash flows for the three months ended March 31, 2008 and 2007 and for the period from inception (June 12, 1996) through March 31, 2008 are as follows: |
Inception | ||||||||||||
(June 12, 1996) | ||||||||||||
Three months ended March 31, | through | |||||||||||
2008 | 2007 | March 31, 2008 | ||||||||||
Supplemental disclosures of cash flow information: |
||||||||||||
Interest paid |
$ | | $ | | $ | 179,090 | ||||||
Income taxes paid |
| | |
Inception | ||||||||||||
(June 12, 1996) | ||||||||||||
Three months ended March 31, | through | |||||||||||
2008 | 2007 | March 31, 2008 | ||||||||||
Issuance of warrants, common stock and preferred stock for: |
||||||||||||
Conversion of notes payable and accrued interest |
$ | | $ | | $ | 1,213,988 | ||||||
Prepaid services to consultants |
| | 1,482,781 | |||||||||
Conversion of preferred stock |
| | 2,705 | |||||||||
Acquisitions |
| | 24,781,555 | |||||||||
Payment of dividends |
| | 213,000 | |||||||||
Financial advisor services in connection with private placement |
| | 1,137,456 | |||||||||
Acquisition of treasury stock in settlement of a claim |
| | 34,747 | |||||||||
Cancellation of treasury stock |
| | (34,747 | ) | ||||||||
Assumptions of liabilities in acquisitions |
| | 1,235,907 | |||||||||
Acquisition of license agreement for long-term debt |
| | 161,180 | |||||||||
Cashless exercise of warrants |
| | 4,312 | |||||||||
Dividends accrued |
| | 621,040 | |||||||||
Trade asset converted to available-for-sale asset |
| | 108,000 | |||||||||
Dividends extinguished |
| | 408,240 | |||||||||
Trade payable converted to note payable |
| | 83,948 | |||||||||
Issuance of warrants for return of common stock |
| | 50,852 | |||||||||
Detachable warrants issued with notes payable |
| | 450,000 | |||||||||
Purchases of equipment, which are included in accounts payable |
12,382 | | 12,382 | |||||||||
Unrealized gain on short-term investments |
(6,101 | ) | (247 | ) | (8,803 | ) |
10. | Commitments and Contingencies | |
In the normal course of business, we may become subject to lawsuits and other claims and proceedings. Such matters are subject to uncertainty and outcomes are often not predictable with assurance. | ||
On October 11, 2007, we filed a demand for arbitration against Theragenex (doing business as TRx Pharma, LLC and/or TRx Pharmaceuticals, LLC) and David M. Preston, founder, Chairman, President and Chief Executive Officer of Theragenex in his individual capacity as the alter ego of Theragenex, seeking damages of up to $10 million with respect to breach of the license agreement, dated October 20, 2006, between us and Theragenex. In accordance with the terms of the license agreement, we filed our demand with the American Arbitration Association and requested that the hearing take place in San Diego, California. On November 8, 2007, Theragenex responded to our demand, asserting numerous affirmative defenses counterclaiming intentional misrepresentation, negligent misrepresentation and rescission and seeking a refund of its $500,000 payment, plus interest, rescission of the license agreement and that we pay its reasonable attorneys fees and costs associated with the action. Also on November 8, 2007, Mr. Preston objected to his participation and being named as a respondent in the arbitration. We believe the likelihood of an unfavorable outcome as a result of Theragenexs counterclaims is remote. Unless we earlier settle or otherwise determine not to pursue the matter, we expect an arbitration hearing date in the fourth quarter of 2008. We are unable to predict the outcome of our claim against Theragenex and the amount that we could receive, if any, from the arbitration proceedings. |
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11. | Subsequent Events | |
On April 3, 2008, Mark N.K. Bagnall, a member of our board of directors, joined us as chief financial officer, treasurer and executive vice president. Mr. Bagnall continues to serve as a member of our board of directors, but resigned his positions on our boards audit, compensation and nominating and governance committees, as well as his position as chair of the audit committee. Jack Lief, currently chair of our board of directors, has assumed Mr. Bagnalls responsibilities as chair of the audit committee. | ||
On April 2, 2008, our employment relationship with Gregory P. Hanson ended. Mr. Hanson served as our chief financial officer, treasurer and senior vice president since December 2006. Effective April 11, 2008, we entered into a letter agreement with Mr. Hanson governing the terms of his separation of employment, pursuant to which we agreed to the terms set forth in Mr. Hansons employment offer letter, dated December 13, 2006, and in a stock option agreement, dated December 20, 2006. |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with the consolidated financial statements and related notes appearing
elsewhere in this report. In addition to historical information, this discussion and analysis
contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual
results may differ materially from those anticipated in these forward-looking statements as a
result of certain factors, including but not limited to those set forth under Item 1A of Part II,
Risk Factors, in this report and Item 1A of Part I, Risk Factors, in our annual report on Form
10-K for the year ended December 31, 2007.
Overview
We are a biopharmaceutical company focused on in-licensing, developing and commercializing
proprietary product candidates primarily for the treatment of cancer and infectious disease. We
seek to improve the performance and commercial potential of existing treatments by addressing
limitations associated with these treatment regimens.
Currently, we are focused primarily on advancing
ANX-530 and ANX-514, which are novel emulsion
formulations of currently marketed chemotherapy drugs. We are also developing ANX-510, or
CoFactor®, which is a folate-based biomodulator designed to replace leucovorin as the preferred
method to enhance the activity and reduce the associated toxicity of the widely used cancer
chemotherapeutic agent 5-FU (5-fluorouracil).
We are a development stage company and have incurred annual net losses since inception. We have
devoted substantially all of our resources to research and development (R&D) or to acquisition of
our product candidates. We have not yet marketed any products or generated any significant revenue
from licensing our products or technology. As of March 31, 2008, our accumulated net losses
amounted to $105.6 million. We expect that our R&D, selling, general and administrative (SG&A)
and other operating costs will continue to exceed revenues for the foreseeable future. In order to
maintain sufficient cash and investments to fund future operations, and to continue developing our
existing product candidates at the levels we believe optimizes their value, we may need or choose
to seek additional capital in 2008 through collaborations, licensing arrangements or other
strategic transactions, public or private sales of our equity securities, and/or debt financings.
If we are unable to raise capital as needed to fund future operations, then we may defer or abandon
one or more of our R&D programs and may need to take additional cost-cutting measures.
We may seek to commercialize ANX-530 and ANX-514 ourselves. In that event, we will likely incur
substantial costs undertaking the activities associated with preparing for commercial launch of a
product, including establishing commercial-scale manufacturing capabilities and hiring sales
personnel and creating and maintaining a sales and distribution organization and associated
regulatory compliance infrastructure. Substantial costs may be incurred in advance of the
United States Food and Drug Administrations (FDA)
decisions regarding marketing approvals of ANX-530 and ANX-514. We may also incur significant
additional costs continuing clinical development of CoFactor, depending on our assessment of the
value of developing CoFactor independently in particular indications
and cancer stages.
