Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 00-50626
CYCLACEL
PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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91-1707622 |
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(State or Other Jurisdiction
of Incorporation or
Organization)
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(I.R.S. Employer
Identification No.) |
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200 Connell Drive
Suite 1500, Berkeley Heights,
New Jersey
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07922 |
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(Address of principal executive
offices)
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(Zip Code) |
Registrants telephone number, including area code: (908) 517-7330
Securities registered under Section 12(b) of the Exchange Act:
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Name of Each Exchange on Which |
Title of Each Class |
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Registered |
Common Stock, $0.001 par value
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The NASDAQ Stock Market LLC |
Preferred Stock, $0.001 par value
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The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such files). Yes
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No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S- K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendments to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act:
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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[Do not check if a smaller reporting company] |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of the registrants voting and non-voting common stock held by
non-affiliates of the registrant (without admitting that any person whose shares are not included
in such calculation is an affiliate), as of June 30, 2009 (based upon the closing sale price of
$1.13 of such shares on The NASDAQ Global Market on June 30, 2009) was $19,164,232.
As of March 26, 2010, there were 35,411,325 shares of the registrants common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into the following
parts of this Annual Report on Form 10-K: Certain information required in Part III of this Annual
Report on Form 10-K is incorporated from the registrants Proxy Statement relating to the 2010
Annual Meeting of Stockholders, to be held on May 25, 2010, which we will file with the Securities
and Exchange Commission within 120 days after our December 31, 2009 fiscal year end.
PART I
In this report, Cyclacel, the Company, we, us, and our refer to Cyclacel
Pharmaceuticals, Inc.
General
Cyclacel Pharmaceuticals, Inc. was incorporated in the state of Delaware in 1996 and is
headquartered in Berkeley Heights, New Jersey, with a research facility located in Dundee,
Scotland. Cyclacel is a development stage biopharmaceutical company dedicated to the discovery,
development and commercialization of novel, mechanism-targeted drugs to treat human cancers and
other serious disorders. Cyclacels strategy is to build a diversified biopharmaceutical business
focused in hematology and oncology based on a portfolio of commercial products and a development
pipeline of novel drug candidates. As a development stage enterprise, substantially all efforts of
the Company to date have been devoted to performing research and development, conducting clinical
trials, developing and acquiring intellectual property, raising capital and recruiting and training
personnel.
Recent Developments
On January 27, 2010, we announced that The NASDAQ Global Market, or NASDAQ, had notified us
that we regained compliance with the minimum $50 million market value of listed securities
requirement and that we currently comply with all other applicable standards for continued listing
on NASDAQ.
On January 25, 2010, we completed the sale of 2,350,000 units in a registered direct
offering at a purchase price of $2.50 per unit to certain institutional investors of the Company
for gross proceeds of approximately $5.9 million. Each unit consisted of one share of our common
stock and one warrant to purchase 0.30 of one share of our common stock. The warrants have a
five-year term from the date of issuance, are exercisable beginning six months from the date of
issuance and will be exercisable at an exercise price of $2.85 per share of common stock.
On January 13, 2010, we completed the sale of 2,850,000 units in a registered direct
offering to certain institutional investors. Each unit was sold at a purchase price of $2.51 per
unit and consists of one share of our common stock and one warrant to purchase 0.25 of one share of
our common stock for gross proceeds of approximately $7.2 million. The warrants have a five-year
term from the date of issuance, are exercisable beginning six months from the date of issuance and
will be exercisable at an exercise price of $3.26 per share of common stock.
On January 7, 2010, our Board decided not to declare the quarterly
cash dividend on the Companys 6% Convertible Exchangeable Preferred Stock, or Preferred Stock,
with respect to the fourth quarter of 2009 that would have otherwise been payable on February 1,
2010. As previously disclosed, the Board also did not declare the quarterly cash dividend with
respect to the first, second and third quarters of 2009. To the extent that any dividends payable
on the Preferred Stock are not paid, such unpaid dividends are accrued. This is the fourth quarterly dividend
the Company decided not to declare and if we fail to pay dividends for at least six quarters (whether or
not consecutive) on the Preferred Stock, the size of our Board of Directors could be increased by
two members and the holders of the Preferred Stock, voting separately as a class, will have the
right to vote to fill the two vacancies created thereby until all accrued but unpaid dividends have
been paid in full, at which time such right is terminated.
Through March 25, 2010, we issued 2,618,266 shares of our common stock for gross proceeds of
approximately $2.6 million through the exercise of warrants. In addition, we completed draw downs
from our Committed Equity financing Facility, or CEFF, under which we issued 1,563,208 shares
for proceeds of approximately $3.1 million.
During March 2010, we issued 239,396 shares of our common stock to a stockholder in exchange
for the stockholders delivery to us of 123,400 shares of our outstanding Preferred Stock.
3
Corporate information
Our corporate headquarters are located at 200 Connell Drive, Suite 1500, Berkeley Heights, New
Jersey, 07922, and our telephone number is 908-517-7330. This is also where our medical and
regulatory functions are located. Our research facility is located in Dundee, Scotland which is
also the center of our translational work and development programs.
Overview
We are a biopharmaceutical business dedicated to the discovery, development and
commercialization of novel, mechanism-targeted drugs to treat cancer and other serious disorders.
We are focused on delivering leading edge therapeutic management of cancer patients based on a
clinical development pipeline of novel drug candidates. Our core area of expertise, and a
foundation of the Company since our inception, is in cell cycle biology; the processes by which
cells divide and multiply. We focus primarily on the development of orally available anticancer
agents that target the cell cycle with the aim of slowing the progression or shrinking the size of
tumors, and enhancing the quality of life and improving survival rates of cancer patients.
Our clinical development priorities are focused on sapacitabine in the following indications:
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Acute myeloid leukemia, or AML, in the elderly; |
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Myelodysplastic syndromes, or MDS; and |
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Non-small cell lung cancer, or NSCLC. |
We have additional clinical programs which are currently pending availability of clinical
data. Once data become available and are reviewed, we will determine the feasibility of pursuing
further development and/or partnering these assets including sapacitabine in combination with
seliciclib, seliciclib in NSCLC and nasopharyngeal cancer, or NPC, and CYC116. In addition, we
market directly in the United States Xclair® Cream for radiation dermatitis and Numoisyn® Liquid
and Numoisyn® Lozenges for xerostomia.
We were founded by Professor Sir David Lane, a recognized leader in the field of tumor
suppressor biology who discovered the p53 protein, which operates as one of the bodys own
anticancer agents by regulating cell cycle targets. Our Chief Scientist, Professor David Glover,
is a recognized leader in the biology of mitosis or cell division. Professor Glover discovered,
among other cell cycle targets, the mitotic kinases, Polo and Aurora, enzymes that act in the
mitosis phase of the cell cycle.
Although our resources are primarily directed towards advancing our anticancer drug candidate
sapacitabine through in-house development activities we are also progressing, but with lower levels
of investment than in previous years, our other novel drug series which are at earlier stages.
Taken together, our pipeline covers all four phases of the cell cycle, which we believe will
improve the chances of successfully developing and commercializing novel drugs that work on their
own or in combination with approved conventional chemotherapies or with other targeted drugs to
treat human cancers. As a consequence of our focus on sapacitabine clinical development and related
cost reduction program, research and development expenditures for the year ended December 31, 2009
were reduced by $9.1 million, or 48%, to $9.8 million compared to $18.9 million for the year ended
December 31, 2008.
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We have executed our strategy through the following activities:
Advancing our research and development programs
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Submitted a Special Protocol Agreement, or SPA, to the U.S. Food and Drug
Administration, or FDA, for a randomized Phase 3 study design for sapacitabine in
elderly AML following a Type A meeting with the FDA in December 2009; |
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Cyclacels cyclin dependent kinase, or CDK, inhibitors mechanism of action,
target profile and selectivity elucidated in recent publications which reported
activity in highly transformed and/or resistant cancers and potential in other
proliferative diseases; |
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Sapacitabine Phase 2 elderly AML trial 1-year survival data announced at the
2009 American Society of Hematology (ASH) annual meeting; |
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Sapacitabine Phase 2 trial of patients with MDS interim results announced at the
2009 ASH annual meeting; |
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Sapacitabine and seliciclib combination trial initiated Phase 1 trial for solid
tumors; and |
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Seliciclib Phase 2 trial of NPC initial results reported at
the 2009 American Society of Clinical Operations, or ASCO, meeting. |
Managing our resources
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Ended 2009 with approximately $11.5 million of cash and cash equivalents and
short-term investments. Raised an additional $15.6 million in gross proceeds
through two registered direct offerings in January 2010 and the exercise of
warrants; |
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In November 2009, we amended the Kingsbridge Capital Limited Committed Equity
Financing Facility and raised approximately $1.0 million; |
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In July 2009, we raised $3.4 million in gross proceeds through a registered
direct offering; and |
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Followed our operating plan with the focus on sapacitabine clinical development
and further lowered operating costs through a reduction in workforce in the second
and third quarters of 2009; since announcing our revised operating plan in
September 2008, we have reduced our workforce by fifty one (51) people, or 63% of
our workforce and closed our Cambridge research facility. |
5
Research and Development Pipeline
The following table summarizes our clinical and preclinical programs.
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Development |
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Cell Cycle |
Program |
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Indication |
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Target |
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Mechanism |
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Oncology |
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Sapacitabine, CYC682
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Elderly AML
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Phase 2 randomized trial completed
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DNA polymerase
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G2 and S phase |
Sapacitabine, CYC682
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MDS
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Phase 2 randomized trial on-going
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DNA polymerase
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G2 and S phase |
Sapacitabine, CYC682
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CTCL
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Phase 2 randomized trial stopped.
Not a company priority
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DNA polymerase
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G2 and S phase |
Sapacitabine, CYC682
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NSCLC
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Phase 2 trial on-going
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DNA polymerase
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G2 and S phase |
Sapacitabine + Seliciclib
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Cancer
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Phase 1 trial on-going |
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Seliciclib, CYC202
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NSCLC
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Phase 2b randomized trial closed
to accrual
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CDK2/A, 2/E, 7, 9
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G1/S
checkpoint and others |
Seliciclib, CYC202
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NPC
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Phase 2 randomized trial. Lead-in
phase only on-going
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CDK2/A, 2/E, 7, 9
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G1/S
checkpoint and others |
CYC116
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Cancer
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Phase 1 trial completed
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Aurora kinase & VEGFR2
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Mitosis |
CDK Inhibitors, Second Generation
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Cancer
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Preclinical
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CDK
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G1/S
checkpoint and others |
Plk1 Inhibitors
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Cancer
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Preclinical
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Plk
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G2/M
checkpoint |
Hdm2 Inhibitors
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Cancer
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On hold, Not a company priority
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Hdm2
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G1/2 phase |
Cyclin Binding Groove Inhibitors
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Cancer
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On hold. Not a company priority
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Cyclin binding groove
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S phase |
Other therapeutic areas |
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Cell Cycle Inhibitors
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Autoimmune &
Inflammatory
Diseases
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Phase 1 trial completed On hold.
Not a company priority
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CDK
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G1/S
checkpoint and others |
Cell Cycle Inhibitors
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HIV/AIDS
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On hold. Not a company priority
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CDK
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Other |
GSK-3 Inhibitors
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Type 2 Diabetes
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On hold. Not a company priority
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GSK-3
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Other |
Market opportunity in oncology
Cancer remains a major life-threatening disease in the United States with approximately 3.2
million people afflicted by cancer and approximately 1.4 million new cases of cancer diagnosed
every year. Five common solid cancer types: non-small cell lung, breast, ovarian, prostate and
colorectal cancers, represent over 50% of all new cases of cancer in the United States each year
and account for more than 50% of all cancer deaths in the United States.
Acute myeloid leukemia is one of the most common types of leukemia or cancer in the blood and
bone marrow. According to the American Cancer Society approximately 44,000 cases of leukemia are
diagnosed annually in the United States of which about 13,000 are classified as AML. Leukemia is a
deadly disease with an estimated 9,000 deaths annually in the United States, almost all in adults.
The average age of a patient with AML is 67 and about two-thirds of AML patients are above 60 years
old. The prognosis of AML in the elderly is poor.
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There are approximately 11,000 new cases of myelodysplastic syndromes diagnosed annually in
the United Sates with incidence rates between 16,000 and 20,000. Patients currently receive
hypomethylating agents as first-line treatment and while survival rates exceed one year, there is no
established therapy for second-line treatment.
Lung cancer is a cancer starting in the lungs that often takes many years to develop. About
85% to 90% of all lung cancers are of NSCLC type. According to the American Cancer Society, an
estimated 215,000 patients are diagnosed annually with NSCLC in the United States. An estimated
380,000 new cases are diagnosed annually in the European Union. NSCLC is a deadly disease with an
estimated 162,000 deaths annually in the United States.
NPC develops in the nasopharynx, an area in the back of the nose toward the base of the skull.
Although it is sometimes considered a head and neck or an oral cancer, nasopharyngeal cancer is
different from these cancers. It is frequently fatal, once the disease recurs after initial chemotherapy
and radiotherapy, spreads widely and has different risk factors such as Epstein-Barr virus, or EBV
infection. High EBV viral titers are considered an indicator of poor prognosis. According to the
American Cancer Society, an estimated 2,100 patients are diagnosed annually with nasopharyngeal
cancer in the United States. An estimated 2,500 are diagnosed annually in the European Union, but
an estimated 70,000 new cases are diagnosed annually in the Asia Pacific region.
Lymphoma is a cancer of lymphoid tissue, a part of the lymphatic system. Lymphoid tissue is
formed by several types of immune system cells that work together mainly to resist infections.
About 5% of all lymphomas start in the skin often staying there without spreading to internal
organs and are called cutaneous lymphomas. The main cell types found in lymphoid tissue are B
lymphocytes and T lymphocytes resulting in B-cell or T-cell lymphoma, or CTCL. CTCL causes
disfiguring skin lesions and severe itching. According to the American Cancer Society, an
estimated 3,000 patients are diagnosed annually with lymphoma in the skin in the United States.
Oncology Development Programs
We are generating several families of anticancer drugs that act on the cell cycle, including
nucleoside analogues, cyclin dependent kinase, or CDK, inhibitors and Aurora kinase/Vascular
Endothelial Growth Factor Receptor 2, or AK/VEGFR2 inhibitors. Although a number of pharmaceutical
and biotechnology companies are currently attempting to develop nucleoside analogues, CDK
inhibitor, AK and/or VEGFR inhibitor drugs, we believe that our drug candidates, are differentiated
in that they are orally available and interact with unique target profiles and mechanisms. For
example we believe that our sapacitabine is the only orally available nucleoside analogue presently
being tested in Phase 2 trials in AML, and seliciclib is the only orally available CDK inhibitor
currently in Phase 2 trials.
In our development programs, we have been an early adopter of biomarker analysis to help
evaluate whether our drug candidates are having their intended effect through their assumed
mechanisms at different doses and schedules. Biomarkers are proteins or other substances whose
presence in the blood can serve as an indicator or marker of diseases. Biomarker data from early
clinical trials may also enable us to design subsequent trials more efficiently and to monitor
patient compliance with trial protocols. We believe that in the longer term biomarkers may allow
the selection of patients more likely to respond to its drugs for clinical trial and marketing
purposes and increase the benefit to patients.
Our approach to drug discovery and development has relied on proprietary genomic technology to
identify gene targets, which are then progressed by means of structure-based drug design techniques
through to the development stage. This approach is exemplified by our Aurora kinase, or AK, and
Polo-like kinase, or Plk, inhibitor programs. Fundamentally, this approach to drug discovery and
design aims to improve our ability to select promising drug targets in the early stages of the
process so as to decrease compound attrition rates during the later, more expensive stages of drug
development. By devoting resources initially to this process, we were able to focus our efforts on
targets that have a higher probability of yielding successful drug candidates through the
utilization of an integrated suite of sophisticated discovery and design technologies by highly
skilled personnel. However, as a result of the reduction in our workforce in 2008 and 2009 our
ability to identify, optimize and develop new targets is significantly curtailed.