In April 2008, Mark N.K. Bagnall, a member of our board of directors, joined us as chief financial
officer, treasurer and executive vice president. Mr. Bagnall continues to serve as a member of our
board of directors, but resigned his positions on our boards audit, compensation and nominating
and governance committees, as well as his position as chair of the audit committee. Jack Lief,
currently chair of the board of directors, has assumed Mr. Bagnalls responsibilities as chair of
the audit committee.
Also, in April 2008 we hired a vice president of manufacturing, a newly-created position, who will
be responsible for leading our planned commercial manufacturing operations.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon
consolidated financial statements that we have prepared in accordance with U.S. GAAP. The
preparation of these consolidated financial statements requires management to 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. On an on-going basis, we
evaluate these estimates and assumptions,
including those related to recognition of expenses in service contracts, license agreements,
share-based compensation and registration payment arrangements. Management bases its estimates on
historical information and assumptions believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and
liabilities not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
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Fair Value. Effective January 1, 2008, we adopted FAS 157, Fair Value Measurements. In February
2008, the FASB issued FSP No. 157-2, Effective Date of FASB Statement No. 157, which provides a
one year deferral of the effective date of FAS 157 for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in the financial statements at fair
value at least annually. Therefore, we have adopted the provisions of FAS 157 with respect to our
financial assets and liabilities only. FAS 157 defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and enhances disclosures about
fair value measurements. Fair value is defined under FAS 157 as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair value under FAS 157
must maximize the use of observable inputs and minimize the use of unobservable inputs. The
standard describes a fair value hierarchy based on three levels of inputs, of which the first two
are considered observable and the last unobservable, that may be used to measure fair value which
are the following:
|
Level 1 - | Quoted prices in active markets for identical assets or liabilities. | ||
|
Level 2 - | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
|
Level 3 - | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The adoption of FAS 157 did not have a material impact on our consolidated results of operations or financial condition. | ||
Effective January 1, 2008, we adopted FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. FAS 159 allows an entity the irrevocable option to elect to measure specified financial assets and liabilities in their entirety at fair value on a contract-by-contract basis. If an entity elects the fair value option for an eligible item, changes in the items fair value must be reported as unrealized gains and losses in earnings at each subsequent reporting date. In adopting FAS 159, we did not elect the fair value option for any of our financial assets or financial liabilities. | ||
Registration Payment Arrangements. We account for an outstanding registration payment arrangement in accordance with the FSP on No. 00-19-2, Accounting for Registration Payment Arrangements, which provides that a contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement is separately recognized and measured in accordance with FAS No. 5, Accounting for Contingencies (FAS 5). FAS 5 provides that loss contingencies should be recognized as liabilities if they are probable and reasonably estimable. | ||
Income Taxes. Effective January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement 109 (FIN 48), which did not have a material impact on our consolidated results of operations or financial position. FIN 48 clarifies the accounting for uncertainty in tax positions. FIN 48 provides that the tax effects from an uncertain tax position can be recognized in our consolidated financial statements only if the position is more likely than not of being sustained upon an examination by tax authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. | ||
Revenue Recognition. We recognize revenue in accordance with Topic 13, Revenue Recognition, and Emerging Issues Task Force Issue (EITF) No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21). Revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the sellers price to the buyer is fixed and determinable; and (4) collectibility is reasonably assured. | ||
Revenue from licensing agreements is recognized based on the performance requirements of the agreement. Revenue is deferred for fees received before earned. Nonrefundable upfront fees that are not contingent on any future performance by us are recognized as revenue when revenue recognition criteria under Topic 13 and EITF 00-21 are met and the license term commences. Nonrefundable upfront fees, where we have ongoing involvement or performance obligations, are recorded as deferred revenue and recognized as revenue over the life of the contract, the period of the performance obligation or the development period, whichever is appropriate in light of the circumstances. |
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Payments related to substantive, performance-based milestones in an agreement are recognized as
revenue upon the achievement of the milestones as specified in the underlying agreement when they
represent the culmination of the earnings process. Royalty revenue from licensed products will be
recognized when earned in accordance with the terms of the applicable license agreements.
R&D Expenses. R&D expenses consist of expenses incurred in performing R&D activities, including
salaries and benefits, facilities and other overhead expenses, clinical trials, research-related
manufacturing services, contract services and other outside expenses. R&D expenses are charged to
operations as they are incurred. Advance payments, including nonrefundable amounts, for goods or
services that will be used or rendered for future R&D activities are deferred and capitalized. Such
amounts will be recognized as an expense as the related goods are delivered or the related services
are performed. If the goods will not be delivered, or services will not be rendered, then the
capitalized advance payment is charged to expense.
Milestone payments that we make in connection with in-licensed technology or product candidates are
expensed as incurred when there is uncertainty in receiving future economic benefits from the
licensed technology or product candidates. We consider the future economic benefits from the
licensed technology or product candidates to be uncertain until such licensed technology or product
candidates are approved for marketing by the FDA or
when other significant risk factors are abated. For expense accounting purposes, management has
viewed future economic benefits for all of our licensed technology or product candidates to be
uncertain.
Payments in connection with our clinical trials are often made under contracts with multiple
contract research organizations that conduct and manage clinical trials on our behalf. The
financial terms of these agreements are subject to negotiation and vary from contract to contract
and may result in uneven payment flows. Generally, these agreements set forth the scope of work to
be performed at a fixed fee or unit price or on a time-and-material basis. Payments under these
contracts depend on factors such as the successful enrollment or treatment of patients or the
completion of other clinical trial milestones. Expenses related to clinical trials are accrued
based on our estimates and/or representations from service providers regarding work performed,
including actual level of patient enrollment, completion of patient studies, and clinical trials
progress. Other incidental costs related to patient enrollment or treatment are accrued when
reasonably certain. If the contracted amounts are modified (for instance, as a result of changes in
the clinical trial protocol or scope of work to be performed), we modify our accruals accordingly
on a prospective basis. Revisions in scope of contract are charged to expense in the period in
which the facts that give rise to the revision become reasonably certain. Because of the
uncertainty of possible future changes to the scope of work in clinical trials contracts, we are
unable to quantify an estimate of the reasonably likely effect of any such changes on our
consolidated results of operations or financial position. Historically, we have had no material
changes in our clinical trial expense accruals that would have had a material impact on our
consolidated results of operations or financial position.
Purchased In-Process Research and Development. In accordance with FAS No. 141, Business
Combinations, we immediately charge the costs associated with purchased in-process research and
development (IPR&D) to statement of operations upon acquisition. These amounts represent an
estimate of the fair value of purchased IPR&D for projects that, as of the acquisition date, had
not yet reached technological feasibility, had no alternative future use, and had uncertainty in
receiving future economic benefits from the purchased IPR&D. We determine the future economic
benefits from the purchased IPR&D to be uncertain until such technology is approved by the FDA or
when other significant risk factors are abated. In the year ended December 31, 2006, we incurred
approximately $10.4 million of IPR&D expense related to our acquisition of SD Pharmaceuticals, Inc.
in April 2006.
Share-based Compensation Expenses. Effective January 1, 2006, we accounted for share-based
compensation awards granted to employees in accordance with the revised FAS No. 123, Share-Based
Payment (FAS 123R) including the provisions of Staff Accounting Bulletins No. 107, Share-Based
Payment and No. 110. Share-based compensation cost is measured at the grant date, based on the
estimated fair value of the award, and is recognized as expense over the employees requisite
service period. We have no awards with market or performance conditions. As share-based
compensation expense is based on awards ultimately expected to vest, it has been reduced for
estimated forfeitures. FAS 123R requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Forfeitures were estimated based on historical experience. Although estimates of share-based
compensation expenses are significant to our consolidated financial statements, they are not
related to the payment of any cash by us. Prior to January 1, 2006, we accounted for share-based
compensation under the recognition and measurement principles of FAS 123, Accounting for
Stock-Based Compensation.
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We estimate the fair value of stock option awards on the date of grant using the Black-Scholes
option-pricing model (Black-Scholes Model). The determination of the fair value of share-based
payment awards on the date of grant using an option-pricing model is affected by our stock price as
well as assumptions regarding a number of complex and subjective variables. These variables
include, but are not limited to, our expected stock price volatility over the term of the awards,
actual and projected employee stock option exercise behaviors, a risk-free interest rate and
expected dividends. We may elect to use different assumptions under the Black-Scholes Model in the
future, which could materially affect our net income or loss and net income or loss per share.
We account for share-based compensation awards granted to non-employees in accordance with EITF No.
96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services (EITF 96-18). Under EITF 96-18, we determine the
fair value of the share-based compensation awards granted as either the fair value of the
consideration received or the fair value of the equity instruments issued, whichever is more
reliably measurable. If the fair value of the equity instruments issued is used, it is measured
using the stock price and other measurement assumptions as of the earlier of either of (1) the date
at which a commitment for performance by the counterparty to earn the equity instruments is reached
or (2) the date at which the counterpartys performance is complete.
The above listing is not intended to be a comprehensive list of all of our accounting policies. In
most cases, the accounting treatment of a particular transaction is specifically dictated by
accounting principles generally accepted in the U.S.
Results of Operations
A general understanding of the drug development process is critical to understanding our results of
operations. Drug development in the U.S. and most countries throughout the world is a process that
includes several steps defined by the FDA and similar regulatory authorities in foreign countries.
The FDA approval processes relating to new drugs differ, depending on the nature of the particular
drug for which approval is sought. With respect to any drug product with active ingredients not
previously approved by the FDA, a prospective drug manufacturer is required to submit a new drug
application (NDA), which includes complete reports of pre-clinical, clinical and laboratory
studies and extensive manufacturing information to prove such products safety and effectiveness.
The NDA process generally requires, before the submission of the NDA, filing of an investigational
new drug application, pursuant to which permission is sought to begin clinical testing of the new
drug product. An NDA based on published safety and effectiveness studies conducted by others, or
previous findings of safety and effectiveness by the FDA, may be submitted under Section 505(b)(2)
of the Federal Food, Drug and Cosmetic Act (FDCA). Development of new formulations of
pharmaceutical products under Section 505(b)(2) of the FDCA may have shorter timelines than those
associated with developing new chemical entities.
Generally, with respect to any drug product with active ingredients not previously approved by the
FDA, an NDA must be supported by data from at least phase 1, phase 2 and phase 3 clinical trials.
Phase 1 clinical trials can be expected to last from 6 to 18 months, phase 2 clinical trials can be
expected to last from 12 to 24 months and phase 3 clinical trials can be expected to last from 18
to 36 months. However, clinical development timelines vary widely, as do the total costs of
clinical trials and the likelihood of success. We anticipate that we will make determinations as to
which R&D programs to pursue and how much funding to direct to each program on an ongoing basis in
response to the scientific and clinical success of each product candidate, our ongoing assessment
of its market potential and our available resources.
Our expenditures on R&D programs are subject to many uncertainties, including whether we develop
our product candidates with a partner or independently. At this time, due to such uncertainties and
the risks inherent in the clinical trial process and given the early stage of development of many
of our product candidates, we cannot estimate with reasonable certainty the duration of or costs to
complete our R&D programs or whether or when or to what extent we will generate revenues from the
commercialization and sale of any of our product candidates. The duration and cost of our R&D
programs, in particular those associated with clinical trials, vary significantly among programs or
within a particular program as a result of a variety of factors, including:
| the number of trials necessary to demonstrate the safety and efficacy of a product candidate; | ||
| the number of patients who participate in the trials; | ||
| the number of sites included in the trials and rates of site approval for the trials; | ||
| the rates of patient recruitment and enrollment; | ||
| the duration of patient treatment and follow-up; | ||
| the costs of manufacturing our product candidates; and | ||
| the costs, requirements, timing of, and the ability to secure regulatory approvals. |
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The difficult process of seeking regulatory approvals for our product candidates, in particular
those containing new chemical entities, and compliance with applicable regulations, requires the
expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining,
regulatory approvals could cause our R&D expenditures to increase and, in turn, have a material and
unfavorable effect on our results of operations. We cannot be certain when, if ever, we will
generate revenues from sales of any of our products.
Comparison of Three Months Ended March 31, 2008 and 2007
Revenue. No revenue was recognized for the three months ended March 31, 2008. Revenue recognized
for the three months ended March 31, 2007 represents a $500,000 nonrefundable license fee
received
under our license agreement with Theragenex, which we terminated in August 2007 as a result of
Theragenexs breach of the agreement. We recognized the license fee as revenue in the period our
performance obligations were complete, collectibility was reasonably assured and there were no
continuing obligations for us to perform under the agreement. We have not generated any revenue
from product sales to date, and we do not expect to generate revenue from product sales until such
time that we have obtained approval from a regulatory agency to sell one of our product candidates,
which we cannot predict will occur.
R&D Expenses. We maintain and evaluate our R&D expenses by the type of cost incurred rather than by
project. We maintain and evaluate R&D expenses by type primarily because of the uncertainties
described above, as well as because we out-source a substantial portion of our work and our R&D
personnel work across multiple programs rather than dedicating their time to one particular
program. We began maintaining such expenses by type on January 1, 2005. The following table
summarizes our consolidated R&D expenses by type for each of the periods listed and since January
1, 2005:
January 1, 2005 | ||||||||||||
Three months ended March 31, | through | |||||||||||
2008 | 2007 | March 31, 2008 | ||||||||||
External clinical study fees and expenses |
$ | 1,021,920 | $ | 1,664,585 | $ | 20,847,534 | ||||||
External non-clinical study fees and expenses (1) |
1,418,985 | 705,249 | 9,778,764 | |||||||||
Personnel costs |
1,073,706 | 761,122 | 7,347,736 | |||||||||
Share-based compensation expense |
305,696 | 253,704 | 2,464,392 | |||||||||
Total |
$ | 3,820,307 | $ | 3,384,660 | $ | 40,438,426 | ||||||
(1) | External non-clinical study fees and expenses include preclinical, research-related manufacturing, quality assurance and regulatory expenses. |
R&D expenses increased by $435,000, or 13%, to $3.8 million for the three months ended March 31,
2008, compared to $3.4 million for the comparable period in 2007. The increase in R&D expenses was
primarily due to a $985,000 increase in external research-related manufacturing and regulatory
expenses for ANX-530 and ANX-514, a $365,000 increase in personnel and related costs and a $283,000
increase in external clinical trial expenses related to ANX-514. The increase was offset in part by
a $842,000 decrease in external clinical trial expenses related to ANX-530 and CoFactor and a
$284,000 decrease in expenses related to external preclinical activities. We expect our R&D
expenses to remain a significant component of our operating expenses in the future as we continue
to, among other things, devote resources to manufacturing and related validation activities for
ANX-530 and ANX-514, prepare for our potential NDA filing for ANX-530 and continue our
registrational bioequivalence clinical study of ANX-514.