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Sapacitabine
Our lead candidate, sapacitabine, is an orally available prodrug of CNDAC, which is a
novel nucleoside analog, or a compound with a structure similar to a nucleoside. A prodrug is a
compound that has a therapeutic effect after it is metabolized within the body. CNDAC has a
significantly longer residence time in the blood when it is produced in the body through metabolism
of sapacitabine than when it is given directly. Sapacitabine acts through a dual mechanism whereby
the compound interferes with DNA synthesis and repair by causing single-strand DNA breaks and
induces arrest of the cell division cycle at G2/M checkpoint. A number of nucleoside drugs, such as
gemcitabine, or Gemzar®, from Eli Lilly, and cytarabine, also known as Ara-C, a generic drug, are in wide use as conventional
chemotherapies. Both sapacitabine and its major metabolite, CNDAC, have demonstrated potent
anti-tumor activity in both blood and solid tumors in preclinical studies. In a liver metastatic
mouse model, sapacitabine was shown to be superior to gemcitabine and 5-FU, two widely used
nucleoside analogs, in delaying the onset and growth of liver metastasis. We have retained
worldwide rights to commercialize sapacitabine, except for Japan, for which Daiichi-Sankyo Co., Ltd, or Daiichi-Sankyo, has a right of first negotiation.
We are currently exploring sapacitabine in both hematological cancers and solid tumors. To
date, sapacitabine has been evaluated in approximately 400 patients in several Phase 1 and 2
studies and has shown signs of anti-cancer activity.
Hematological Cancers
Phase 1 clinical trial in patients with advanced leukemias and myelodysplastic syndromes
In December 2007, at the ASH annual meeting, we reported interim results from a Phase 1
clinical trial of oral sapacitabine in patients with advanced leukemias and MDS. The data
demonstrated that sapacitabine had a favorable safety profile and promising anti-leukemic activity
in patients with relapsed and refractory AML and MDS when administered by two different dosing
schedules. The primary objective of the study is to determine the maximum tolerated dose, or MTD,
of sapacitabine administered twice daily for seven consecutive days every 21 days or three
consecutive days per week for two weeks every 21 days. The MTD was reached at 375 mg on the
seven-day schedule and 475 mg on the three-day schedule. Dose-limiting toxicity was
gastrointestinal which included abdominal pain, diarrhea, small bowel obstruction and neutropenic
colitis. One patient treated at the MTD of 375 mg on the seven-day schedule died of complications
from neutropenic colitis. Among 46 patients, 42 with AML and 4 with MDS, in this dose escalating
study, the best responses were complete remission, or CR, or complete remission without platelet
recovery, or CRp, in six patients for an Overall Response Rate of 13%. In addition, 15 patients had
a significant decrease in bone marrow blasts including seven with blast reduction to 5% or less.
The study was conducted at The University of Texas M. D. Anderson Cancer Center and is led by Hagop
Kantarjian, M.D., Professor of Medicine and Chairman of the Leukemia Department and Dr. William
Plunkett, Professor and Chief, Section of Molecular and Cellular Oncology, Department of
Experimental Therapeutics.
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Phase 2 randomized clinical trial in elderly patients with AML previously untreated or in first
relapse
In December 2007, we initiated an open-label, multicenter, randomized Phase 2 clinical trial
of oral sapacitabine in 60 elderly patients with AML aged 70 or older who are previously untreated
or in first relapse. The Phase 2 study, led by Dr. Kantarjian, has a primary endpoint of 1-year
survival rate of three dosing schedules of sapacitabine in elderly patients with previously
untreated or first relapsed AML. Secondary objectives are to assess CR or CRp, partial remission,
or PR, duration of CR or CRp, or major hematological improvement and their corresponding durations,
transfusion requirements, number of hospitalized days and safety. The study uses a selection design
with the objective of identifying a dosing
schedule among three different arms, A. 200 mg twice
daily for seven days every 3-4 weeks, B. 300 mg twice daily for seven days every 3-4 weeks, and C. 400
mg twice daily for three days per week for two weeks every 3-4 weeks, which produces a better 1-year
survival rate in the event that all three dosing schedules are active. Each arm enrolled and
treated 20 patients. Approximately 55% of patients had AML de novo and the rest had AML preceded by
antecedent hematological disorder, or AHD, such as MDS, or myeloproliferative disease. Eighty
percent of the patients were untreated and 20% in first relapse. We completed enrollment of 60 AML
patients in this study in October 2008. In December 2009, at the 51st Annual
Meeting of ASH we reported 1-year survival data.
The primary endpoint of 1-year survival was 35% on Arm A, 30% on Arm C and 10% on Arm B. The
median overall survival was 212 days on Arm C (range of 13 to over 654 days), 197 days on Arm A
(range of 26 to over 610 days) and 100 days on Arm B (range of 6 to over 646 days). Overall
response rate, or ORR, a secondary endpoint, was 45% on Arm A, 35% on Arm C and 25% on Arm B with CR rate of 25%
on Arm C and 10% on Arms A and B. Thirty-day mortality was 10% on Arm C and Arm A and 20% on Arm
B. Approximately 30% of all patients received sapacitabine for at least 6 cycles. Fifteen
patients who survived one year or more received an average of 12 treatment cycles.
Exploratory subgroup analysis suggests that (i) Arm C may be more effective for de novo AML
and (ii) Arm A may be more effective for AML preceded by AHD, such as MDS.
The 3-day dosing schedule in Arm C was selected for further clinical development in elderly
patients with de novo AML based on a 1-year survival rate of 30%, ORR of 35% with durable CRs. The
7-day dosing schedule in Arm A was selected for further clinical development in elderly patients
with AML preceded by AHD based on a 1-year survival rate of 35%, ORR of 45% with durable
hematological improvement.
Randomized Phase 2 clinical trial in older patients with MDS as a second-line treatment
In September 2008, we advanced sapacitabine into Phase 2 development as a second-line
treatment in patients aged 60 or older with MDS who are previously treated with hypomethylating
agents. The MDS stratum of the study is designed as a protocol amendment expanding the ongoing
Phase 2 trial of sapacitabine in AML described above, to include a cohort of patients with MDS.
Patients with MDS often progress to AML. The primary objective of the MDS stratum is to evaluate
the 1-year survival rate of three dosing schedules of sapacitabine. Secondary objectives are to
assess the number of patients who have achieved CR or CRp, PR, hematological improvement and their
corresponding durations, transfusion requirements, number of hospitalization days and safety. The
study uses a selection design with the objective of identifying a dosing schedule which produces a
better 1-year survival rate for each stratum in the event that all three dosing schedules are
active.
In December 2009, at the 51st ASH Annual Meeting, we reported interim
response data for the ongoing Phase 2 clinical trial of sapacitabine in older patients with MDS.
The study has recently completed enrollment of 60 patients aged 60 or older with MDS who were
previously treated with azacitidine and/or decitabine. Each arm enrolled 20 patients randomized
across the same three dosing schedules of sapacitabine (Arms A, B and C) tested in the AML stratum
of the study. Forty-nine of the patients enrolled have been followed-up for more than 30 days.
Approximately 46% of the 49 patients had baseline bone marrow blast counts above 10%. Based on
interim data, the highest number of responses was observed on Arm B, the 7-day high dose schedule.
Thirty-day mortality from all-causes is 8.2%. Approximately 30% of the patients received 4 or more
cycles of sapacitabine.
9
Pivotal trial plan for sapacitabine for the treatment of hematological malignancies
In December 2009, we announced that we held a Type A meeting with the FDA to discuss a
randomized Phase 3 study design for our oral sapacitabine capsules in AML and separately in MDS.
Based on the FDAs confirmation that the proposed study design would be acceptable for a SPA, we
submitted a SPA request during the first quarter of 2010. Should the SPA be granted we would plan
to start such a study during 2010. The SPA process allows for official FDA evaluation of clinical
protocols of a Phase 3 clinical trial intended to form the primary basis for an efficacy claim. A
SPA provides trial sponsors with an FDA agreement that the design and analysis of the trial
adequately address objectives in support of a submission for a marketing application if the trial
is performed according to the SPA. The SPA may only be changed through a written agreement between
the sponsor and the FDA, or if the FDA becomes aware of a substantial scientific issue essential to
product efficacy or safety. However, a SPA does not provide any assurance that a marketing
application would be approved by the FDA. Furthermore, Phase 3 clinical trials are time-consuming
and expensive, and because we have limited resources, we may be required to collaborate with a
third party or raise additional funds. However, there is no assurance that we will be able to do
so.
Solid Tumors
Phase 1 clinical trials in patients with refractory solid tumors or lymphomas
Two Phase 1 studies of sapacitabine were completed by Daiichi-Sankyo, from which we
in-licensed sapacitabine, evaluating 87 patients in refractory solid tumors. In addition, we
conducted a Phase 1b dose escalation clinical trial in patients with refractory solid tumors or
lymphomas. Preliminary results of the Phase 1b study were reported at the EORTC-NCI-AACR Molecular
Targets and Cancer Therapeutics meeting in November 2006. The primary objective of the study was to
evaluate the safety profile of sapacitabine administered twice daily for 14 consecutive days or 7
consecutive days every 21 days. Of the 37 treated patients, 28 received the drug twice daily for 14
days and 9 received the drug twice daily for 7 days. The dose-limiting toxicity was reversible
myelosuppression. One patient treated at the maximum tolerated dose died of candida sepsis in the
setting of grade 4 neutropenia and thrombocytopenia. Non-hematological toxicities were mostly mild
to moderate. The best response by investigator assessment was stable disease in 13 patients, five
with non-small cell lung cancer, two with breast cancer, two with ovarian cancer and one each with
colorectal cancer, adenocarcinoma of unknown primary, gastrointestinal stromal tumor, and parotid
acinar carcinoma.
Phase 2 clinical trial in patients with non-small cell lung cancer
In January 2009, we began treating patients in a Phase 2, open label, single arm, multicenter
clinical trial in patients with NSCLC who have had one prior chemotherapy. This study builds on the
observation of prolonged stable disease of four months or longer experienced by heavily pretreated
NSCLC patients involved in two Phase 1 studies of sapacitabine. The multicenter Phase 2 trial is
led by Philip D. Bonomi, M.D., at Rush University Medical Center, Chicago. The primary objective of
the study is to evaluate the rate of response and stable disease in patients with previously
treated NSCLC. Secondary objectives are to assess progression-free survival, duration of response,
duration of stable disease, 1-year survival, overall survival and safety. The study will enroll
approximately 40 patients and has a lead-in phase for dose escalation with the objective of
defining a recommended dose followed by a second stage in which patients will be treated at the
recommended dose.
Phase 2 clinical trial in patients with cutaneous T-cell lymphoma, or CTCL
In April 2007, we initiated a Phase 2 clinical trial in patients with advanced CTCL, a
cancer of T-lymphocytes, or white blood cells, which causes disfiguring skin lesions and severe
itching. The primary objective of the study is to evaluate tolerability and response rate of 50 mg
and 100 mg regimens of sapacitabine both twice a day for three days per week for two weeks in a
three week cycle in patients with progressive, recurrent, or persistent CTCL on or following two
systemic therapies. The study uses a selection design to choose an optimal dose if both are active.
Secondary objectives are to assess response duration, time to response, time to progression and
relief of pruritus or itching. Non-hematological toxicities were mostly mild to moderate. The best
response by investigator assessment was partial response in 3 patients out of 16 enrolled. We
stopped the trial in order to re-direct our resources to sapacitabine clinical trials with a higher
priority.
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EU Orphan Designation
During May 2008, we received designation from the European Medicines Evaluation Agency, or
EMEA, for sapacitabine as an orphan medicine in two separate indications: AML and MDS. The EMEAs
Committee for Orphan Medicinal Products, or COMP, adopted a positive opinion on the Companys
application to designate sapacitabine as an orphan medicinal product for the indications of AML and
MDS. The objective of European orphan medicines legislation is to stimulate research and
development of medicinal products for rare diseases by providing incentives to industry. An orphan
designation in the European Union confers a range of benefits to sponsor companies including market
exclusivity for a period of 10 years, EMEA scientific advice on protocol development, direct access
to the centralized procedure for review of marketing authorizations, EMEA fee reductions and eligibility for grant support from
European agencies.
Seliciclib
Our second drug candidate, seliciclib, is a novel, first-in-class, orally available,
CDK inhibitor. The compound selectively inhibits a spectrum of enzyme targets -CDK2/E, CDK2/A, CDK7
and CDK9- that are central to the process of cell division and cell cycle control. The target
profile of seliciclib is differentiated from the published target profile of other CDK inhibitors.
Its selectivity is differentiated by recent publications by independent investigators which showed
that seliciclib (i) is more active against NSCLC cells with K-Ras or N-Ras mutations than
those with wild type Ras and (ii) overcomes resistance to letrozole (Femara®) in breast cancer
cells caused by a particular form of cyclin E in complex with CDK2. Preclinical studies have shown
that the drug works by inducing cell apoptosis, or cell suicide, in multiple phases of the cell
cycle. To date, seliciclib has been evaluated in approximately 450 patients in several Phase 1 and
2 studies and has shown signs of anti-cancer activity. We have retained worldwide rights to
commercialize seliciclib.
Phase 1 clinical trials in patients with refractory solid tumors
We have completed two Phase 1 trials that enrolled 24 healthy volunteers and three Phase 1
trials that enrolled a total of 84 cancer patients testing different doses and schedules. The
primary toxicities observed were of a non-hematological nature, including asthenia or weakness,
elevation of liver enzymes, hypokalemia or decreased potassium levels, nausea and vomiting and
elevation in creatinine. Although these trials were designed to test safety rather than efficacy of
seliciclib given alone as monotherapy in patients with solid tumors who failed multiple previous
treatments, several of these patients appeared to have benefited from seliciclib treatment.
Seliciclib was shown in a further Phase 1 study sponsored and conducted by independent
investigators to have clinical antitumor activity in patients with nasopharyngeal cancer, measured
as a decrease in the size of primary tumor and involved lymph nodes, as well as an increase in
tumor cell deaths by biomarker analyses.
Phase 2 clinical trials in patients with NSCLC or breast cancer
Four Phase 2 trials have been conducted in cancer patients to evaluate the tolerability and
antitumor activities of seliciclib alone or in combination with standard chemotherapies used in the
treatment of advanced NSCLC or breast cancer. Interim data from two Phase 2 open-label studies of a
total of 52 patients with NSCLC, suggest that seliciclib treatment did not aggravate the known
toxicities of standard first and second-line chemotherapies nor appear to cause unexpected
toxicities, although these trials were not designed to provide statistically significant
comparisons. The combination of seliciclib with a standard dose of Capecitabine (Xeloda®) was not well
tolerated in patients with advanced breast cancer.
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Seliciclib is currently being investigated in the Phase 2b APPRAISE study as a
treatment for patients with advanced NSCLC. APPRAISE is a double-blinded, randomized study of
single agent seliciclib versus best supportive care in patients with NSCLC treated with at least
two prior systemic therapies. APPRAISE is led by Chandra P. Belani, M.D. at Milton S. Hershey
Medical Center, Penn State University. The studys main objective is to learn the anti-tumor
activity of seliciclib as a single agent in refractory NSCLC and help determine further development
strategies. The study design is randomized discontinuation. All patients receive seliciclib at a
dose of 1200 mg twice a day for three days for at least three cycles of two weeks each. Patients
who achieve stable disease after three cycles will be randomized to continue on seliciclib or
receive placebo with best supportive care. Patients in the placebo arm who progress
will be given the option to cross-over and again receive seliciclib. The primary efficacy endpoint
of APPRAISE is doubling progression free survival, or PFS, measured in the randomized portion of
the study.
In August 2008, we announced that an independent data review committee, or IDRC, completed a
review of the first interim analysis data from the study. The IDRC assessed the safety profile of
seliciclib and recommended that the study continue after reviewing data from 173 patients with
previously-treated NSCLC, of whom 45 proceeded into the blinded portion of the study and were
randomized to receive either seliciclib or best supportive care. Based on the interim data, the
IDRC reached the following main conclusions: there were no safety concerns that would warrant
stopping the study; there was no trend favoring the seliciclib treatment arm; and as a definitive
conclusion could not be reached because of the low number of events, it was recommended that the
study be continued. Based on our cost versus benefit analysis, we decided not to enroll additional
patients. The APPRAISE trial continues with the 191 patients already enrolled until the last
enrolled patient has completed follow-up. In accordance with the protocol, we remain blinded to the
study data.