Selling, General and Administrative Expenses. SG&A expenses decreased by $444,000, or 16%, to $2.4
million for the three months ended March 31, 2008, compared to $2.8 million for the comparable
period in 2007. The decrease was due to a $274,000 decrease in consulting fees related to market
research and brand name development for ANX-530 and a $213,000 decrease in patent application
costs. We anticipate increases in SG&A expenses as we prepare for the commercialization of ANX-530
and potentially pursue the development and commercialization of other product candidates.
Interest Income. Interest income decreased by $323,000, or 52%, to $299,000 for the three months
ended March 31, 2008, compared to $622,000 for the comparable period in 2007. The decrease was
primarily attributable to lower invested balances.
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Net Loss. Net loss was $5.9 million, or $0.07 per share, for the three months ended March 31, 2008,
compared to a net loss of $5.1 million, or $0.06 per share, for the comparable period in 2007.
Liquidity and Capital Resources
Since our inception we have funded our operations primarily through sales of our equity securities.
As of March 31, 2008, we had cash and cash equivalents and short-term investments in securities
totaling $28.8 million, compared to $33.5 million as of December 31, 2007. The decrease in cash and
investments in securities was attributed to cash used for operations. As of March 31, 2008, we had
$20.3 million in cash and cash equivalents and $8.5 million in short-term investments in
securities.
Operating Activities. Net cash used in operating activities was $4.8 million for the three months
ended March 31, 2008, compared to $4.6 million for the comparable period in 2007. The increase in
net cash used in operating activities was due to decreases in licensing revenue and interest
income.
Investing Activities. Net cash provided by investing activities was $10.3 million for the three
months ended March 31, 2008, compared to net cash used in investing activities of $467,000 for the
comparable period in 2007. Net cash provided by investing activities in the three months ended
March 31, 2008 was primarily attributable to proceeds from sales and maturities of short-term
investments in securities, net of purchases of short-term investments in securities.
Financing Activities. There were no financing activities in the three months ended March 31, 2008
and 2007.
Accrued Compensation and Payroll Taxes. Accrued compensation and payroll taxes were $1.2 million
at March 31, 2008, compared to $623,000 at December 31, 2007, an increase of $559,000, or 90%. The
increase was primarily due to a $228,000 increase in bonus accrual, a
$164,000 increase in accrued
compensation related to merit increases and timing of our payroll
practices and a $164,000 increase
in accrued severance payments related to our separation with our former president and chief medical
officer in January 2008.
Management Outlook
We believe that cash, cash equivalents, and short-term investments of approximately $28.8 million
at March 31, 2008 should be sufficient to sustain our operations for at least the next year.
However, in order to maintain sufficient cash and investments to fund future operations longer
term, and to continue developing our existing product candidates at the levels we believe optimizes
their value, we may need or choose to seek additional capital in 2008 through collaborations,
licensing arrangements or other strategic transactions, public or private sales of our equity
securities, and/or debt financings. The balance of securities available-for-sale under our existing
shelf registration was approximately $60.0 million as of March 31, 2008, but we may be subject to
limitations with respect to the number of securities we can sell under this shelf registration. If
we are unable to raise capital as needed to fund future operations, then we may defer or abandon
one or more of our R&D programs and may need to take additional cost-cutting measures. Our ability
to timely raise capital on commercially reasonable terms may be limited by requirements, rules and
regulations of the Securities and Exchange Commission and the American Stock Exchange.
We have held discussions with, and intend to continue to seek, potential partners regarding certain
of our product candidates, though some of our product candidates could take several more years of
development before they reach the stage of being partnerable with other companies on terms that we
believe are appropriate. If we successfully consummate a partnering deal, we may be entitled to
upfront or license fees and milestone payments; however, any such fees and payments will depend on
successfully consummating a deal and achieving milestones under such arrangements.
For information regarding the risks associated with our need to raise capital to fund our ongoing
and planned operations and limitations on our ability to do so, see Item 1A of Part II, Risk
Factors, in this report and Item 1A of Part I, Risk Factors, in our annual report on Form 10-K
for the year ended December 31, 2007.
Recent Accounting Pronouncements
See Note 7, Recent Accounting Pronouncements, of the Notes to the Condensed Consolidated
Financial Statements (unaudited) in this report for a discussion of recent accounting announcements
and their effect, if any, on us.
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Forward Looking Statements
This Quarterly Report on Form 10-Q, particularly in Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations, includes 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. All statements, other than statements of historical fact, are
statements that could be deemed forward-looking statements, including, but not limited to,
statements regarding business strategy, expectations and plans, our objectives for future
operations, including product development, and our future financial position. When used in this
report, the words believe, may, could, will, estimate, continue, anticipate,
intend, expect, indicate and similar expressions are intended to identify forward-looking
statements.
We have based these forward-looking statements largely on our current expectations and projections
about future events and financial trends that we believe may affect our financial condition,
results of operations, business strategy, short-term and long-term business operations and
objectives, and financial needs. These forward-looking statements are subject to certain risks and
uncertainties that could cause our actual results to differ materially from those expressed or
implied in these forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in Item 1A of Part II, Risk Factors,
in this report and Item 1A of Part I, Risk Factors, in our annual report on Form 10-K for the
year ended December 31, 2007, and those discussed in other documents we file with the Securities
and Exchange Commission. Except as required by law, we do not intend to update these
forward-looking statements publicly or to update the reasons actual results could differ materially
from those anticipated in these forward-looking statements, even if new information becomes
available in the future.
In light of these risks, uncertainties and assumptions, the forward-looking events and
circumstances discussed in this report and in the documents incorporated in this report may not
occur and actual results could differ materially and adversely from those anticipated or implied in
such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on
such forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are not subject to any meaningful market risk related to foreign currency exchange rates,
commodity prices or similar market risks. Because substantially all of our expenses and capital
purchasing activities are transacted in U.S. dollars, our exposure to foreign currency exchange
rates is immaterial. However, as described below, we are sensitive to interest rate fluctuations.
The primary objective of our investing activities is to preserve principal while maximizing the
income we receive from our investments without significantly increasing the risk of loss. Some of
the investable securities permitted under our cash management policy may be subject to market risk
for changes in interest rates. To mitigate this risk, we maintain a portfolio of cash equivalent
and short-term investments in a variety of securities which may include investment grade commercial
paper, money market funds, government debt issued by the United States of America, state debt,
certificates of deposit and investment grade corporate debt. Presently, we are exposed to minimal
market risks associated with interest rate changes because of the relatively short maturities of
our investments and we do not expect interest rate fluctuations to materially affect the aggregate
value of our financial instruments. We manage our sensitivity to these risks by maintaining
investment grade short-term investments. Our cash management policy does not allow us to purchase
or hold derivative or commodity instruments or other financial instruments for trading purposes.
Additionally, our policy stipulates that we periodically monitor our investments for adverse
material holdings related to the underlying financial solvency of the issuer. As of March 31, 2008,
our investments consisted mostly of cash, commercial paper and U.S. government debt. Our results of
operations and financial condition would not be significantly impacted by either a 10% increase or
decrease in interest rates due mainly to the short-term nature of our investment portfolio. We have
not used derivative financial instruments in our investment portfolio. Additionally, we do not
invest in foreign currencies or other foreign investments.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act).
Based on this evaluation, our principal executive officer and principal financial officer concluded
that our disclosure controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission
rules and forms and is
accumulated and communicated to our management, including our principal executive officer and
principal financial officer, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
17
Table of Contents
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with
the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during
the period covered by this report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, we may become subject to lawsuits and other claims and
proceedings. Such matters are subject to uncertainty and outcomes are often not predictable with
assurance.
On October 11, 2007, we filed a demand for arbitration against Theragenex (doing business as TRx
Pharma, LLC and/or TRx Pharmaceuticals, LLC) and David M. Preston, founder, Chairman, President and
Chief Executive Officer of Theragenex in his individual capacity as the alter ego of Theragenex,
seeking damages of up to $10 million with respect to breach of the license agreement, dated October
20, 2006, between us and Theragenex. We terminated the license agreement in August 2007 as a result
of Theragenexs breach. In accordance with the terms of the license agreement, we filed our demand
with the American Arbitration Association and requested that the hearing take place in San Diego,
California. On November 8, 2007, Theragenex responded to our demand, asserting numerous affirmative
defenses counterclaiming intentional misrepresentation, negligent misrepresentation and rescission
and seeking a refund of its $500,000 payment, plus interest, rescission of the license agreement
and that we pay its reasonable attorneys fees and costs associated with the action. Also on
November 8, 2007, Mr. Preston objected to his participation and being named as a respondent in the
arbitration. We believe the likelihood of an unfavorable outcome as a result of Theragenexs
counterclaims is remote. Unless we earlier settle or otherwise determine not to pursue the matter,
we expect an arbitration hearing date in the fourth quarter of 2008. We are unable to predict the
outcome of our claim against Theragenex and the amount that we could receive, if any, from the
arbitration proceedings.
Item 1A. Risk Factors
An investment in our securities involves a high degree of risk. You should consider carefully the
risks and uncertainties described under Item 1A of Part I of our annual report on Form 10-K for the
year ended December 31, 2007, which is incorporated by reference into this report. The risks
described in our annual report have not materially changed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
An Exhibit Index has been attached as part of this report and is incorporated herein by reference.
18
Table of Contents
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ADVENTRX Pharmaceuticals, Inc. | ||||||
Date: May 12, 2008
|
By: | /s/ Evan M. Levine | ||||
Evan M. Levine | ||||||
Chief Executive Officer and President | ||||||
(Principal Executive Officer) | ||||||
Date: May 12, 2008
|
By: | /s/ Mark N.K. Bagnall | ||||
Mark N.K. Bagnall | ||||||
Chief Financial Officer and Executive Vice President |
||||||
(Principal Financial and Accounting Officer) |
19
Table of Contents
Exhibit Index
Exhibit | Description | |
10.1#(1)
|
Letter agreement regarding terms of separation with James A. Merritt, dated February 4, 2008 | |
10.2 (2)
|
Second Amendment to Rights Agreement, dated as of February 25, 2008, among the registrant and the Icahn Purchasers (as defined therein) | |
10.3#(1)
|
Form of Stock Option Agreement under the 2005 Equity Incentive Plan (for director option grants beginning in 2008) | |
10.4#
|
Form of Stock Option Agreement under the 2005 Equity Incentive Plan (for option grants to employees approved in March 2008) | |
10.5#
|
2008 Incentive Plan | |
31.1
|
Certification of chief executive officer pursuant to Rule 13a-14(a)/15d-14(a) | |
31.2
|
Certification of chief financial officer pursuant to Rule 13a-14(a)/15d-14(a) | |
32.1*
|
Certification of chief executive officer and chief financial officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. | |
# | Indicates management contract or compensatory plan | |
(1) | Filed with the registrants Annual Report on Form 10-K on March 17, 2008 (SEC file number 001-32157-08690952) | |
(2) | Filed with the registrants Current Report on Form 8-K on February 25, 2008 (SEC file number 001-32157-08638638) |
Exhibit 10.4
Stock Option Agreement
ADVENTRX Pharmaceuticals, Inc., a Delaware corporation (the Company), and the undersigned
person (Optionee) have entered into this Stock Option Agreement (this Agreement) effective as
of the Grant Date set forth below. The Company has granted to Optionee the option (the Option) to
purchase the number of shares (the Shares) of common stock, par value $0.001 per share, of the
Company (Common Stock) set forth below at the per Share purchase price (the Exercise Price) set
forth below, pursuant to the terms of this Agreement. The Option was granted under the Companys
2005 Equity Incentive Plan (the Plan).
Optionee Name: |
||||
Grant Date: |
MM/DD/YYYY | |||
Vesting Commencement Date: |
MM/DD/YYYY | |||
Shares: |
X,XXX | |||
Exercise Price: |
$X.XX |
1. Terms of Plan. All capitalized terms used in this Agreement and not otherwise defined shall
have the meanings ascribed thereto in the Plan. Optionee confirms and acknowledges that Optionee
has received and reviewed copies of the Plan and the Information Statement, dated ,
with respect to the Plan. Optionee and the Company agree that the terms and conditions of the Plan
are incorporated in this Agreement by this reference.
2. Nature of the Option. The Option has been granted as an incentive to Optionees Continuous
Service, and is in all respects subject to such Continuous Service and all other terms and
conditions of this Agreement. The Option is intended to be an [Incentive/Nonstatutory] Option
within the meaning of the Plan.
3. Vesting and Exercise of Option. The Option shall vest and become exercisable during its term in
accordance with the following provisions:
(a) Vesting and Right of Exercise.
(i) The Option shall vest and become exercisable with respect to one-fifth of the
Shares at the first anniversary of the Vesting Commencement Date set forth in the
preamble of this Agreement and as to one-fifth of the Shares on each anniversary of
the Vesting Commencement Date thereafter until all of the Shares have vested,
subject to Optionees Continuous Service.
(ii) In the event of Optionees death, disability or other termination of
Optionees Continuous Service, the Option shall be exercisable in the manner and to
the extent provided in Section 6.3 of the Plan.
(iii) No fraction of a Share shall be purchasable or deliverable upon exercise of
the Option, but in the event any adjustment hereunder of the number of Shares shall
cause such number to include a fraction of a Share, such number of Shares shall be
rounded down to the nearest smaller whole number of Shares.