Phase 2 clinical trials in patients with NPC
In November 2007, we commenced a Phase 2 multicenter, international, blinded randomized study
of oral seliciclib as a single agent in patients with NPC. The primary objective is to evaluate
6-month progression free survival, or PFS, of two dosing schedules of seliciclib in approximately
75 patients with previously treated NPC. Secondary objectives are overall survival, response rate,
response duration, safety and tolerability. The first part of the study is designed to confirm
safety and tolerability of 400 mg twice a day for four days per week or 800 mg once a day for four
days per week of seliciclib. It is open to approximately 12 to 24 patients with advanced solid
tumors as well as patients with NPC. The second part of the study is designed to detect major
differences between the two dosing schedules of seliciclib and a placebo group in terms of 6-month
PFS in approximately 51 patients. The start of the second part of the study is dependent on
clinical data from the lead-in phase and available resources.
In May 2009, at the ASCO annual meeting, we
reported interim data from the lead-in portion of the Phase 2 study which demonstrated that oral
seliciclib could be safely administered in two dosing schedules which were well tolerated and met
the criteria for proceeding to the randomized stage of the study. Seliciclib treatment resulted in
prolonged stable disease in 70% of previously-treated NPC patients, including 3 with stable disease
lasting longer than 8 months, suggesting seliciclib inhibits tumor growth in NPC. The data support
further clinical development of oral seliciclib in NPC.
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CYC116
In June 2007, we initiated a multicenter Phase 1 pharmacologic clinical trial of CYC116, an
orally-available inhibitor of Aurora kinase A and B and VEGFR2, in patients with advanced solid
tumors. The multicenter Phase 1 trial, now completed, is designed to examine the safety and
tolerability of CYC116 in patients with advanced solid tumors. The primary objective of the study
is to determine the maximum tolerated dose. Secondary objectives are to evaluate pharmacokinetic
and pharmacodynamic effects of the drug and document anti-tumor activity. Aurora kinases, or AK,
are a family of serine/threonine protein kinases discovered by Professor David Glover, our Chief
Scientist, that are only expressed in actively dividing cells and are crucial for the process of
cell division or mitosis. These proteins, which have been found to be over-expressed in many types
of cancer, have generated significant scientific and commercial interest as cancer drug targets.
VEGFR2 is a receptor protein that plays a key regulatory role in the angiogenesis pathway, or blood
vessel formation. VEGFR is targeted by recently approved drugs such as bevacizumab and sorafenib
indicated for the treatment of several solid cancers, such as breast, colorectal, kidney, liver and
lung. We have retained worldwide rights to commercialize CYC116. Further work on CYC116 will be
undertaken when appropriate levels of resource are available to direct to the program.
Other programs
We have allocated limited resources to other programs allowing us to maintain and build on our
core competency in cell cycle biology and related drug discovery. In our second generation CDK
inhibitor program, we have discovered several series of CDK inhibitors that we believe may prove to
be more potent anticancer agents than seliciclib based on preclinical observations. Our polo-like
kinase or Plk inhibitor program targets the mitotic phase of the cell cycle with the objective of
identifying potent and selective small molecule inhibitors of Plk1, a kinase active during mitosis.
Plk was discovered by Professor David Glover, our Chief Scientist. The Company has a number of
earlier stage programs for which limited or no resources will be allocated. For example, extensive
preclinical data published by independent investigators evidence activity by our CDK inhibitors,
including seliciclib, in various autoimmune and inflammatory diseases of aberrant cell
proliferation including glaucoma, lupus nephritis, idiopathic pulmonary fibrosis, polycystic kidney
disease, and rheumatoid arthritis. In our GSK-3 inhibitor program we have demonstrated evidence of
activity in preclinical models of Type 2 Diabetes.
Where appropriate we intend to progress such programs through collaboration with groups that
specialize in the particular mechanism of action or disease area until such times that these
programs can be partnered and/or progressed should funding become available. Where appropriate, the
same approach will be used to progress unfunded programs described below.
Hdm2 Inhibitors
One of the key cell cycle regulatory proteins is p53, a protein discovered by our founder,
Professor Sir David Lane. When active, p53 causes cell arrest at the G1/S checkpoint, inducing
apoptosis in cancer cells. Under normal circumstances, p53 is held in an inactive form by binding
to another regulatory protein, Hdm2. In this program, we have investigated ways of disrupting the
interaction between Hdm2 and p53, thus activating p53. Through virtual screening technologies, we
have identified two small molecule groups capable of breaking the binding between p53 and Hdm2.
Cyclin Binding Groove Inhibitors
The activity of CDK can be inhibited by various methods, such as by blocking the ATP site, as
is the case with seliciclib, or by inhibiting the substrate binding site on the associated cyclin
protein. Preventing cyclin A from binding to its substrates results in cell cycle arrest and
induces apoptosis in cancer cells. This was the subject of a two-year collaboration with
AstraZeneca that concluded in mid-2003. We have retained all intellectual property rights
associated with this program.
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Non-oncology Programs
Cell Cycle Inhibitors in Autoimmune & Inflammatory Diseases
Preclinical results from several independent investigators suggest that cell cycle inhibitors
such as seliciclib and its backup molecules arrest the progress of the cell cycle and may have
therapeutic benefit in the treatment of patients with autoimmune and inflammatory diseases and in
particular diseases characterized by uncontrolled cell proliferation. Published data indicate
potential benefit in asthma, idiopathic pulmonary fibrosis, glomerulonephritis, lupus nephritis,
polycystic kidney disease and rheumatoid arthritis.
CDK Inhibitors in Virology
Cell cycle inhibitors may be useful in the treatment of viral diseases to the extent that
drugs can be developed that prevent the replication of virus in infected host cells and may inhibit
their replication while sparing most uninfected cells. If this is proven in humans, cell cycle
inhibitors may have significant potential in this area, as they do not rely on viral targets and
are less likely to induce viral resistance, a major cause of failure of currently available
antiviral drugs. We have investigated a number of compounds in this program, some of which appear
to reduce HIV levels in biological tests with antiviral potency
equivalent to some existing HIV/AIDS therapeutic agents. We intend to progress this program
through collaboration with groups that specialize in virology research.
GSK-3 Inhibitors in Type 2 Diabetes
Inhibition of Glycogen Synthase Kinase-3 or GSK-3 is an essential element in the bodys
regulation of blood sugar. GSK-3 regulates the glycogen synthase enzyme that indirectly controls
glucose levels. In healthy humans insulin controls the regulation of energy conversion and storage
by interacting with its receptor which results in the activation of PI-3 kinase that in turn
inhibits GSK-3. In patients with adult onset or Type 2 Diabetes GSK-3 inhibition does not occur
resulting in failure of glucose control and the energy storage mechanism. We believe that GSK-3
inhibitor drugs may be suitable for development as Type 2 Diabetes therapies. GSK-3 is a target
that is structurally very similar to CDK. We have identified four chemical families of GSK-3
inhibitors some of which are potent at picomolar concentrations which we believe are among the most
potent GSK-3 inhibitors disclosed in relevant research literature. We have selected two lead
compounds from the series, both of which have achieved proof-of-concept in the standard Zucker rat
model of diabetes, demonstrating stimulation of glycogen synthase, improvement in glucose tolerance
and regulation of triglycerides. We intend to progress this program through collaboration with
groups that specialize in diabetes research.
Commercial Products
We have exclusive rights to sell and distribute three products in the United States and Canada
used primarily to manage the effects of radiation or chemotherapy in cancer patients: Xclair®
Cream, Numoisyn® Liquid and Numoisyn® Lozenges. All three products are approved in the United
States under FDA 510 (k) or medical device registrations.
Xclair® Cream
Xclair® is an aqueous cream containing sodium hyaluronate, or hyaluronic acid, and
glycyrrhetinic acid that is formulated to relieve symptoms associated with radiation dermatitis.
Sodium hyaluronate is the key water-regulating substance in human skin. Sodium hyaluronate has high
viscoelasticity and lubricity. When sodium hyaluronate solution is applied on the surface of skin,
it forms an air permeable layer that keeps skin moist and smooth. Small molecular weight sodium
hyaluronate can penetrate into the dermis where it combines with water to promote microcirculation,
nutrient absorption, and metabolism. Glycyrrhetinic acid reduces inflammation and is believed to
have immunomodulatory properties.
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Numoisyn® Liquid
Numoisyn® Liquid is an oral solution used to replace natural saliva when salivary glands are
damaged. The viscosity of Numoisyn® Liquid is similar to that of natural saliva. Linseed extract in
Numoisyn® Liquid contains mucins that provide superior viscosity and reduced friction compared to
water or carboxymethylcellulose or CMC solutions. Linseed extract significantly reduces the
symptoms of dry mouth with increasing effect over time while Numoisyn® Liquid is used.
Numoisyn® Lozenges
Numoisyn® Lozenges dissolve slowly while moved around in the mouth. They contain sorbitol and
malic acid to stimulate normal salivation and provide temporary relief of dry mouth in patients who
have some residual secretory function and taste perception. Numoisyn® Lozenges support salivas
natural protection of teeth so that teeth are not damaged with repeated and use of the lozenges.
They are sugar free and buffered with calcium to protect teeth. Numoisyn® Lozenges have been
demonstrated to be safe and effective for long-term use and are well tolerated by patients. Use of
Numoisyn® Lozenges improves subjective symptoms of dry mouth and does not cause bacteria or plaque
formation or loss of tooth enamel hardness.
Business Strategy
In September 2008, we announced a revision of our operating plan to concentrate our resources
on the advancement of our lead drug sapacitabine. Consistent with the revised operating plan,
during the second and third quarters of 2009, we further reduced our workforce across all locations
by twenty six (26) people making a total reduction of fifty one (51) people, or 63% of our
workforce, since September 2008. With these reductions and our cost-containment efforts, we
currently anticipate that our cash and cash equivalents of approximately $11.5 million at December
31, 2009 together with the funds raised following the year-end totaling approximately $18.8
million in gross proceeds, are sufficient to meet our anticipated short-term working capital needs
and fund our current operations, including on-going sapacitabine clinical trials, for at least the
next twelve months. However, we cannot be certain that we will be able to raise sufficient funds to
complete the development and commercialize any of our product candidates currently in clinical
development, should they succeed.
Focus on the cell cycle and cancer
Our core area of expertise is in cell cycle biology and our scientists include recognized
leaders in this field. In addition, our senior management has extensive experience in research,
preclinical and clinical development and sales and marketing. Thus, we believe that we are well
placed to exploit the significant opportunities that this area offers for new drug discovery and
development for the following reasons:
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The novel, mechanism-targeted cell cycle drugs we are developing are designed to be
highly selective in comparison to conventional chemotherapies, potentially inducing
death in cancer cells while sparing most normal cells which may give rise to fewer
side-effects. |
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We believe that our sapacitabine is the only orally available nucleoside analogue
presently being tested in Phase 2 trials in AML and MDS and seliciclib is the only
orally available CDK inhibitor currently in Phase 2 trials. We believe that we are
well positioned to realize some of the market potential of such drugs. |
Develop anticancer drug candidates in all phases of the cell cycle and multiple compounds for
particular cell cycle targets
Targeting a broad development program focused on multiple phases of the cell cycle allows us
to minimize risk while maximizing the potential for success and also to develop products that are
complementary to one another.
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Enter into partnering arrangements selectively, while developing our own sales and marketing
capability
We currently retain virtually all marketing rights to the compounds associated with our
current clinical-stage drug programs. To optimize our commercial return, we intend to enter into
selected partnering arrangements, and to leverage our sales and marketing capability by retaining
co-promotion rights as appropriate. Historically, we have planned to develop compounds through the
Phase 2 proof-of-efficacy stage before seeking a partner. We may be prepared to enter into
partnering arrangements earlier than Phase 2 proof-of-concept trials in connection with drug
programs outside our core competency in oncology.
Patents, Proprietary Technology and Collaborations
We consider intellectual property rights to be vital and use a variety of methods to secure,
protect and evaluate these rights. These include:
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Ownership and enforcement of patent rights; |
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Patent applications covering our own inventions in fields that we consider
important to our business strategy; |
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License agreements with third parties granting us rights to patents in fields that
are important to our business strategy; |
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Invention assignment agreements with our employees and consultants; |
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Non-compete agreements with our key employees and consultants; |
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Confidentiality agreements with our employees, consultants, and others having
access to our proprietary information; |
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Standard policies for the maintenance of laboratory notebooks to establish priority
of our inventions; |
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Freedom to use studies from patent counsel; |
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Material transfer agreements; and |
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Trademark protection. |
In addition to our 27 United States patents, we own 11 patents that were granted by the
European Patent Office, or EPO, for designated European countries, and 27 issued patents in other
countries. The European granted patents expire between 2015 and 2022. In addition to the licenses
we hold under the 6 patents issued in the United States, we hold licenses under 53 issued patents
worldwide, seven granted by the EPO for designated European countries and 46 issued in other
countries. The licensed European granted patents expire between 2012 and 2022. Our patent strategy
is to file patents on compounds and technologies in countries and jurisdictions that we consider
important to our business. We usually file first in the United Kingdom and then extend our
applications to other countries through the Patent Cooperation Treaty or PCT. In some cases, we
file directly in the United States.
We give priority to obtaining substance of matter claims in the United States, the EPO, Japan
and other important markets if such protection is available. We prefer substance of matter claims
because they give us rights to the compounds themselves, and not merely a particular use. In
addition to substance of matter claims, we seek coverage for solid state forms, polymorphic and
crystalline forms, medical uses, combination therapies, pharmaceutical forms of our compounds and
synthetic routes where available and appropriate. Claims covering combination therapies and
pharmaceutical forms can be valuable because the therapeutic effect of pharmaceuticals used in the
anticancer field is often enhanced when individual therapeutics are used in particular
combinations. The availability of protection in these areas can, however, vary from jurisdiction to
jurisdiction and combination claims are particularly difficult to obtain for many inventions. We
own 15 patent applications pending in the United States, 15 before the EPO, four pending PCT
applications still in the international application phase, and over 40 pending patent applications
in other countries, including applications first filed within the last twelve months. No assurances
can be given that patents will be issued with respect to the pending applications, nor that the
claims will provide equivalent coverage in all jurisdictions. In addition to the pending patent
applications referred to above that we own, there are 27 pending patent applications worldwide to
which we have a license or an option to take a license.
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Our patent filings for the second-generation CDK inhibitor research program exemplify our
patent strategy. Out of several series of discovered in this program we have filed patent
applications seeking substance of matter protection that may be roughly grouped into 12 patent
families. As we have progressed with our research, we have reviewed our patent portfolio and have
focused active patent prosecution on 8 patent families covering substance of matter protection. Of
these, we have made a European application designating all European Patent Convention member states
and direct national filings in the United States, Japan and several additional countries covering
the compounds that we believe to be the most promising from a commercial standpoint. The first
patent application from this family has resulted in the issuance of two United States patents with
substance of matter claims covering a specific genus of compounds showing activity in preclinical
and discovery programs. Although issuance of a substance of matter claim in the United States is an
indication that other countries may grant similar protection, the pending applications may not
result in additional patent protection.
Since publications in the scientific or patent literature often lag behind actual discoveries,
we are not certain of being first to make the inventions covered by each of its pending patent
applications or the first to
file those patent applications. Generally, patent applications in the United States are
maintained in secrecy for a period of 18 months or more, which increases the uncertainty we face.
Moreover, the patent positions of biotechnology and pharmaceutical companies are highly uncertain
and involve complex legal and factual questions. As a result, we cannot predict the breadth of
claims allowed in biotechnology and pharmaceutical patents, or their enforceability. To date, there
has been no consistent policy regarding the breadth of claims allowed in biotechnology patents.
Third parties or competitors may challenge or circumvent our patents or patent applications, if
issued. Because of the extensive time required for development, testing and regulatory review of a
potential product, it is possible that before we commercialize any of our products, any related
patent may expire, or remain in existence for only a short period following commercialization, thus
reducing any advantage of the patent and the commercial opportunity of the product.
If patents are issued to others containing valid claims that cover our compounds or their
manufacture or use or screening assays related thereto, we may be required to obtain licenses to
these patents or to develop or obtain alternative technology. We are aware of several published
patent applications, and understand that others may exist, that could support claims that, if
granted, would cover various aspects of our developmental programs, including in some cases
particular uses of our lead drug candidates, sapacitabine, seliciclib, or other therapeutic
candidates, or gene sequences and techniques that we use in the course of our research and
development.
In addition, we understand that other applications and patents exist relating to uses of
sapacitabine and seliciclib that are not part of our current clinical programs for those compounds.
Although we intend to continue to monitor the pending applications, it is not possible to predict
whether these claims will ultimately be allowed or if they were allowed what their breadth would
be. In addition, we may need to commence litigation to enforce any patents issued to us or to
determine the scope and validity of third-party proprietary rights. Litigation would create
substantial costs. In one case we have opposed a European patent relating to human aurora kinase
and the patent has been finally revoked (no appeal was filed). We are also aware of a corresponding
United States patent containing method of treatment claims for specific cancers using aurora kinase
modulators which, if held valid, could potentially restrict the use of our aurora kinase inhibitors
once clinical trials are completed. If competitors prepare and file patent applications in the
United States that claim technology that we also claim, we may have to participate in interference
proceedings in the United States Patent and Trademark Office to determine which invention has
priority. These proceedings could result in substantial costs, even if the eventual outcome is
favorable to us. An adverse outcome in litigation could subject us to significant liabilities to
third parties and require us to seek licenses of the disputed rights from third parties or to cease
using the technology, even a therapeutic product, if such licenses are unavailable or too
expensive.
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Licenses
Several of our programs are based on technology licensed from others. Our breach of an
existing license or failure to obtain a license to technology required to develop, test and
commercialize our products may seriously harm our business.
Sapacitabine
We have entered into a license agreement with Daiichi-Sankyo Co., Ltd. of Japan or
Daiichi-Sankyo with respect to patents and patent applications covering the sapacitabine compound.
Daiichi-Sankyo filed patent applications claiming sapacitabine and certain crystalline forms of
sapacitabine and methods for its preparation and use which encompass our chosen commercial
development form as well as related know-how and materials. The Daiichi-Sankyo agreement commenced
on September 10, 2003. The issued patents for the sapacitabine compound cover the United States,
EPO, Japan and 19 other countries. These patents expire between 2012 and 2014. The issued patents
for the crystalline forms cover the United States, EPO, Japan and ten other countries, with patents
pending in a further four countries. These patents expire in 2022. It may be possible to extend the
term of a patent in the United States, Europe or Japan for up to five years to the extent it covers
the sapacitabine compound or its crystalline form upon regulatory approval of that compound in the
United States, Europe or Japan, but there is no assurance that we will be able to obtain any such
extension. The license grants us the exclusive right to exploit and sublicense the sapacitabine
compound and any other products covered by the patents and patent applications owned by
Daiichi-Sankyo. The license originally was subject to certain third party rights related to certain
countries but the license has been extended and is now worldwide. The license agreement also grants
us nonexclusive, sublicensed rights to CNDAC, both a precursor compound and initial metabolite of
sapacitabine.
We are under an obligation to use reasonable endeavors to develop a product and obtain
regulatory approval to sell a product and we have agreed to pay Daiichi-Sankyo an up-front fee,
reimbursement for Daiichi-Sankyos enumerated expenses, milestone payments and royalties on a
country-by-country basis. Under this agreement, aggregate milestone payments totaling $11.7 million
could be payable subject to achievement of all the specific contractual milestones and our decision
to continue with these projects. The up-front fee and certain past reimbursements have been paid.
Royalties are payable in each country for the term of patent protection in the country or for ten
years following the first commercial sale of licensed products in the country, whichever is later.
Royalties are payable on net sales. Net sales are defined as the gross amount invoiced by us or our
affiliates or licensees, less discounts, credits, taxes, shipping and bad debt losses. The
agreement extends from its commencement date to the date on which no further amounts are owed under
it. If we wish to appoint a third party to develop or commercialize a sapacitabine-based product in
Japan, within certain limitations, Daiichi-Sankyo must be notified and given a right of first
refusal to develop and/or commercialize in Japan. In general, the license may be terminated by us
for technical, scientific, efficacy, safety, or commercial reasons on six months notice or twelve
if after launch of sapacitabine-based product or by either party for material default.
In addition, pursuant to the Daiichi-Sankyo license, we are required to use commercially reasonable
efforts to commercialize products based on the licensed rights and to use reasonable efforts to
obtain regulatory approval to sell the products in at least one country by September 2011, unless
we are prevented from doing so by virtue of an exceptional cause, which generally constitutes a
scientific or other technical cause outside of our control or arising from the activities of third
parties, difficulties outside of our reasonable control in patient recruitment into trials or any
significant, unexpected change in the regulatory requirements in a country affecting the
development of our drug candidate. If regulatory approval is not obtained by September 2011, and
there has been no exceptional cause responsible for the delay, the agreement provides that
Daiichi-Sankyo may terminate the license.
On termination, if Daiichi-Sankyo wishes to
acquire an exclusive license to sapacitabine intellectual property developed by us during the term
of the license, Daiichi-Sankyo may notify us and the parties will meet to negotiate commercial
terms in good faith. If agreement cannot be reached, the terms of the exclusive license are to be
determined by an expert.
Seliciclib
We have entered into an agreement with Centre National de Recherche Scientifique, or CNRS, and
Institut Curie that grants us worldwide rights under the patents jointly owned by CNRS, Institut
Curie and the Czech Institute of Experimental Botany covering the seliciclib compound. The
effective date of the agreement is February 1, 2002. The license grants exclusive rights in the
fields of auto-immune diseases, cardiovascular diseases, dermatological diseases, infectious
diseases, inflammatory diseases, and proliferative diseases, including cancer. Non-acute chronic
diseases of the central nervous system,
neurological diseases and diseases of the peripheral
nervous system are specifically excluded. The license runs for the term of the patents in each
country, or for ten years from the first commercial sale in each country, whichever is later. We
paid an up-front fee and yearly payments and milestone payments until the patents covering the
seliciclib compound, particular uses of the compound, and particular uses and derivatives of the
compound were published as granted in either the United States or by EPO which occurred in 2001 and
2003, respectively. Milestones are also payable on the first commercialization of a product that
consists of a new chemical entity that is covered by one of the licensed patents.
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We will be obligated to pay royalties based on our net sales of products covered by the
patents. Royalties are payable on a country-by-country basis for the term of patent protection in
each country or ten years from the first commercial sale of royalty-bearing products in that
country, whichever is later. Royalties are payable on net sales. Net sales are defined as the gross
amount invoiced by us or by our affiliates for the products, less normal trade discounts, credits
for returned products, taxes and shipping charges. There is one royalty rate for products that are
covered by valid licensed patent claims and a second, lower royalty rate for all other products
that require a license under the licensed patents. The royalties payable under the agreement are
reduced if we are required to pay royalties with respect to patents other than the ones licensed
under this agreement and the total amount of royalties that we are required to pay exceeds a fixed
percentage amount. The amount of reduction depends on the amount by which our total royalties
exceed the fixed amount. We must also pay a portion of sublicensing revenues. The portion of
sublicensing revenues that we are required to pay is reduced if we have taken the sublicensed
product into human clinical trials. Although the license permits us to grant sublicenses, we cannot
assign the license
without the consent of the CNRS and Institut Curie, which may not be unreasonably withheld.
Under the agreement, assignment is defined to include many transactions of the type that we might
wish to pursue, such as a merger or an acquisition by another company, as well as certain
takeovers. This restriction may prevent us from pursuing attractive business opportunities.
Moreover, the occurrence of a majority takeover or a similar transaction that we may be unable to
control could cause a default under the license agreement, which could lead to its termination.
We have also purchased from the Czech Institute of Experimental Botany patents and patent
applications covering the use of seliciclib and related compounds. The issued patents are in the
United States, Australia and Korea. Under the purchase agreement, we will pay royalties to the
Czech Institute upon sales of products covered by those patents, but only if there are no royalties
paid by us to CNRS for those sales under the license agreement with CNRS and Institut Curie
covering seliciclib that is described above.
Patents covering the seliciclib compound are owned jointly by the Czech Institute of
Experimental Botany and CNRS. The patents have been issued in the United States and by the EPO and
expire in 2016. It may be possible to extend the term of a patent in the United States or Europe
for up to five years to the extent it covers the seliciclib compound upon regulatory approval of
that compound in the United States or Europe, but there is no assurance that we will be able to
obtain any such extension. Under agreements between CNRS and the Czech Institute of Experimental
Botany, CNRS has the exclusive right to enter into license agreements covering the patents. The
agreement reserves to both CNRS and the Czech Institute of Experimental Botany certain rights,
including the right to patent improvements and to use the patents for internal research purposes.
Sinclair Pharma plc
Through the acquisition of ALIGN we acquired from Sinclair Pharma plc, or Sinclair, United
States and Canadian licensing rights to the three commercial products marketed by ALIGN Xclair®
Cream, Numoisyn® Liquid and Numoisyn® Lozenges. Each of the agreements covering the three license
rights expire in June 2015. Under these agreements, we have obligations to pay certain quarterly
royalties and other amounts pursuant to the agreement which may be reduced or lapse if we exceed
certain sales levels.
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Manufacturing
We have no in-house manufacturing capabilities and have no current plans to establish
manufacturing facilities for significant clinical or commercial production. We have no direct
experience in manufacturing commercial quantities of any of our products, and we currently lack the
resources or capability to manufacture any of our products on a clinical or commercial scale. As a
result, we are dependent on corporate partners, licensees or other third parties for the
manufacturing of clinical and commercial scale quantities of all of our products. We believe that
this strategy will enable us to direct operational and financial resources to the development of
our product candidates rather than diverting resources to establishing a manufacturing
infrastructure.
Sinclair contracts with third party manufacturers to supply finished goods that meet our needs
with respect to Xclair® Cream, Numoisyn® Liquid and Numoisyn® Lozenges. If any of Sinclairs third
party manufacturers or service providers do not meet our or our licensors requirements for
quality, quantity or timeliness, or do not achieve and maintain compliance with all applicable
regulations, demand for our products or our ability to continue supplying such products could
substantially decline.
Sales and Marketing
We currently have a small pharmaceutical commercial sales organization marketing our ALIGN
products, including two managers and three sales representatives. We expect to expand our sales
and commercialization group to support our products that may be commercialized for
oncology/hematology indications and possibly other therapeutic areas. We intend to market and sell
directly products for indications addressing modest patient populations. For products with
indications addressing large patient populations we may partner with other pharmaceutical
companies. In addition, we may accelerate the
expansion of our commercial organization to take advantage of any product in-licensing and
acquisition opportunities that we may elect to pursue.
Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign
countries impose substantial requirements upon the clinical development, manufacture, marketing and
distribution of drugs. These agencies and other federal, state and local entities regulate research
and development activities and the testing, manufacture, quality control, safety, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of our drug candidates and
commercialized drugs.
In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act
and implementing regulations. The process required by the FDA before our drug candidates may be
marketed in the United States generally involves the following:
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completion of extensive preclinical laboratory tests, preclinical animal studies
and formulation studies, all performed in accordance with the FDAs good laboratory
practice, or GLP, regulations; |
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submission to the FDA of an IND application which must become effective before
clinical trials may begin; |
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performance of adequate and well-controlled clinical trials to establish the safety
and efficacy of the drug candidate for each proposed indication; |
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submission of a NDA to the FDA; |
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satisfactory completion of an FDA pre-approval inspection of the manufacturing
facilities at which the product is produced to assess compliance with current good
manufacturing practice GMP, or cGMP, regulations; |
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FDA review and approval of the NDA prior to any commercial marketing, sale or
shipment of the drug; and |
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Regulation of commercial marketing and sale of drugs. |
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This testing and approval process requires substantial time, effort and financial resources,
and we cannot be certain that any approvals for our drug candidates will be granted on a timely
basis, if at all. Preclinical tests include laboratory evaluation of product chemistry, formulation
and stability, as well as studies to evaluate toxicity in animals. The results of preclinical
tests, together with manufacturing information and analytical data, are submitted as part of an IND
application to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA,
unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of
the clinical trial, including concerns that human research subjects will be exposed to unreasonable
health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns
before the clinical trial can begin. Our submission of an IND, or those of our collaborators, may
not result in FDA authorization to commence a clinical trial. A separate submission to an existing
IND must also be made for each successive clinical trial conducted during product development.
Further, an independent institutional review board, or IRB, for each medical center proposing to
conduct the clinical trial must review and approve the plan for any clinical trial before it
commences at that center and it must monitor the clinical trial until completed. The FDA, the IRB
or the clinical trial sponsor may suspend a clinical trial at any time on various grounds,
including a finding that the subjects or patients are being exposed to an unacceptable health risk.
Clinical testing also must satisfy extensive GCP regulations and regulations for informed consent.
Clinical Trials: For purposes of an NDA submission and approval, clinical trials are typically
conducted in the following three sequential phases, which may overlap:
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Phase 1: The clinical trials are initially conducted in a limited population to
test the drug candidate for safety, dose tolerance, absorption, metabolism,
distribution and excretion in healthy humans or, on occasion, in patients, such as
cancer patients. Phase 1 clinical trials are typically designed to evaluate the impact
of the drug candidate in combination with currently approved drugs. |
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Phase 2: These clinical trials are generally conducted in a limited patient
population to identify possible adverse effects and safety risks, to determine the
efficacy of the drug candidate for specific targeted indications and to determine dose
tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the
sponsor to obtain information prior to beginning larger and more expensive Phase 3
clinical trial. |
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Phase 3: These clinical trials are commonly referred to as pivotal clinical trials.
If the Phase 2 clinical trials demonstrate that a dose range of the drug candidate is
effective and has an acceptable safety profile, Phase 3 clinical trials are then
undertaken in large patient populations to further evaluate dosage, to provide
substantial evidence of clinical efficacy and to further test for safety in an
expanded and diverse patient population at multiple, geographically dispersed clinical
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In some cases, the FDA may condition approval of an NDA for a drug candidate on the sponsors
agreement to conduct additional clinical trials to further assess the drugs safety and
effectiveness after NDA approval.
New Drug Application. The results of drug candidate development, preclinical testing and
clinical trials are submitted to the FDA as part of an NDA. The NDA also must contain extensive
manufacturing information. Once the submission has been accepted for filing, by law the FDA has
180 days to review the application and respond to the applicant. The review process is often
significantly extended by FDA requests for additional information or clarification. The FDA may
refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the
application should be approved. The FDA is not bound by the recommendation of an advisory
committee, but it generally follows such recommendations. The FDA may deny approval of an NDA if
the applicable regulatory criteria are not satisfied, or it may require additional clinical data or
an
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additional pivotal Phase 3 clinical trial. Even if such
data are submitted, the FDA may
ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical
trials are not always conclusive and the FDA may interpret data differently than we or our
collaborators do. Once issued, the FDA may withdraw a drug approval if ongoing regulatory
requirements are not met or if safety problems occur after the drug reaches the market. In
addition, the FDA may require further testing, including Phase 4 clinical trials, and surveillance
programs to monitor the effect of approved drugs which have been commercialized. The FDA has the
power to prevent or limit further marketing of a drug based on the results of these post-marketing
programs. Drugs may be marketed only for the approved indications and in accordance with the
provisions of the approved label. Further, if there are any modifications to a drug, including
changes in indications, labeling or manufacturing processes or facilities, we may be required to
submit and obtain FDA approval of a new NDA or NDA supplement, which may require us to develop
additional data or conduct additional preclinical studies and clinical trials.
Fast Track Designation. The FDAs fast track program is intended to facilitate the development
and to expedite the review of drugs that are intended for the treatment of a serious or
life-threatening condition for which there is no effective treatment and which demonstrate the
potential to address unmet medical needs for the condition. Under the fast track program, the
sponsor of a new drug candidate may request the FDA to designate the drug candidate for a specific
indication as a fast track drug concurrent with or after the filing of the IND for the drug
candidate. The FDA must determine if the drug candidate qualifies for fast track designation within
60 days of receipt of the sponsors request.
If fast track designation is obtained, the FDA may initiate review of sections of an NDA
before the application is complete. This rolling review is available if the applicant provides and
the FDA approves a schedule for the submission of the remaining information and the applicant pays
applicable user fees.
However, the time period specified in the Prescription Drug User Fees Act, which governs the
time period goals the FDA has committed to reviewing an application, does not begin until the
complete application is submitted. Additionally, the fast track designation may be withdrawn by the
FDA if the FDA believes that the designation is no longer supported by data emerging in the
clinical trial process.