(b) Method of Exercise. In order to exercise any portion of the Option which has vested,
Optionee shall notify the Company in writing of the election to exercise such vested portion of the
Option and the number of Shares in respect of which the Option is being exercised, by executing and
delivering the Notice of Exercise of Stock Option in the form attached hereto as Exhibit A (the
"Exercise Notice). The certificate or certificates representing Shares as to which the Option has
been exercised shall be registered in the name of Optionee.
(c) Restrictions on Exercise.
(i) Optionee may exercise the Option only with respect to Shares that have vested
in accordance with Section 3(a) of this Agreement.
(ii) Optionee may not exercise the Option if the issuance of the Shares upon such
exercise or the method of payment of consideration for such Shares would constitute
a violation of any applicable federal or state securities law or other law or
regulation.
(iii) The method and manner of payment of the Exercise Price will be subject to the
rules under Part 221 of Title 12 of the Code of Federal Regulations as promulgated
by the Federal Reserve Board if such rules apply to the Company at the date of
exercise.
(iv) As a condition to the exercise of the Option, the Company may require Optionee
to make any representation or warranty to the Company at the time of exercise of
the Option as in the opinion of legal counsel for the Company may be required by
any applicable law or regulation, including the execution and delivery of an
appropriate representation statement. Accordingly, the stock certificate(s) for the
Shares issued upon exercise of the Option may bear appropriate legends restricting
transfer.
(v) Optionee may only exercise the Option upon, and the obligations of the Company
under this Agreement to issue Shares to Optionee upon any exercise of the Option is
conditioned on, satisfaction of all federal, state, local or other withholding tax
obligations associated with such exercise (whether so required to secure for the
Company an otherwise available tax deduction or otherwise) (Withholding
Obligations). The Company reserves the right to require Optionee to remit to the
Company an amount sufficient to satisfy all Withholding Obligations prior to the
issuance of any Shares upon any exercise of the Option. Optionee
authorizes the Company to withhold in accordance with applicable law from any
compensation payable to Optionee any amounts necessary to meet any Withholding
Obligations.
4. Non-Transferability of Option. The Option may not be transferred in any manner other than by
will or by the laws of descent and distribution. The terms of this Agreement shall bind the
executors, administrators, heirs and successors of Optionee.
5. Method of Payment.
(a) Upon exercise, Optionee shall pay the aggregate Exercise Price of the Shares purchased by
any of the following methods, or a combination thereof, at the election of Optionee:
(i) by cash;
(ii) by certified or bank cashiers check;
(iii) if shares of Common Stock are traded on an established stock market or
exchange on the date of exercise, by surrender of whole shares of Common Stock
having a Market Value equal to the portion of the Exercise Price to be paid by such
surrender, provided that if such shares of Common Stock to be surrendered were
acquired upon exercise of an Incentive Option, Optionee must have first satisfied
the holding period requirements under Section 422(a)(1) of the Code; or
(iv) if shares of Common Stock are traded on an established stock market or
exchange on the date of exercise, pursuant to and under the terms and conditions of
any formal cashless exercise program authorized by the Company entailing the sale
of the Stock subject to an Option in a brokered transaction (other than to the
Company).
(b) If Optionee shall pay all or a portion of the aggregate Exercise Price due upon an
exercise of the Option by surrendering shares of Common Stock pursuant to Section 5(a)(iii), then
Optionee:
(i) shall accompany the Exercise Notice with a duly endorsed blank stock power with
respect to the number of shares of Common Stock to be surrendered and shall deliver
the certificate(s) representing such surrendered shares to the Company at its
principal offices within two business days after the date of the Exercise Notice;
(ii) authorizes and directs the Secretary of the Company to transfer so
many of the shares of Common Stock represented by such certificate(s) as are necessary to pay
the aggregate Exercise Price in accordance with this Agreement;
(iii) agrees that Optionee may not surrender any fractional share as payment of any
portion of the Exercise Price; and
(iv) agrees that, notwithstanding any other provision in this Agreement, Optionee
may only surrender shares of Common Stock owned by Optionee as of the date of the
Exercise Notice in the manner and within the time periods allowed under Rule 16b-3
promulgated under the Exchange Act.
6. Adjustments to Option. Subject to any required action by the stockholders of the Company, the
number of Shares covered by the Option, and the Exercise Price, shall be proportionately adjusted
in accordance with and pursuant to Section 8.1 of the Plan. Such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and conclusive. Except as
expressly provided in this Agreement, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number of Shares or the Exercise Price.
7. Term of Option. The Option may not be exercised more than 10 years after the Grant Date, and
may be exercised during such term only in accordance with the terms of this Agreement.
8. Not Employment Contract. Nothing in this Agreement shall confer upon Optionee any right to
continue in the employ of the Company or shall interfere with or restrict in any way the rights of
the Company, which are hereby expressly reserved, to terminate Optionees Continuous Service at any
time for any reason whatsoever, with or without cause, subject to the provisions of applicable law.
9. Tax Consequences Generally. Optionee acknowledges that Optionee may suffer adverse tax
consequences as a result of Optionees exercise of the Option. Optionee acknowledges that the
Company advises that Optionee consult with Optionees tax advisers in connection with any exercise
of the Option or disposition of the Shares receivable upon exercise of the Option. Optionee agrees
that Optionee is not relying on the Company for any tax advice with respect to the acceptance or
exercise of the Option, the disposition of any Shares Optionee may acquire upon exercise of the
Option or otherwise. Any adverse consequences incurred by an Optionee with respect to the use of
shares of Common Stock to pay any part of the aggregate Exercise Price or of any tax in connection
with the exercise of an Option, including, without limitation, any adverse tax consequences arising
as a result of a disqualifying disposition within the meaning of Section 422 of the Code shall be
the sole responsibility of Optionee.
10. Adjustments in Acquisitions.
In accordance with the provisions of Section 8.2(a) of the Plan, the Option will Accelerate in full
in the event of an Acquisition constituting a Change of Control if Optionee remains employed by the
Company or one of its Affiliates as of the closing date of such Acquisition, and the Option is not
assumed or replaced by the successor or acquiring entity or the entity in control of such successor
or acquiring entity in accordance with Section 8.2 (referred to for purposes of this section as the
Acquirer). Otherwise, the Option will not Accelerate in the event of an Acquisition. In this
regard, if Optionee is offered employment or some other continuing role by or on behalf of the
Acquirer, including but not limited to, continuing employment with the Company, and in connection
therewith, the Acquirer offers to assume or replace the Option, the Option will not Accelerate if
Optionee does not accept the offer.