In some cases, a fast track designated drug candidate may also qualify for one or more of the
following programs:
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Priority Review. Under FDA policies, a drug candidate is eligible for priority
review, or review within a six-month time frame from the time a complete NDA is
accepted for filing, if the drug candidate provides a significant improvement compared
to marketed drugs in the treatment, diagnosis or prevention of a disease. We cannot
suggest or in any way guarantee that any of our drug candidates will receive a
priority review designation, or if a priority designation is received, that review or
approval will be faster than conventional FDA procedures, or that the FDA will
ultimately grant drug approval. |
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Accelerated Approval. Under the FDAs accelerated approval regulations, the FDA is
authorized to approve drug candidates that have been studied for their safety and
effectiveness in treating serious or life-threatening illnesses, and that provide
meaningful therapeutic benefit to patients over existing treatments based upon either
a surrogate endpoint that is reasonably likely to predict clinical benefit or on the
basis of an effect on a clinical endpoint other than patient survival. In clinical
trials, surrogate endpoints are alternative measurements of the symptoms of a disease
or condition that are substituted for measurements of observable clinical symptoms. A
drug candidate approved on this basis is subject to rigorous post-marketing compliance
requirements, including the completion of Phase 4 or post-approval clinical trials to
validate the surrogate endpoint or confirm the effect on the clinical endpoint.
Failure to conduct required post-approval studies, or to validate a surrogate endpoint
or confirm a clinical benefit during post-marketing studies, will allow the FDA to
withdraw the drug from the market on an expedited basis. All promotional materials for
drug candidates approved under accelerated regulations are subject to prior review by
the FDA. In rare instances the FDA may grant accelerated approval of an NDA based on
Phase 2 data and require confirmatory Phase 3 studies to be conducted after approval
and/or as a condition of maintaining approval. We can give no assurance that any of
our drugs will be reviewed under such procedures. |
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When appropriate, we and our collaborators may attempt to seek fast track designation or
accelerated approval for our drug candidates. We cannot predict whether any of our drug candidates
will obtain a fast track or accelerated approval designation, or the ultimate impact, if any, of
the fast track or the accelerated approval process on the timing or likelihood of FDA approval of
any of our drug candidates.
Satisfaction of FDA regulations and requirements or similar requirements of state, local and
foreign regulatory agencies typically takes several years and the actual time required may vary
substantially based upon the type, complexity and novelty of the product or disease. Typically, if
a drug candidate is intended to treat a chronic disease, as is the case with some of our drug
candidates, safety and efficacy data must be gathered over an extended period of time. Government
regulation may delay or prevent marketing of drug candidates for a considerable period of time and
impose costly procedures upon our activities. The FDA or any other regulatory agency may not grant
approvals for new indications for our drug candidates on a timely basis, if at all. Even if a drug
candidate receives regulatory approval, the approval may be significantly limited to specific
disease states, patient populations and dosages. Further, even after regulatory approval is
obtained, later discovery of previously unknown problems with a drug may result in restrictions on
the drug or even complete withdrawal of the drug from the market. Delays in obtaining, or failures
to obtain, regulatory approvals for any of our drug candidates would harm our business. In
addition, we cannot predict what adverse governmental regulations may arise from future United
States or foreign governmental action.
510(k). Section 510(k) of the Food, Drug and Cosmetic Act requires device manufacturers to
notify FDA, at least ninety days in advance, of their intent to market a medical device. This is
known as Premarket Notification, or PMN, or 510(k). It allows the FDA to determine whether the
device is equivalent to a device already placed into one of three classification categories.
Medical device manufacturers are required to submit a PMN if they intend to introduce a device into
commercial distribution for the first time or reintroduce a device that will be significantly
changed or modified to the extent that its safety or effectiveness could be affected. Such change
or modification could relate to the design, material, chemical composition, energy source,
manufacturing process, or intended use.
Other regulatory requirements. Any products manufactured or distributed by us or our
collaborators pursuant to FDA approvals are subject to continuing regulation by the FDA, including
recordkeeping requirements and reporting of adverse experiences associated with the drug. Drug
manufacturers and their subcontractors are required to register their establishments with the FDA
and certain state agencies and are subject to periodic unannounced inspections by the FDA and
certain state agencies for compliance with ongoing regulatory requirements, including cGMP, which
impose certain procedural and documentation requirements upon us and our third-party manufacturers.
Failure to comply with the statutory and regulatory requirements can subject a manufacturer to
possible legal or regulatory action, such as warning letters, suspension of manufacturing, seizure
of product, injunctive action or possible civil penalties. We cannot be certain that we or our
present or future third-party manufacturers or suppliers will be able to comply with the cGMP
regulations and other ongoing FDA regulatory requirements. If our present or future third-party
manufacturers or suppliers are not able to comply with these requirements, the FDA may halt our
clinical trials, require us to recall a product from distribution, or withdraw approval of that
product.
The FDA closely regulates the post-approval marketing and promotion of drugs, including
standards and regulations for direct-to-consumer advertising, off-label promotion,
industry-sponsored scientific and educational activities and promotional activities involving the
Internet. A company can make only those claims relating to safety and efficacy that are approved by
the FDA. Failure to comply with these requirements can result in adverse publicity, warning
letters, corrective advertising and potential civil and criminal penalties. Physicians may
prescribe legally available drugs for uses that are not described in the drugs labeling and that
differ from those tested by us and approved by the FDA. Such off-label uses are common across
medical specialties. Physicians may believe that such off-label uses are the best treatment for
many patients in varied circumstances. The FDA does not regulate the behavior of physicians in
their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers
communications regarding off-label use.
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Competition
The biotechnology and biopharmaceutical industries are rapidly changing and highly
competitive. We are seeking to develop and market drug candidates that will compete with other
products and therapies that currently exist or are being developed. Other companies are actively
seeking to develop products that have disease targets similar to those we are pursuing. We face
competition from many different sources, including commercial, pharmaceutical and biotechnology
companies, academic institutions, government agencies and private and public research institutions.
Many of our competitors have significantly greater financial, manufacturing, marketing and drug
development resources than we do. Smaller or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and established companies.
Our commercial opportunity will be reduced or eliminated if our competitors develop and
commercialize products that are safer, more effective, have fewer side effects or are less
expensive than any products that we may develop. In addition, competitors compete in the areas of
recruiting and retaining qualified scientific and management personnel, establishing clinical trial
sites and patient registration for clinical trials, as well as in acquiring technologies and
technology licenses.
A large number of drug candidates are in development for the treatment of leukemia, lung
cancer, lymphomas and nasopharyngeal cancer. Several pharmaceutical and biotechnology companies
have nucleoside analogs or other products on the market or in clinical trials which may be
competitive to sapacitabine in both hematological and oncology indications. These include Celgene,
Cephalon, Eisai,
Johnson & Johnson, Eli Lilly, Genzyme, GlaxoSmithKline, Hospira, Pfizer, Seattle Genetics,
Sunesis and Vion. We believe that we are currently the only company that has an orally available
CDK-specific agent in Phase 2 clinical trials but that there are a number of companies, including
AstraZeneca, Eisai, Pfizer, Piramal Life Sciences, Roche, Merck and Bayer-Schering that are developing
CDK inhibitors in early stage clinical trials in cancer patients. Although Aventis, a predecessor
of Sanofi-Aventis, had previously announced that it has ceased Phase 2 development of alvocidib or
flavopiridol, a CDK inhibitor, we believe that the National Cancer Institutes Cancer Therapy
Evaluation Program, or CTEP, is continuing to enroll patients in a CTEP sponsored trial in
patients with chronic leukemia. A number of companies are pursuing discovery and research
activities in each of the other areas that are the subject of our research and drug development
programs. We believe that AstraZeneca, Entremed, Merck, jointly with Vertex, Nerviano Medical
Sciences, Pfizer, Rigel, Sunesis and Takeda-Millennium have commenced Phase 1 or Phase 2 clinical
trials of Aurora kinase inhibitors in patients with advanced cancers. Several companies have
reported selection of Aurora kinase inhibitor candidates for development and may have started or
are expected to start clinical trials within the next twelve months. We believe that Boehringer
Ingelheim, GlaxoSmithKline, Onconova and Nerviano Medical Sciences have commenced Phase 1 or Phase
2 clinical trials with Plk inhibitor candidates for oncology indications. For our ALIGN products,
we believe that Beiersdorf, Daiichi-Sankyo, Eisai, Johnson & Johnson, MPM Medical and other
companies market products for radiation dermatitis and xerostomia.
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Employees
As of March 19, 2010, we had 24 full-time employees, comprised of 11 employees in research and
development and 13 employees in sales, general and administration. From time to time, we also
employ independent contractors to support our administrative organizations. We believe we have been
successful in attracting skilled and experienced management and scientific personnel. Our employees
are not represented by any collective bargaining agreements, and management considers relations
with our employees to be good. In September 2008, we announced a revision of our operating plan to
concentrate our resources on the advancement of our lead drug sapacitabine. Consistent with the
revised operating plan, during the second and third quarters of 2009, we further reduced our
workforce across all locations by twenty six (26) people making a total reduction of fifty one (51)
people, or 63% of the workforce, since September 2008.
Available
information
We have filed reports, proxy statements and other information with the Securities and Exchange
Commission, or the SEC. Copies of Cyclacels reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the SEC at SEC Headquarters,
Public Reference Room, 100 F Street, N.E., Washington D.C. 20549. The public may obtain information
on the operation of the SECs Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other information regarding
Cyclacel. The address of the SEC website is http://www.sec.gov. We will also provide copies
of our current reports on Forms 8-K, annual report on Form 10-K, quarterly reports on Form 10-Q and
proxy statements, and all amendments to those reports at no charge through our website at
www.cyclacel.com as soon as reasonably practicable after such material is electronically filed
with, or furnished to, the SEC. Copies are also available, without charge, from Cyclacel
Pharmaceuticals, Inc., 200 Connell Drive, Suite 1500, Berkeley Heights, NJ 07922.
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In analyzing our company, you should consider carefully the following risk factors, together
with all of the other information included in this annual report on Form 10-K. Factors that could
cause or contribute to differences in our actual results include those discussed in the following
subsection, as well as those discussed in Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere throughout this annual report on Form 10-K. Each
of the following risk factors, either alone or taken together, could adversely affect our business,
operating results and financial condition, as well as adversely affect the value of an investment
in our company.
We believe regulatory agencies will not accept registration pathways based on Phase 2 data
and, therefore, we will need to conduct randomized Phase 3 studies, which are time-consuming and
expensive.
Regulatory agencies, including, but not limited to, the FDA, have in certain instances
accepted Phase 2 data from uncontrolled studies as sufficient for approval in indications where an
unmet medical need exists or in exceptional circumstances. Recently, however, the Oncologic Drugs
Advisory Committee (ODAC), which is the cancer drug advisory panel of the FDA, voted in favor of
completion of a randomized trial prior to regulatory approval with respect to drugs submitted for
approval as treatments for patients with AML and likely in respect of drugs submitted for approval
as treatments for patients with other forms of cancer. Therefore, we believe that to gain
regulatory approval from the FDA, we will need to conduct a randomized Phase 3 trial. Randomized
Phase 3 studies are time-consuming and expensive, and because we have limited resources any such
requirements may adversely impact our operating results and financial condition and delay or block
our ability to commercialize our lead drug candidates.
Even if we believe that the data collected from clinical trials of our drug candidates are
promising with respect to safety and efficacy, such data may not be deemed sufficient by regulatory
authorities to warrant product approval. Clinical data can be interpreted in different ways.
Regulatory officials could interpret such data in different ways than we do which could delay,
limit or prevent regulatory approval. The FDA, other regulatory authorities or we may suspend or
terminate clinical trials at any time. Any failure or significant delay in completing clinical
trials for our lead drug candidates, or in receiving regulatory approval for the commercialization
of our lead drug candidates, may adversely affect our business.
The current economic conditions and financial market turmoil could adversely affect our business
and results of operations.
Economic conditions remain difficult with the continuing uncertainty in the global credit
markets, the financial services industry and the United States capital markets and with the United
States economy as a whole experiencing a period of substantial turmoil and uncertainty
characterized by unprecedented intervention by the United States federal government and the
failure, bankruptcy, or sale of various financial and other institutions. We believe the current
economic conditions and financial market turmoil could adversely affect our operations, business
and prospects, as well as our ability to obtain funds and manage our liquidity. If these
circumstances persist or continue to worsen, our future operating results could be adversely
affected, particularly relative to our current expectations.
We are at an early stage of development as a company and we do not have, and may never have, any
products that generate significant revenues.
We are at an early stage of development as a company and have a limited operating history on
which to evaluate our business and prospects. While we have earned modest product revenues from the
ALIGN business acquired in October 2007, since beginning operations in 1996, we have not generated
any product revenues from our product candidates currently in development. We cannot guarantee that
any of our product candidates currently in development will ever become marketable products and we
do not anticipate material revenues from the ALIGN products in the foreseeable future. We must
demonstrate that our drug candidates satisfy rigorous standards of safety and efficacy for their
intended uses before the FDA, and other regulatory authorities in the United States, the European
Union and elsewhere. Significant additional research, preclinical testing and clinical testing is
required before we can file applications with the FDA or other regulatory authorities for premarket
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approval of our drug candidates. In addition, to compete
effectively, our drugs must be easy to administer, cost-effective and economical to
manufacture on a commercial scale. We may not achieve any of these objectives. Sapacitabine and
seliciclib, our most advanced drug candidates for the treatment of cancer, are currently our only
drug candidates in Phase 2 clinical trials. A combination trial of sapacitabine and seliciclib and
CYC116 are currently in a Phase 1 clinical trial. We cannot be certain that the clinical
development of these or any other drug candidates in preclinical testing or clinical development
will be successful, that we will receive the regulatory approvals required to commercialize them or
that any of our other research and drug discovery programs will yield a drug candidate suitable for
investigation through clinical trials. Our commercial revenues from our product candidates
currently in development, if any, will be derived from sales of drugs that will not become
marketable for several years, if at all.
We have a history of operating losses and we may never become profitable. Our stock is a highly
speculative investment.
We have incurred operating losses in each year since beginning operations in 1996 due to costs
incurred in connection with our research and development activities and selling, general and
administrative costs associated with our operations, and we may never achieve profitability. As of
December 31, 2009, our accumulated deficit was $222.3 million. Our net loss for the years ended
December 31, 2008 and 2009 was $40.4 million and $19.6 million, respectively. Our net loss
attributable to common shareholders from inception through December 31, 2009 was $260.4 million.
Our drug candidates are in the mid-stages of clinical testing and we must conduct significant
additional clinical trials before we can seek the regulatory approvals necessary to begin
commercial sales of our drugs. We expect to incur continued losses for several years, as we
continue our research and development of our drug candidates, seek regulatory approvals,
commercialize any approved drugs and market and promote the ALIGN products: Xclair® Cream,
Numoisyn® Liquid and Numoisyn® Lozenges. If our drug candidates are unsuccessful in clinical trials
or we are unable to obtain regulatory approvals, or if our drugs are unsuccessful in the market, we
will not be profitable. If we fail to become and remain profitable, or if we are unable to fund our
continuing losses, particularly in light of the current economic conditions, you could lose all or
part of your investment.
Capital markets are currently experiencing a period of disruption and instability, which has had
and could continue to have a negative impact on the availability and cost of capital.
The general disruption in the United States capital markets has impacted the broader worldwide
financial and credit markets and reduced the availability of debt and equity capital for the market
as a whole. These global conditions could persist for a prolonged period of time or worsen in the
future. Our ability to access the capital markets may be restricted at a time when we would like,
or need, to access those markets, which could have an impact on our flexibility to react to
changing economic and business conditions. The resulting lack of available credit, lack of
confidence in the financial sector, increased volatility in the financial markets could materially
and adversely affect the cost of debt financing and the proceeds of equity financing may be
materially adversely impacted by these market conditions.
If we fail to comply with the continued listing requirements of the NASDAQ Global Market our common
stock price may be delisted and the price of our common stock and our ability to access the capital
markets could be negatively impacted.
Our common stock is currently listed for trading on the NASDAQ Global Market. We must satisfy
NASDAQs continued listing requirements, including among other things, a minimum stockholders
equity of $10.0 million and a minimum bid price for our common stock of $1.00 per share, or risk
delisting, which would have a material adverse affect on our business. A delisting of our common
stock from the NASDAQ Global Market could materially reduce the liquidity of our common stock and
result in a corresponding material reduction in the price of our common stock. In addition,
delisting could harm our ability to raise capital through alternative financing sources on terms
acceptable to us, or at all, and may result in the potential loss of confidence by investors,
suppliers, customers and employees and fewer business development opportunities. During 2009,
Cyclacel received notification from the NASDAQ Stock Market that the Company was not in
compliance with the minimum $10 million stockholders equity requirement for continued listing set
forth in NASDAQ Marketplace Rule 5450(b)(1)(A). On January 27, 2010,
NASDAQ notified the Company that it regained compliance with the minimum $50 million market
value of listed securities requirement and that it currently complies with all other applicable
standards for continued listing on The NASDAQ Global Market. Accordingly, the Companys shares of
common and preferred stock will continue to trade on The NASDAQ Global Market.
27
Raising additional capital in the future may not be available to us on reasonable terms, if at all,
when or as we require additional funding. If we issue additional shares of our common stock or
other securities that may be convertible into, or exercisable or exchangeable for, our common
stock, our existing stockholders would experience further dilution. If we fail to obtain additional
funding, we may be unable to complete the development and commercialization of our lead drug
candidate, sapacitabine, or continue to fund our research and development programs.
We have funded all of our operations and capital expenditures with proceeds from the issuance
of public equity securities, private placements of our securities, interest on investments,
licensing revenue, government grants, research and development tax credits and product revenue. In
order to conduct the lengthy and expensive research, preclinical testing and clinical trials
necessary to complete the development and marketing of our drug candidates, we will require
substantial additional funds. Based on our current operating plans of focusing on the advancement
of sapacitabine, we expect our existing resources to be sufficient to fund our planned operations
for at least the next twelve months. To meet our long-term financing requirements, we may raise
funds through public or private equity offerings, debt financings or strategic alliances. Raising
additional funds by issuing equity or convertible debt securities may cause our stockholders to
experience substantial dilution in their ownership interests and new investors may have rights
superior to the rights of our other stockholders. Raising additional funds through debt financing,
if available, may involve covenants that restrict our business activities and options. To the
extent that we raise additional funds through collaborations and licensing arrangements, we may
have to relinquish valuable rights to our drug discovery and other technologies, research programs
or drug candidates, or grant licenses on terms that may not be favorable to us. Additional funding
may not be available to us on favorable terms, or at all, particularly in light of the current
economic conditions. If we are unable to obtain additional funds, we may be forced to delay or
terminate our current clinical trials and the development and marketing of our drug candidates
including sapacitabine.
Our committed equity financing facility with Kingsbridge may not be available to us if we elect to
make a draw down or may require us to make additional blackout or other payments to Kingsbridge,
which may result in dilution to our stockholders.
On December 10, 2007 and as amended on November 24, 2009, we entered into the committed equity
financing facility, or CEFF, with Kingsbridge Capital Limited, or Kingsbridge. The CEFF entitles us
to sell and obligates Kingsbridge to purchase from us the lesser of 4,084,590 shares of our common
stock or $60 million of our common stock, during the next three years, subject to certain
conditions and restrictions. Kingsbridge will not be obligated to purchase shares under the CEFF
unless certain conditions are met, which include, among other things, a minimum price for our
common stock of $0.40 per share, effectiveness of the registration statement covering the shares
subject to the CEFF and the continued listing of our stock on The NASDAQ Global Market.
Kingsbridge is permitted to terminate the CEFF if it determines that a material and adverse
event has occurred affecting our business, operations, properties or financial condition and if
such condition continues for a period of 10 days from the date Kingsbridge provides us notice of
such material and adverse event. In such a case, we would be unable to access any capital through
the CEFF.
We are entitled, in certain circumstances, to deliver a blackout notice to Kingsbridge to
suspend the use of the registration statement which became effective in December 2007, and prohibit
Kingsbridge from selling shares. If we deliver a blackout notice in the 15 trading days following
the settlement of a draw down, or if the registration statement is not effective in circumstances
not permitted by the CEFF, then we must make a payment to Kingsbridge, or issue Kingsbridge
additional shares in lieu of this payment, calculated on the basis of the number of shares held by
Kingsbridge exclusive of shares that Kingsbridge may hold pursuant to exercise of the Kingsbridge
warrant and the change in the market price of our
common stock during the period in which the use of the registration statement is suspended. If
the trading price of our common stock declines during a suspension of the registration statement,
the blackout or other payment to be made by us could be significant.
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Should we sell shares to Kingsbridge under the CEFF, or issue shares in lieu of a blackout
payment, it will have a dilutive effective on the holdings of our current stockholders, and may
result in downward pressure on the price of our common stock. If we draw down under the CEFF, we
will issue shares to Kingsbridge at a discount of up to 20% from the volume weighted average price
of our common stock. If we draw down amounts under the CEFF when our share price is decreasing, we
will need to issue more shares to raise the same amount than if our stock price was higher.
Issuances in the face of a declining share price will have an even greater dilutive effect than if
our share price were stable or increasing, and may further decrease our share price. During
December 2009 and January 2010, we sold an aggregate of 1,583,626 shares of our common stock to
Kingsbridge under the terms of the CEFF in consideration of an aggregate of $1.3 million in funds
drawn down from the CEFF by us. During March 2010, we sold another 1,234,606 shares of our common
stock to Kingsbridge in consideration of an aggregate of $2.8 million in funds drawn down from the
CEFF by us. However, because we have not declared dividends on our preferred stock for
several quarters during the fiscal year 2009, we will not be able to use our Registration Statement
on Form S-3, which covers the shares subject to the CEFF and therefore, we may not be able to
access the CEFF until such time as an effective registration statement covering such shares be in
place. This may limit our ability to access capital markets on short notice or make the cost of
capital more expensive.
To the extent we elect to fund the development of a drug candidate or the commercialization of a
drug at our expense, we will need substantial additional funding.
We plan to market drugs on our own, with or without a partner, that can be effectively
commercialized and sold in concentrated markets that do not require a large sales force to be
competitive. To achieve this goal, we will need to establish our own specialized sales force,
marketing organization and supporting distribution capabilities. The development and
commercialization of our drug candidates is very expensive, including our anticipated Phase 3
clinical trials for sapacitabine. To the extent we elect to fund the full development of a drug
candidate or the commercialization of a drug at our expense, we will need to raise substantial
additional funding to:
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fund research and development and clinical trials connected with our research; |
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fund clinical trials and seek regulatory approvals; |
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build or access manufacturing and commercialization capabilities; |
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implement additional internal control systems and infrastructure; |
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commercialize and secure coverage, payment and reimbursement of our drug
candidates, if any such candidates receive regulatory approval; |
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maintain, defend and expand the scope of our intellectual property; and |
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hire additional management, sales and scientific personnel. |
Our future funding requirements will depend on many factors, including:
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the scope, rate of progress and cost of our clinical trials and other research and
development activities; |
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the costs and timing of seeking and obtaining regulatory approvals; |
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the costs of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights; |
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the costs associated with establishing sales and marketing capabilities; |
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the costs of acquiring or investing in businesses, products and technologies; |
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the effect of competing technological and market developments; and |
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the payment, other terms and timing of any strategic alliance, licensing or other
arrangements that we may establish. |
If we are not able to secure additional funding when needed, especially in light of the
current economic conditions and financial market turmoil, we may have to delay, reduce the scope of
or eliminate one or more of our clinical trials or research and development programs or future
commercialization efforts.
If we do not realize the expected benefits from the restructuring plans we announced in September
2008 and June 2009, our operating results and financial conditions could be negatively impacted.
In September 2008 and June 2009, we announced a strategic restructuring designed to focus our
resources on our lead drug, sapacitabine, while maintaining the Companys core competency in drug
discovery and cell cycle biology. We cannot guarantee that we will not have to undertake additional
restructuring activities, that any of our restructuring efforts will be successful, or that we will
be able to realize the cost savings and other anticipated benefits from our restructuring. If we
are unable to realize the expected operational efficiencies from our restructuring activities, our
operating results and financial condition could be adversely affected.
Any future workforce and expense reductions may have an adverse impact on our internal programs,
strategic plans, and our ability to hire and retain key personnel, and may also be distracting to
our management.
Further workforce and expense reductions in addition to those carried out in September 2008
and June 2009 could result in significant delays in implementing our strategic plans. In addition,
employees, whether or not directly affected by such reduction, may seek future employment with our
business partners or competitors. Although our employees are required to sign a confidentiality
agreement at the time of hire, the confidential nature of certain proprietary information may not
be maintained in the course of any such future employment. In addition, any additional workforce
reductions or restructurings would be expected to involve significant expense as a result of
contractual terms in certain of our existing agreements, including potential severance obligations
as well as any payments that may, under certain circumstances, be required under our agreement with
the Scottish Enterprise. Further, we believe that our future success will depend in large part upon
our ability to attract and retain highly skilled personnel. We may have difficulty retaining and
attracting such personnel as a result of a perceived risk of future workforce and expense
reductions. Finally, the implementation of expense reduction programs may result in the diversion
of the time and attention of our executive management team and other key employees, which could
adversely affect our business.
Budget constraints resulting from our restructuring plan may negatively impact our research and
development, forcing us to delay our efforts to develop certain product candidates in favor of
developing others, which may prevent us from commercializing our product candidates as quickly as
possible.
Research and development is an expensive process. As part of our restructuring plan, we have
decided to focus our clinical development priorities on sapacitabine, while still possibly
continuing to progress additional programs pending the availability of clinical data and the
availability of funds, at which time we will determine the feasibility of pursuing, if at all,
further advanced development of seliciclib, CYC116 or additional programs. Because we have had to
prioritize our development candidates as a result of budget constraints, we may not be able to
fully realize the value of our product candidates in a timely manner, if at all.
30
If we fail to enter into and maintain successful strategic alliances for our drug candidates, we
may have to reduce or delay our drug candidate development or increase our expenditures.
An important element of our strategy for developing, manufacturing and commercializing our
drug candidates is entering into strategic alliances with pharmaceutical companies or other
industry participants to advance our programs and enable us to maintain our financial and
operational capacity.
We face significant competition in seeking appropriate alliances. We may not be able to
negotiate alliances on acceptable terms, if at all. In addition, these alliances may be
unsuccessful. If we fail to create and maintain suitable alliances, we may have to limit the size
or scope of, or delay, one or more of our drug development or research programs. If we elect to
fund drug development or research programs on our own, we will have to increase our expenditures
and will need to obtain additional funding, which may be unavailable or available only on
unfavorable terms.
We are exposed to risks related to foreign currency exchange rates.
Some of our costs and expenses are denominated in foreign currencies. Most of our foreign
expenses are associated with our research and development operations of our United Kingdom-based
wholly-owned subsidiary. When the United States dollar weakens against the British pound, the
United States dollar value of the foreign currency denominated expense increases, and when the
United States dollar strengthens against the British pound, the United States dollar value of the
foreign currency denominated expense decreases. Consequently, changes in exchange rates, and in
particular a weakening of the United States dollar, may adversely affect our results of operations.
We are exposed to risk related to the marketable securities we may purchase.
We may invest cash not required to meet short term obligations in short term marketable
securities. We may purchase securities in United States government, government-sponsored agencies
and highly rated corporate and asset-backed securities subject to an approved investment policy.
Historically, investment in these securities has been highly liquid and has experienced only very
limited defaults. However, recent volatility in the financial markets has created additional
uncertainty regarding the liquidity and safety of these investments. Although we believe our
marketable securities investments are safe and highly liquid, we cannot guarantee that our
investment portfolio will not be negatively impacted by recent or future market volatility or
credit restrictions.
Clinical trials are expensive, time consuming, subject to delay and may be required to continue
beyond our available funding.
Clinical trials are expensive, complex can take many years to conduct and may have uncertain
outcomes. We estimate that clinical trials of our most advanced drug candidates may be required to
continue beyond our available funding and may take several years more to complete. The designs used
in some of our trials have not been used widely by other pharmaceutical companies. Failure can
occur at any stage of the testing and we may experience numerous unforeseen events during, or as a
result of, the clinical trial process that could delay or prevent commercialization of our current
or future drug candidates, including but not limited to:
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delays in securing clinical investigators or trial sites for our clinical
trials; |
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delays in obtaining institutional review board, or IRB, and other regulatory
approvals to commence a clinical trial; |
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slower than anticipated rates of patient recruitment and enrollment, or
reaching the targeted number of patients because of competition for patients from
other trials or other reasons; |
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negative or inconclusive results from clinical trials; |
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unforeseen safety issues; |
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uncertain dosing issues may or may not be related to suboptimal pharmacokinetic
and pharmacodynamic behaviors; |
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approval and introduction of new therapies or changes in standards of practice
or regulatory guidance that render our clinical trial endpoints or the targeting
of our proposed indications obsolete; |
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inability to monitor patients adequately during or after treatment or problems
with investigator or patient compliance with the trial protocols; |
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inability to replicate in large controlled studies safety and efficacy data
obtained from a limited number of patients in uncontrolled trials; |
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inability or unwillingness of medical investigators to follow our clinical
protocols; and |
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unavailability of clinical trial supplies. |
If we suffer any significant delays, setbacks or negative results in, or termination of, our
clinical trials, we may be unable to continue development of our drug candidates or generate
revenue and our development costs could increase significantly.
Adverse events have been observed in our clinical trials and may force us to stop development of
our product candidates or prevent regulatory approval of our product candidates.
Adverse or inconclusive results from our clinical trials may substantially delay, or halt
entirely, any further development of our drug candidates. Many companies have failed to demonstrate
the safety or effectiveness of drug candidates in later stage clinical trials notwithstanding
favorable results in early stage clinical trials. Previously unforeseen and unacceptable side
effects could interrupt, delay or halt clinical trials of our drug candidates and could result in
the FDA or other regulatory authorities denying approval of our drug candidates. We will need to
demonstrate safety and efficacy for specific indications of use, and monitor safety and compliance
with clinical trial protocols throughout the development process. To date, long-term safety and
efficacy has not been demonstrated in clinical trials for any of our drug candidates. Toxicity and
serious adverse events as defined in trial protocols have been noted in preclinical and clinical
trials involving certain of our drug candidates. For example, neutropenia and gastro-intestinal
toxicity were observed in patients receiving sapacitabine and elevations of liver enzymes and
decrease in potassium levels have been observed in patients receiving seliciclib.
In addition, we may pursue clinical trials for sapacitabine and seliciclib in more than one
indication. There is a risk that severe toxicity observed in a trial for one indication could
result in the delay or suspension of all trials involving the same drug candidate. Even if we
believe the data collected from clinical trials of our drug candidates are promising with respect
to safety and efficacy, such data may not be deemed sufficient by regulatory authorities to warrant
product approval. Clinical data can be interpreted in different ways. Regulatory officials could
interpret such data in different ways than we do which could delay, limit or prevent regulatory
approval. The FDA, other regulatory authorities or we may suspend or terminate clinical trials at
any time. Any failure or significant delay in completing clinical trials for our drug candidates,
or in receiving regulatory approval for the commercialization of our drug candidates, may severely
harm our business and reputation.
If our understanding of the role played by CDKs or AKs in regulating the cell cycle is incorrect,
this may hinder pursuit of our clinical and regulatory strategy.
Our development of small molecule inhibitors of CDK and AK is based on our understanding of
the mechanisms of action of CDK and AK inhibitors and their interaction with other cellular
mechanisms. One of our drug candidates, seliciclib, is a CDK inhibitor, and CYC116 is an AK and
VEGFR2 inhibitor. Although a number of pharmaceutical and biotechnology companies are attempting to
develop CDK or AK inhibitor drugs for the treatment of cancer, no CDK or AK inhibitor has yet
reached the market. If our understanding of the role played by CDK or AK inhibitors in regulating
the cell cycle is incorrect, seliciclib
and/or CYC116 may fail to produce therapeutically relevant results hindering our ability to
pursue our clinical and regulatory strategy.
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We are making use of biomarkers, which are not scientifically validated, and our reliance on
biomarker data may thus lead us to direct our resources inefficiently.
We are making use of biomarkers in an effort to facilitate our drug development and to
optimize our clinical trials. Biomarkers are proteins or other substances whose presence in the
blood can serve as an indicator of specific cell processes. We believe that these biological
markers serve a useful purpose in helping us to evaluate whether our drug candidates are having
their intended effects through their assumed mechanisms, and thus enable us to identify more
promising drug candidates at an early stage and to direct our resources efficiently. We also
believe that biomarkers may eventually allow us to improve patient selection in connection with
clinical trials and monitor patient compliance with trial protocols.