If, following a Change of Control in which the Option has been assumed by the successor or
acquiring entity as of the closing date of such Change of Control, in the event of Optionees
Involuntary Termination of employment within 24 months after the closing date of such Change of
Control the vesting of the assumed Option shall be accelerated such that the Option will so vest as
of the effective date of such Involuntary Termination with respect to all Shares that would have
become vested during such 24-month period but for the Change of Control and Involuntary Termination
(assuming Optionees Continuous Service). An Involuntary Termination is one that occurs by reason
of dismissal for any reason other than Misconduct or of voluntary resignation following: (i) a
change in position that materially reduces the level of Optionees responsibility, (ii) a material
reduction in Optionees base salary, or (iii) relocation by more than 50 miles; provided that (ii)
and (iii) will apply only if Optionee has not consented to the change or relocation. Misconduct
shall mean the commission of any act of fraud, embezzlement or dishonesty by Optionee, any
unauthorized use or disclosure by such person of confidential information or trade secrets of the
Company (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business affairs of the Company (or any Parent or Subsidiary) in a material manner.
The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the
Company (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee.
11. Consent of Spouse/Domestic Partner. Optionee agrees that Optionees spouses or domestic
partners interest in the Option is subject to this Agreement and such spouse or domestic partner
is irrevocably bound by the terms and conditions of this Agreement. Optionee agrees that all
community property interests of Optionee and Optionees spouse or domestic partner in the Option,
if any, shall similarly be bound by this Agreement. Optionee agrees that this Agreement is binding
upon Optionees and Optionees spouses or domestic partners executors, administrators, heirs and
assigns. Optionee represents and warrants to the Company that Optionee has the authority to bind
Optionees spouse/domestic partner with respect to the Option. Optionee agrees to execute and
deliver such documents as may be necessary to carry out the intent of this Section 11 and the
consent of Optionees spouse/domestic partner.
IN WITNESS WHEREOF, Optionee and the Company have entered into this Agreement as of the Grant
Date.
ADVENTRX Pharmaceuticals, Inc. | ||||||
[Optionee Name]
|
By: | |||||
Name: | ||||||
Title: | ||||||
Exhibit A
Notice of Exercise of Stock Option
I (please print legibly) hereby elect to
exercise the
stock options(s) identified below (the Option(s)) granted to me by ADVENTRX
Pharmaceuticals, Inc. (the Company) under its 2005 Equity Incentive Plan (the
Plan) with respect to the number of shares of Common Stock of the Company set forth below
(the Shares). I represent that each Share is fully vested and exercisable and subject to
the Option(s). I acknowledge and agree that my exercise of the Option(s) is subject to the terms
and conditions of the Plan and the Stock Option Agreement(s) governing the Option(s).
1. Shares at $ per share (Grant date):
2. Shares at $ per share (Grant date):
3. Shares at $ per share (Grant date):
4. Shares at $ per share (Grant date):
I choose to pay for the exercise of the above option(s) as follows (please
circle applicable item numbers):
1. Cash: $
2. Check: $ (please make checks payable to ADVENTRX Pharmaceuticals, Inc.)
3. Surrender of Shares:
Please deliver the stock certificate(s) representing the Shares to (please print legibly):
Name: |
||||
Signature: |
||||
Date: |
||||
Phone No: |
||||
Exhibit 10.5
2008 INCENTIVE PLAN
This 2008 Incentive Plan (this Plan) of ADVENTRX Pharmaceuticals, Inc. (ADVENTRX or the
Company) is designed to offer incentive compensation to certain employees of the Company (as
described under the Eligibility section below (Participants)), by rewarding the achievement of
near-term corporate objectives and specifically identified individual objectives that are
consistent with and support near-term corporate objectives. This Plan is intended to create an
environment that will focus Participants on the achievement of objectives. Since cooperation
between departments and Participants will be required to achieve corporate objectives that
represent a significant portion of the incentive awards available under this Plan, this Plan should
foster improved teamwork and a more cohesive management team.
Purpose of this Plan
This Plan is designed to:
| provide an incentive program to achieve near-term corporate objectives and thereby enhance stockholder value; | ||
| reward key employees who significantly impact corporate results; | ||
| encourage increased teamwork among all departments within the Company; | ||
| incorporate an incentive program in ADVENTRXs overall compensation strategy to help attract and retain key employees; and | ||
| incentivize Participants to remain employed by ADVENTRX throughout the plan year and until the time incentive awards are paid. |
Plan Year
The plan year under this Plan is the calendar year beginning January 1, 2008 and ending December
31, 2008.
Plan Governance
This Plan will be governed by the compensation committee (the Committee) of the Companys board
of directors. The Committee will be responsible for determining and approving all awards to
officers of the Company and the Companys chief executive officer will be responsible for
determining and approving all awards to non-officer Participants.
Eligibility
All full time (40 hours/week) exempt employees at the Director level or higher are eligible to
participate in this Plan. To be eligible to earn and receive an award under this Plan, such
employee: (a) must have been in an eligible position (i.e., Director-level or higher) prior to
October 1, 2008 and remain employed in such capacity through the end of the plan year and until
incentive awards are paid; and (b) must not be on probation or under review or evaluation (or
similar disciplinary action) at the time incentive award determinations are made or paid.
Form of Incentive Award Payments
Incentive award payments generally will be made in cash, though the Committee has sole and absolute
discretion to determine the composition of individual incentive award payments.
Corporate and Individual Objectives
This Plan calls for incentive awards based on the achievement of near-term corporate objectives by
the Company and individual objectives by Participants.
Prior to May 31, 2008, the Companys chief executive officer will present to the Committee a list
of proposed near-term corporate objectives for the plan year, which objectives are subject to
review and approval by the Committee. Corporate objectives will be specific and measurable. Each
Participant will then work with his/her supervisor to develop a list of individual objectives
applicable to such Participant. The list of individual objectives for each non-officer
Participant, must be approved by such Participants department head (who must be an officer of the
Company), in concert with the Companys chief executive officer. The list of individual objectives
for each officer Participant must be approved by the Companys chief executive officer and the
Committee. If an individual becomes eligible to participate in this Plan (whether as a result of
retention, promotion or otherwise) following the development and approval of lists of individual
objectives, such individual will promptly develop a list of individual objectives applicable to
such individual that foster attaining approved near-term corporate objectives for the plan year and
have such list approved as set forth above.
The relative weight between corporate and individual objectives of an incentive award will vary
based on each Participants level within the Company as follows:
Title (Level) | Corporate | Individual | ||||||
Chief Executive Officer |
100 | % | 0 | % | ||||
Participants (other than the CEO) |
75 | % | 25 | % |
If an approved corporate or individual objective becomes irrelevant or undesirable during the plan
year or if a strategic change affects (one or more) objectives then, for each such affected
objective
(a) with respect to corporate objectives, the Committee, after considering the recommendations
of the Companys chief executive officer, may (i) substitute a new objective, (ii) eliminate the
affected objective or (iii) take no action;
(b) with respect to individual objectives, (A) for non-officer Participants, the Companys
chief executive officer, in concert with the Participant whose individual objectives were affected,
may take one of the actions described in subsections (a)(i)-(iii) above, (B) for officer
Participants, the Committee, after considering the recommendations of the Companys chief executive
officer, may take one of the actions described in subsections (a)(i)-(iii) above.
Incentive Award Targets
Incentive awards generally will consist of cash-based compensation as described below, though the
Committee has sole and absolute discretion to determine the composition of individual incentive
award payments.