For most purposes, however, biomarkers have not been scientifically validated. If our
understanding and use of biomarkers is inaccurate or flawed, or if our reliance on them is
otherwise misplaced, then we will not only fail to realize any benefits from using biomarkers, but
may also be led to invest time and financial resources inefficiently in attempting to develop
inappropriate drug candidates. Moreover, although the FDA has issued for comment a draft guidance
document on the potential use of biomarker data in clinical development, such data are not
currently accepted by the FDA or other regulatory agencies in the United States, the European Union
or elsewhere in applications for regulatory approval of drug candidates and there is no guarantee
that such data will ever be accepted by the relevant authorities in this connection. Our biomarker
data should not be interpreted as evidence of efficacy.
Due to our reliance on contract research organizations or other third parties to conduct clinical
trials, we may be unable to directly control the timing, conduct and expense of our clinical
trials.
We do not have the ability to independently conduct clinical trials required to obtain
regulatory approvals for our drug candidates. We must rely on third parties, such as contract
research organizations, data management companies, contract clinical research associates, medical
institutions, clinical investigators and contract laboratories to conduct our clinical trials. In
addition, we rely on third parties to assist with our preclinical development of drug candidates.
If these third parties do not successfully carry out their contractual duties or regulatory
obligations or meet expected deadlines, if the third parties need to be replaced or if the quality
or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical
protocols or regulatory requirements or for other reasons, our preclinical development activities
or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to
obtain regulatory approval for or successfully commercialize our drug candidates.
To the extent we are able to enter into collaborative arrangements or strategic alliances, we will
be exposed to risks related to those collaborations and alliances.
Although we are not currently party to any collaboration arrangement or strategic alliance
that is material to our business, in the future we expect to be dependent upon collaborative
arrangements or strategic alliances to complete the development and commercialization of some of
our drug candidates particularly after the Phase 2 stage of clinical testing. These arrangements
may place the development of our drug candidates outside our control, may require us to relinquish
important rights or may otherwise be on terms unfavorable to us.
We may be unable to locate and enter into favorable agreements with third parties, which could
delay or impair our ability to develop and commercialize our drug candidates and could increase our
costs of development and commercialization. Dependence on collaborative arrangements or strategic
alliances will subject us to a number of risks, including the risk that:
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we may not be able to control the amount and timing of resources that our
collaborators may devote to the drug candidates; |
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our collaborators may experience financial difficulties; |
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we may be required to relinquish important rights such as marketing and
distribution rights; |
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business combinations or significant changes in a collaborators business
strategy may also adversely affect a collaborators willingness or ability to
complete our obligations under any arrangement; |
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a collaborator could independently move forward with a competing drug candidate
developed either independently or in collaboration with others, including our
competitors; and |
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collaborative arrangements are often terminated or allowed to expire, which
would delay the development and may increase the cost of developing our drug
candidates. |
We have no manufacturing capacity and will rely on third party manufacturers for the late stage
development and commercialization of any drugs or devices we may develop or sell.
We do not currently operate manufacturing facilities for clinical or commercial production of
our drug candidates under development or our currently marketed ALIGN products. We currently lack
the resources or the capacity to manufacture any of our products on a clinical or commercial scale.
We depend upon a third party, Sinclair, to manufacture the commercial products sold by our ALIGN
subsidiary and we can not rely upon Sinclair to continue to supply the products. We anticipate
future reliance on a limited number of third party manufacturers until we are able, or decide to,
expand our operations to include manufacturing capacities. Any performance failure on the part of
manufacturers could delay late stage clinical development or regulatory approval of our drug, the
commercialization of our drugs or our ability to sell our commercial products, producing additional
losses and depriving us of potential product revenues.
If the FDA or other regulatory agencies approve any of our drug candidates for commercial
sale, or if we significantly expand our clinical trials, we will need to manufacture them in larger
quantities and will be required to secure alternative third-party suppliers to our current
suppliers. To date, our drug candidates have been manufactured in small quantities for preclinical
testing and clinical trials and we may not be able to successfully increase the manufacturing
capacity, whether in collaboration with our current or future third-party manufacturers or on our
own, for any of our drug candidates in a timely or economic manner, or at all. Significant scale-up
of manufacturing may require additional validation studies, which the FDA and other regulatory
bodies must review and approve. If we are unable to successfully increase the manufacturing
capacity for a drug candidate whether for late stage clinical trials or for commercial sale or are
unable to secure alternative third-party suppliers to our current suppliers, the drug development,
regulatory approval or commercial launch of any related drugs may be delayed or blocked or there
may be a shortage in supply. Even if any third party manufacturer makes improvements in the
manufacturing process for our drug candidates, we may not own, or may have to share, the
intellectual property rights to such innovation.
As we evolve from a company primarily involved in discovery and development to one also involved in
the commercialization of drugs and devices, we may encounter difficulties in managing our growth
and expanding our operations successfully.
In order to execute our business strategy, we will need to expand our development, control and
regulatory capabilities and develop financial, manufacturing, marketing and sales capabilities or
contract with third parties to provide these capabilities for us. If our operations expand, we
expect that we will need to manage additional relationships with various collaborative partners,
suppliers and other third parties. Our ability to manage our operations and any growth will require
us to make appropriate changes and upgrades, as necessary, to our operational, financial and
management controls, reporting systems and procedures wherever we may operate. Any inability to
manage growth could delay the execution of our business plan or disrupt our operations.
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The failure to attract and retain skilled personnel and key relationships could impair our drug
development and commercialization efforts.
We are highly dependent on our senior management and key scientific, technical and sales and
marketing personnel. Competition for these types of personnel is intense. The loss of the services
of any member of our senior management, scientific, technical or sales or marketing staff may
significantly delay or prevent the achievement of drug development and other business objectives
and could have a material adverse effect on our business, operating results and financial
condition. We also rely on consultants and advisors to assist us in formulating our strategy. All
of our consultants and advisors are either self-employed or employed by other organizations, and
they may have conflicts of interest or other commitments, such as consulting or advisory contracts
with other organizations, that may affect their ability to contribute to us. The success of the
commercialization of the ALIGN products depends, in large part, on our continued ability to develop
and maintain important relationships with distributors and research and medical institutions.
Failure to do that could have a material adverse effect on our ability to commercialize the ALIGN
products.
We intend to expand and develop new drug candidates. We will need to hire additional employees
in order to continue our clinical trials and market our drug candidates and medical devices. This
strategy will require us to recruit additional executive management and scientific and technical
personnel. There is currently intense competition for skilled executives and employees with
relevant scientific and technical expertise, and this competition is likely to continue. The
inability to attract and retain sufficient scientific, technical and managerial personnel could
limit or delay our product development efforts, which would adversely affect the development of our
drug candidates and commercialization of our potential drugs and growth of our business.
Our drug candidates are subject to extensive regulation, which can be costly and time-consuming,
and we may not obtain approvals for the commercialization of any of our drug candidates.
The clinical development, manufacturing, selling and marketing of our drug candidates are
subject to extensive regulation by the FDA and other regulatory authorities in the United States,
the European Union and elsewhere. These regulations also vary in important, meaningful ways from
country to country. We are not permitted to market a potential drug in the United States until we
receive approval of an NDA from the FDA. We have not received an NDA approval from the FDA for any
of our drug candidates.
Obtaining an NDA approval is expensive and is a complex, lengthy and uncertain process. The
FDA approval process for a new drug involves completion of preclinical studies and the submission
of the results of these studies to the FDA, together with proposed clinical protocols,
manufacturing information, analytical data and other information in an Investigational New Drug, or
IND, which must become effective before human clinical trials may begin. Clinical development
typically involves three phases of study: Phase 1, 2 and 3. The most significant costs associated
with clinical development are the pivotal or suitable for registration late Phase 2 or Phase 3
clinical trials as they tend to be the longest and largest studies conducted during the drug
development process. After completion of clinical trials, an NDA may be submitted to the FDA. In
responding to an NDA, the FDA may refuse to file the application, or if accepted for filing, the
FDA may grant marketing approval, request additional information or deny the application if it
determines that the application does not provide an adequate basis for approval. In addition,
failure to comply with the FDA and other applicable foreign and U.S. regulatory requirements may
subject us to administrative or judicially imposed sanctions. These include warning letters, civil
and criminal penalties, injunctions, product seizure or detention, product recalls, total or
partial suspension of production and refusal to approve either pending NDAs, or supplements to
approved NDAs.
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Despite the substantial time and expense invested in preparation and submission of an NDA or
equivalents in other jurisdictions, regulatory approval is never guaranteed. The FDA and other
regulatory authorities in the United States, the European Union and elsewhere exercise substantial
discretion in the drug approval process. The number, size and design of preclinical studies and
clinical trials that will be required for FDA or other regulatory approval will vary depending on
the drug candidate, the disease or condition for which the drug candidate is intended to be used
and the regulations and guidance documents
applicable to any particular drug candidate. The FDA or other regulators can delay, limit or
deny approval of a drug candidate for many reasons, including, but not limited to:
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those discussed in the risk factor which immediately follows; |
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the fact that the FDA or other regulatory officials may not approve our or our
third party manufacturers processes or facilities; or |
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the fact that new regulations may be enacted by the FDA or other regulators may
change their approval policies or adoption of new regulations requiring new or
different evidence of safety and efficacy for the intended use of a drug
candidate. |
With regard to the ALIGN products, and following regulatory approval of any of our drug candidates,
we are subject to ongoing regulatory obligations and restrictions, which may result in significant
expense and limit our ability to commercialize our potential products.
With regard to our ALIGN products and our drug candidates, if any, approved by the FDA or by
another regulatory authority, we are held to extensive regulatory requirements over product
manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and
record keeping. Regulatory approvals may also be subject to significant limitations on the
indicated uses or marketing of the drug candidates. Potentially costly follow-up or post-marketing
clinical studies may be required as a condition of approval to further substantiate safety or
efficacy, or to investigate specific issues of interest to the regulatory authority. Previously
unknown problems with the product or drug candidate, including adverse events of unanticipated
severity or frequency, may result in restrictions on the marketing of the drug or device, and could
include withdrawal of the drug or device from the market.
In addition, the law or regulatory policies governing pharmaceuticals may change. New
statutory requirements may be enacted or additional regulations may be enacted that could prevent
or delay regulatory approval of our drug candidates. We cannot predict the likelihood, nature or
extent of adverse government regulation that may arise from future legislation or administrative
action, either in the United States or elsewhere. If we are not able to maintain regulatory
compliance, we might not be permitted to market our drugs and our business could suffer.
Our applications for regulatory approval could be delayed or denied due to problems with studies
conducted before we in-licensed the rights to some of our product candidates.
We currently license some of the compounds and drug candidates used in our research programs
from third parties. These include sapacitabine which was licensed from Daiichi-Sankyo. Our present
research involving these compounds relies upon previous research conducted by third parties over
whom we had no control and before we in-licensed the drug candidates. In order to receive
regulatory approval of a drug candidate, we must present all relevant data and information obtained
during our research and development, including research conducted prior to our licensure of the
drug candidate. Although we are not currently aware of any such problems, any problems that emerge
with preclinical research and testing conducted prior to our in-licensing may affect future results
or our ability to document prior research and to conduct clinical trials, which could delay, limit
or prevent regulatory approval for our drug candidates.
We face intense competition and our competitors may develop drugs that are less expensive, safer,
or more effective than our drug candidates.
A large number of drug candidates are in development for the treatment of leukemia, lung
cancer, lymphomas and nasopharyngeal cancer. Several pharmaceutical and biotechnology companies
have nucleoside analogs or other products on the market or in clinical trials which may be
competitive to sapacitabine in both hematological and oncology indications. These include Celgene,
Cephalon, Eisai, Johnson & Johnson, Eli Lilly, Genzyme, GlaxoSmithKline, Hospira, Pfizer,
Seattle Genetics, Sunesis and Vion. We believe that we are currently the only company that has an
orally available CDK-specific agent in Phase 2 clinical trials but that there are a number of
companies, including AstraZeneca, Eisai, Pfizer, Piramal Life
Sciences, Roche, Merck and Bayer-Schering
that are developing CDK inhibitors in early stage clinical trials in cancer patients. Although
Aventis,
36
a predecessor of Sanofi-Aventis, had previously
announced that it has ceased Phase 2 development of alvocidib or flavopiridol, a CDK
inhibitor, we believe that the National Cancer Institutes Cancer Therapy Evaluation Program, or
CTEP, is continuing to enroll patients in a CTEP sponsored trial in patients with chronic leukemia.
A number of companies are pursuing discovery and research activities in each of the other areas
that are the subject of our research and drug development programs. We believe that AstraZeneca,
Entremed, Merck, jointly with Vertex, Nerviano Medical Sciences, Pfizer, Rigel, Sunesis and
Takeda-Millennium have commenced Phase 1 or Phase 2 clinical trials of Aurora kinase inhibitors in
patients with advanced cancers. Several companies have reported selection of Aurora kinase
inhibitor candidates for development and may have started or are expected to start clinical trials
within the next twelve months. We believe that Boehringer Ingelheim, GlaxoSmithKline, Onconova and
Nerviano Medical Sciences have commenced Phase 1 or Phase 2 clinical trials with Plk inhibitor
candidates for oncology indications. For our ALIGN products, we believe that Beiersdorf,
Daiichi-Sankyo, Eisai, Johnson & Johnson, MPM Medical and other companies market products for
radiation dermatitis and xerostomia.
Our competitors, either alone or together with collaborators, may have substantially greater
financial resources and research and development staff. Our competitors may also have more
experience:
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developing drug candidates; |
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conducting preclinical and clinical trials; |
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obtaining regulatory approvals; and |
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commercializing product candidates. |
Our competitors may succeed in obtaining patent protection and regulatory approval and may
market drugs before we do. If our competitors market drugs that are less expensive, safer, more
effective or more convenient to administer than our potential drugs, or that reach the market
sooner than our potential drugs, we may not achieve commercial success. Scientific, clinical or
technical developments by our competitors may render our drug candidates obsolete or
noncompetitive. We anticipate that we will face increased competition in the future as new
companies enter the markets and as scientific developments progress. If our drug candidates obtain
regulatory approvals, but do not compete effectively in the marketplace, our business will suffer.
The commercial success of the ALIGN products and our drug candidates depends upon their market
acceptance among physicians, patients, healthcare providers and payors and the medical community.
It is necessary that our and our distribution partners products, including Xclair® Cream,
Numoisyn® Liquid and Numoisyn® Lozenges achieve and maintain market acceptance. If our drug
candidates are approved by the FDA or by another regulatory authority, the resulting drugs, if any,
may not gain market acceptance among physicians, healthcare providers and payors, patients and the
medical community. The degree of market acceptance of any of our approved drugs or devices will
depend on a variety of factors, including:
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timing of market introduction, number and clinical profile of competitive
drugs; |
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our ability to provide acceptable evidence of safety and efficacy; |
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relative convenience and ease of administration; |
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availability of coverage, reimbursement and adequate payment from health
maintenance organizations and other third party payors; |
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prevalence and severity of adverse side effects; and |
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other potential advantages over alternative treatment methods. |
37
If our drugs fail to achieve market acceptance, we may not be able to generate significant
revenue and our business would suffer.
If we are unable to compete successfully in our market place, it will harm our business.
There are existing products in the marketplace that compete with our products. Companies may
develop new products that compete with our products. Certain of these competitors and potential
competitors have longer operating histories, substantially greater product development capabilities
and financial, scientific, marketing and sales resources. Competitors and potential competitors may
also develop products that are safer, more effective or have other potential advantages compared to
our products. In addition, research, development and commercialization efforts by others could
render our products obsolete or non-competitive. Certain of our competitors and potential
competitors have broader product offerings and extensive customer bases allowing them to adopt
aggressive pricing policies that would enable them to gain market share. Competitive pressures
could result in price reductions, reduced margins and loss of market share. We could encounter
potential customers that, due to existing relationships with our competitors, are committed to
products offered by those competitors. As a result, those potential customers may not consider
purchasing our products.
There is uncertainty related to coverage, reimbursement and payment by healthcare providers and
payors for the ALIGN products and newly approved drugs, if any. The inability or failure to obtain
or maintain coverage could affect our ability to market the ALIGN products and our future drugs and
decrease our ability to generate revenue.