The target amount of a typical incentive award will be a specific dollar amount or determined by
applying a target percentage to the base salary earned by a Participant during the plan year as
an eligible employee in this Plan. The following amounts or target percentages will be used to
determine the target award amounts:
Title (Level) | Amount or Target Percentage | |||
Chief Executive Officer |
$ | 250,000 | ||
Executives (other than the CEO) |
30 | % | ||
Non-executive Vice Presidents |
20 | % | ||
Executive Directors, Senior Directors and Directors |
15 | % |
Award Multipliers
Corporate and individual award multipliers will be determined in the first quarter of 2009 and
applied to Participants target amounts to establish the actual payout amounts of the incentive
awards. A corporate award multiplier, which will be based on overall corporate performance against
corporate objectives in place at the end of 2008 and the same for all Participants, will apply to
the corporate performance component of each Participants target award amount. An individual award
multiplier, which will be based on a Participants performance against that Participants
objectives in place at the end of 2008 and separately determined for each Participant, will apply
to the individual performance component of each Participants target award amount. These award
multipliers may have the affect of increasing or decreasing a Participants actual payout amount
versus his or her target amount.
The corporate award multiplier will be determined by the Committee. The individual award
multiplier for each non-officer Participant will be determined by such Participants department
head (who must be an officer of the Company), in concert with the Companys chief executive
officer. The individual award multiplier for each officer Participant will be determined by the
Committee after considering the recommendations of the Companys chief executive officer.
In determining the achievement of objectives and award multipliers, the Committee, the Companys
chief executive officer and the Companys other officers, as applicable, will consider the
achievement of objectives, the degree to which a an objective is partially achieved, the quality of
achievement, the difficulty in achieving the objective, conditions that affected the ability to
achieve objectives and such other factors as the Committee, the Companys chief executive officer
or the Companys other officers, as applicable, determine are appropriate to consider.
Award multipliers range from 0 to 1.50.
Payment of Incentive Awards
Payment of incentive awards will be made no later than March 14, 2009. Incentive award calculations
for each Participant will be based on such Participants base salary earned during the plan year as
an eligible employee in this Plan. A Participant has not earned and does not have any
right or entitlement to any award under this Plan until the time the award is actually paid to such
Participant.
For clarification, Participants who have been in an eligible position for less than a year, but who
hold an eligible position prior to October 1, 2008 (and remain continuously employed through the
payment of awards) will receive a pro-rated award based on the portion of the plan year they held
an eligible position. A Participant who is promoted during the plan year from one target
percentage level to another will have his/her incentive award calculated using his/her base salary
earned during the plan year as an eligible employee in this Plan and, if the promotion occurred
prior to October 1, 2008, the calculation will be pro-rated, based on the number of months at each
target percentage level. If the promotion occurred on or after October 1, 2008, the entire
calculation will be based on the target percentage applicable prior to the promotion. A Participant
who is demoted during the plan year from one target percentage level to another will have his/her
incentive award calculated using his/her base salary earned during the plan year as an eligible
employee in this Plan and, regardless of when the demotion occurred, the calculation will be based
on the target percentage level applicable to such Participant at the end of the plan year. Other
than as stated above, incentive awards will not be pro-rated for partial-year service.
Termination
Any award payment provided for under this Plan is completely discretionary and is not considered
earned by a Participant until it is actually paid. Continued employment until payment of the
incentive award is required. If the employment of a Participant is terminated (whether voluntarily
or involuntarily) during the plan year, or prior to payment of awards, whether or not an award
payment is made will be at the absolute discretion of (a) the Committee, with respect to officer
Participants (including the Companys chief executive officer), and (b) the Companys chief
executive officer, with respect to non-officer Participants.
Absolute Right to Alter or Abolish this Plan; Disputes
The Committee reserves the right in its absolute discretion to abolish this Plan at any time or to
alter the terms and conditions under which incentive awards will be paid, with or without cause and
with or without prior notice. Such discretion may be exercised any time before, during, and after
the plan year has commenced or is completed. No Participant shall earn or vest in any right to
receive any award hereunder until actual payment of such award.
Any dispute or controversy arising under this Plan will be settled by the Committee in its sole and
absolute discretion.
Employment Duration/Employment Relationship
This Plan does not, and ADVENTRXs policies and practices in administering this Plan do not,
constitute an express or implied contract or other agreement concerning the duration of any
Participants employment with the Company. The employment relationship of each Participant is at
will and may be terminated at any time by ADVENTRX or by the Participant, with or without cause.
Other Terms and Conditions of this Plan
The Company is not responsible for any tax liability incurred by Participants that receive an award
under this Plan, but reserves the right to deduct from any award payment an amount equal to all or
any part of the deductions or taxes required by law to be withheld by the Company.
Notwithstanding any other provision of this Plan, each Participants award, if any, will be paid in
a single sum not later than (i) the date that is the 15th day of the 3rd month following the end of
the Participants first taxable year in which the award is no longer subject to a substantial risk
of forfeiture or (ii) the date that is the 15th day of the 3rd month following the end of the
Companys first fiscal year in which the award is no longer subject to a substantial risk of
forfeiture, whichever is later. Unless an exemption applies, this Plan and the awards paid
pursuant to this Plan are intended to meet the requirements of Section 409A of the Internal Revenue
Code of 1986, as amended.
This Plan is unfunded and no provision of this Plan shall require the Company, for the purpose of
satisfying any Plan obligations, to purchase assets or place any assets in a trust or other entity
or otherwise to segregate any assets for such purposes. Nothing contained in this Plan nor any
action taken pursuant to its provisions shall create or be construed to create a fiduciary
relationship between the Company and any Participant or other person. Any right to receive an
award payment under this Plan shall be no greater than the right of any unsecured creditor of the
Company.
This Plan shall be governed by, and interpreted, construed, and enforced in accordance with, the
laws of the State of California without regard to its or any other jurisdictions conflicts of laws
provisions.
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Evan M. Levine, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q 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: May 12, 2008
/s/ Evan M. Levine | ||||
Evan M. Levine | ||||
Chief Executive Officer and President
(Principal Executive Officer) |
||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark N.K. Bagnall, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q 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: May 12, 2008
/s/ Mark N.K. Bagnall | ||||
Mark N.K. Bagnall | ||||
Chief Financial Officer and Executive Vice President
(Principal Financial and Accounting Officer) |
||||
Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act of 2002
Section 1350, As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of ADVENTRX Pharmaceuticals, Inc. (the Company) on Form
10-Q for the quarter ended March 31, 2008, as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Evan M. Levine, Chief Executive Officer and President 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 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.
Date: May 12, 2008
/s/ Evan M. Levine | ||||
Evan M. Levine | ||||
Chief Executive Officer and President | ||||
In connection with the Quarterly Report of ADVENTRX Pharmaceuticals, Inc. (the Company) on Form
10-Q for the quarter ended March 31, 2008, as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Mark N.K. Bagnall, Chief Financial Officer and Executive Vice
President 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 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.
Date: May 12, 2008
/s/ Mark N.K. Bagnall | ||||
Mark N.K. Bagnall | ||||
Chief Financial Officer and Executive Vice President | ||||