The availability and levels of coverage and reimbursement of newly approved drugs by
healthcare providers and payors is subject to significant uncertainty. The commercial success of
the ALIGN products and our drug candidates in both the United States and international markets is
substantially dependent on whether third party coverage and reimbursement is available. The United
States Centers for Medicare and Medicaid Services, health maintenance organizations and other third
party payors in the United States, the European Union and other jurisdictions are increasingly
attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of
new drugs and, as a result, they may not cover or provide adequate payment for our potential drugs.
The ALIGN products and our drug candidates may not be considered cost-effective and reimbursement
may not be available to consumers or may not be sufficient to allow the ALIGN products or our drug
candidates to be marketed on a competitive basis.
In some countries, pricing of prescription drugs is subject to government control. In such
countries, pricing negotiations with governmental authorities can take three to 12 months or longer
following application to the competent authorities. To obtain reimbursement or pricing approval in
such countries may require conducting an additional clinical trial comparing the cost-effectiveness
of the drug to other alternatives. In the United States, the Medicare Part D drug benefit
implemented in 2006 will limit drug coverage through formularies and other cost and utilization
management programs, while Medicare Part B limits drug payments to a certain percentage of average
price or through restrictive payment policies of least costly alternatives and inherent
reasonableness Our business could be materially harmed if coverage, reimbursement or pricing is
unavailable or set at unsatisfactory levels.
We may be exposed to product liability claims that may damage our reputation and we may not be able
to obtain adequate insurance.
Because we conduct clinical trials in humans, we face the risk that the use of our drug
candidates will result in adverse effects. We believe that we have obtained reasonably adequate
product liability insurance coverage for our trials. We cannot predict, however, the possible harm
or side effects that may result from our clinical trials. Such claims may damage our reputation and
we may not have sufficient resources to pay for any liabilities resulting from a claim excluded
from, or beyond the limit of, our insurance coverage.
38
As we market commercialized products through our ALIGN subsidiary we are exposed to additional
risks of product liability claims. These risks exist even with respect to drugs and devices that
are approved for commercial sale by the FDA or other regulatory authorities in the United States,
the European Union or elsewhere and manufactured in facilities licensed and regulated by the FDA or
other such regulatory
authorities. We have secured limited product liability insurance coverage, but may not be able
to maintain such insurance on acceptable terms with adequate coverage, or at a reasonable cost.
There is also a risk that third parties that we have agreed to indemnify could incur liability.
Even if we were ultimately successful in product liability litigation, the litigation would consume
substantial amounts of our financial and managerial resources and may exceed insurance coverage
creating adverse publicity, all of which would impair our ability to generate sales of the
litigated product as well as our other potential drugs.
We may be subject to damages resulting from claims that our employees or we have wrongfully used or
disclosed alleged trade secrets of their former employers.
Many of our employees were previously employed at universities or other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Although no claims
against us are currently pending, we may be subject to claims that these employees or we have
inadvertently or otherwise used or disclosed trade secrets or other proprietary information of
their former employers. Litigation may be necessary to defend against these claims. If we fail in
defending such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel. A loss of key research personnel or their work product could hamper
or prevent our ability to commercialize certain potential drugs, which could severely harm our
business. Even if we are successful in defending against these claims, litigation could result in
substantial costs and be a distraction to management.
Defending against claims relating to improper handling, storage or disposal of hazardous chemical,
radioactive or biological materials could be time consuming and expensive.
Our research and development involves the controlled use of hazardous materials, including
chemicals, radioactive and biological materials such as chemical solvents, phosphorus and bacteria.
Our operations produce hazardous waste products. We cannot eliminate the risk of accidental
contamination or discharge and any resultant injury from those materials. Various laws and
regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. We
may be sued for any injury or contamination that results from our use or the use by third parties
of these materials. Compliance with environmental laws and regulations may be expensive, and
current or future environmental regulations may impair our research, development and production
efforts.
We may be required to defend lawsuits or pay damages in connection with the alleged or actual
violation of healthcare statutes such as fraud and abuse laws, and our corporate compliance
programs can never guarantee that we are in compliance with all relevant laws and regulations.
Our commercialization efforts in the United States are subject to various federal and state
laws pertaining to promotion and healthcare fraud and abuse, including federal and state
anti-kickback, fraud and false claims laws. Anti-kickback laws make it illegal for a manufacturer
to offer or pay any remuneration in exchange for, or to induce, the referral of business, including
the purchase of a product. The federal government has published many regulations relating to the
anti-kickback statutes, including numerous safe harbors or exemptions for certain arrangements.
False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be
presented for payment to third-party payers including Medicare and Medicaid, claims for reimbursed
products or services that are false or fraudulent, claims for items or services not provided as
claimed, or claims for medically unnecessary items or services.
Our activities relating to the sale and marketing of our products will be subject to scrutiny
under these laws and regulations. It may be difficult to determine whether or not our activities,
comply with these complex legal requirements. Violations are punishable by significant criminal
and/or civil fines and other penalties, as well as the possibility of exclusion of the product from
coverage under governmental healthcare programs, including Medicare and Medicaid. If the government
were to investigate or make allegations against us or any of our employees, or sanction or convict
us or any of our employees, for violations of any of these legal requirements, this could have a
material adverse effect on our business, including our stock price. Our activities could be subject
to challenge for many reasons, including the broad scope and complexity of these laws and
regulations, the difficulties in interpreting and applying these legal requirements, and the high
degree of prosecutorial resources
39
and attention being devoted to the
biopharmaceutical industry and health care fraud by law enforcement authorities. During the
last few years, numerous biopharmaceutical companies have paid multi-million dollar fines and
entered into burdensome settlement agreements for alleged violation of these requirements, and
other companies are under active investigation. Although we have developed and implemented
corporate and field compliance programs as part of our commercialization efforts, we cannot assure
you that we or our employees, directors or agents were, are or will be in compliance with all laws
and regulations or that we will not come under investigation, allegation or sanction.
In addition, we may be required to prepare and report product pricing-related information to
federal and state governmental authorities, such as the Department of Veterans Affairs and under
the Medicaid program. The calculations used to generate the pricing-related information are complex
and require the exercise of judgment. If we fail to accurately and timely report product
pricing-related information or to comply with any of these or any other laws or regulations,
various negative consequences could result, including criminal and/or civil prosecution,
substantial criminal and/or civil penalties, exclusion of the approved product from coverage under
governmental healthcare programs including Medicare and Medicaid, costly litigation and restatement
of our financial statements. In addition, our efforts to comply with this wide range of laws and
regulations are, and will continue to be, time-consuming and expensive.
If we fail to enforce adequately or defend our intellectual property rights our business may be
harmed.
Our commercial success depends in large part on obtaining and maintaining patent and trade
secret protection for our drug candidates, the methods used to manufacture those drug candidates
and the methods for treating patients using those drug candidates.
Specifically, sapacitabine is covered in granted, composition of matter
patents that expire in 2014 in the US and 2012 outside the US. Sapacitabine is further
protected by additional granted, composition of matter patents
claiming certain, stable crystalline forms
of sapacitabine and their pharmaceutical compositions and
therapeutic uses that expire in 2022. In early development,
amorphous sapacitabine was used. We have used one of the
stable, crystalline forms of sapacitabine in nearly all our Phase 1
and in all of our Phase 2 clinical studies. We have also chosen this form for commercialization. Additional patents claim certain medical uses
and formulations of sapacitabine which have emerged in our clinical trials. Seliciclib is
protected by granted, composition of matter patents that expire in 2016. Additional patents claim
certain medical uses which have emerged from our research programs.
Failure to obtain, maintain or extend the patents could adversely affect our business. We will
only be able to protect our drug candidates and our technologies from unauthorized use by third
parties to the extent that valid and enforceable patents or trade secrets cover them.
Our ability to obtain patents is uncertain because legal means afford only limited protections
and may not adequately protect our rights or permit it to gain or keep any competitive advantage.
Some legal principles remain unresolved and the breadth or interpretation of claims allowed in
patents in the United States, the European Union or elsewhere can still be difficult to ascertain
or predict. In addition, the specific content of patents and patent applications that are necessary
to support and interpret patent claims is highly uncertain due to the complex nature of the
relevant legal, scientific and factual issues. Changes in either patent laws or in interpretations
of patent laws in the United States, the European Union or elsewhere may diminish the value of our
intellectual property or narrow the scope of our patent protection. Our existing patents and any
future patents we obtain may not be sufficiently broad to prevent others from practicing our
technologies or from developing competing products and technologies. In addition, we generally do
not control the patent prosecution of subject matter that we license from others and have not
controlled the earlier stages of the patent prosecution. Accordingly, we are unable to exercise the
same degree of control over this intellectual property as we would over our own.
Even if patents are issued regarding our drug candidates or methods of using them, those
patents can be challenged by our competitors who may argue such patents are invalid and/or
unenforceable. Patents also will not protect our drug candidates if competitors devise ways of
making or using these product candidates without legally infringing our patents. The U.S. Federal
Food, Drug and Cosmetic, or FD&C, Act and FDA regulations and policies and equivalents in other
jurisdictions provide incentives to manufacturers to challenge patent validity or create modified,
noninfringing versions of a drug in order to facilitate the approval of abbreviated new drug
applications for generic substitutes. These same types of incentives encourage manufacturers to
submit new drug applications that rely on literature and clinical data not prepared for or by the
drug sponsor.
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Proprietary trade secrets and unpatented know-how are also very important to our business. We
rely on trade secrets to protect our technology, especially where we do not believe that patent
protection is appropriate or obtainable. However, trade secrets are difficult to protect. Our
employees, consultants, contractors, outside scientific collaborators and other advisors may
unintentionally or willfully disclose our confidential information to competitors, and
confidentiality agreements may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. Enforcing a claim that a third party obtained illegally and
is using trade secrets is expensive and time consuming, and the outcome is unpredictable. Moreover,
our competitors may independently develop equivalent knowledge, methods and know-how. Failure to
obtain or maintain trade secret protection could adversely affect our competitive business
position.
Intellectual property rights of third parties may increase our costs or delay or prevent us from
being able to commercialize our drug candidates and/or the ALIGN products.
There is a risk that we are infringing or will infringe the proprietary rights of third
parties because patents and pending applications belonging to third parties exist in the United
States, the European Union and elsewhere in the world in the areas of our research and/or the ALIGN
products. Others might have been the first to make the inventions covered by each of our or our
licensors pending patent applications and issued patents and might have been the first to file
patent applications for these inventions. We are aware of several published patent applications,
and understand that others may exist, that could support claims that, if granted, could cover
various aspects of our developmental programs, including in some cases particular uses of our lead
drug candidate sapacitabine, seliciclib or other therapeutic candidates, or gene sequences and
techniques that we use in the course of our research and development. In addition, we understand
that other applications and patents exist relating to potential uses of sapacitabine and seliciclib
that are not part of our current clinical programs for these compounds. Numerous third-party United
States and foreign issued patents and pending applications exist in the area of kinases, including
CDK, AK and Plk for which we have research programs. For example, some pending patent applications
contain broad claims that could represent freedom to operate limitations for some of our kinase
programs should they be issued unchanged. Although we intend to continue to monitor these
applications, we cannot predict what claims will ultimately be allowed and if allowed what their
scope would be. In addition, because the patent application process can take several years to
complete, there may be currently pending applications, unknown to us, which may later result in
issued patents that cover the production, manufacture, commercialization or use of our drug
candidates. If we wish to use the technology or compound claimed in issued and unexpired patents
owned by others, we will need to obtain a license from the owner, enter into litigation to
challenge the validity of the patents or incur the risk of litigation in the event that the owner
asserts that we infringe its patents. In one case we have opposed a European patent relating to
human aurora kinase and the patent has been finally revoked (no appeal was filed). We are also
aware of a corresponding U.S. patent containing method of treatment claims for specific cancers
using aurora kinase modulators which, if held valid, could potentially restrict the use of our
aurora kinase inhibitors once clinical trials are completed.
There has been substantial litigation and other proceedings regarding patent and other
intellectual property rights in the pharmaceutical and biotechnology industries. Defending against
third party claims, including litigation in particular, would be costly and time consuming and
would divert managements attention from our business, which could lead to delays in our
development or commercialization efforts. If third parties are successful in their claims, we might
have to pay substantial damages or take other actions that are adverse to our business. As a result
of intellectual property infringement claims, or to avoid potential claims, we might:
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be prohibited from selling or licensing any product that we may develop unless
the patent holder licenses the patent to us, which it is not required to do; |
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be required to pay substantial royalties or grant a cross license to our
patents to another patent holder; |
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decide to move some of our screening work outside Europe; |
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be required to pay substantial damages for past infringement, which we may have
to pay if a court determines that our product candidates or technologies infringe
a competitors patent or other proprietary rights; or |
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be required to redesign the formulation of a drug candidate so it does not
infringe, which may not be possible or could require substantial funds and time. |
The development programs for our two lead drug candidates are based in part on intellectual
property rights we license from others, and any termination of those licenses could seriously harm
our business.
We have in-licensed certain patent rights in connection with the development programs for each
of our two lead drug candidates. Both of these license agreements impose payment and other material
obligations on us. Under the Daiichi-Sankyo license, we are obligated to pay license fees,
milestone payments and royalties. We are also obligated to use commercially reasonable efforts to
commercialize products based on the licensed rights and to use reasonable efforts to obtain
regulatory approval to sell the products in at least one country by September 2011, unless
we have in-licensed certain patent rights in connection with the development programs for each
of our two lead drug candidates. Under both of the license agreements relating to these drug
candidates we are obligated to pay license fees, milestone payments and royalties. We are also
obligated to use reasonable efforts to develop and commercialize products based on the licensed
patents.
Pursuant to the Daiichi-Sankyo license under which we license sapacitabine, we are obligated
to pay license fees, milestone payments and royalties, provide regular progress reports and use
commercially reasonable efforts to commercialize products based on the licensed rights and obtain
regulatory approval to sell the products in at least one country by September 2011, unless we are
prevented from doing so by virtue of certain causes outside of our reasonable control, including
but not limited to difficulties in patient recruitment into trials or significant, unexpected
change in regulatory requirements affecting the development of our drug. Pursuant to the CNRS and
Institut Curie license under which we license seliciclib, we are obligated to pay license fees,
milestone payments and royalties and provide regular progress reports.
Although we are currently in compliance with all of our material obligations under these
licenses, if we were to breach any such obligations our counterparties may be entitled to terminate
the licenses. This would restrict or delay or eliminate our ability to develop and commercialize
these drug candidates, which could adversely affect our business.
With respect to seliciclib we hold a license
from CNRS and Institut Curie under which we are obligated to pay license fees, milestone payments
and royalties. We are obligated to use reasonable efforts to develop and commercialize products
based on the licensed patents. Although we are currently in compliance with all of our material
obligations under these licenses, if we were to breach any such obligations our counterparties
could attempt to terminate the licenses and there can be no assurance as to what
would constitute exceptional cause. This would restrict or delay or eliminate our ability to
develop and commercialize these drug candidates, which could adversely affect our business.
We incur increased costs and management resources as a result of being a public company, and we
still may fail to comply with public company obligations.
As a public company, we face and will continue to face increased legal, accounting,
administrative and other costs and expenses as a public company that we would not incur as a
private company. Compliance with the Sarbanes Oxley Act of 2002, as well as other rules of the SEC,
the Public Company Accounting Oversight Board and the NASDAQ Global Market resulted in a
significant initial cost to us as well as an ongoing compliance costs. As a public company, we are
subject to Section 404 of the Sarbanes Oxley Act relating to internal control over financial
reporting. We have completed a formal process to evaluate our internal controls for purposes of
Section 404, and we concluded that as of December 31, 2009, our internal control over financial
reporting was effective. As our business grows and changes, there can be no assurances that we can
maintain the effectiveness of our internal controls over financial reporting.
Effective internal controls over financial reporting are necessary for us to provide reliable
financial reports and, together with adequate disclosure controls and procedures, are designed to
prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating
results could be harmed. We have completed a formal process to evaluate our internal control over
financial reporting. However, guidance from regulatory authorities in the area of internal controls
continues to evolve and substantial uncertainty exists regarding our on-going ability to comply by
applicable deadlines. Any failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm our operating results or cause us to fail to meet
our reporting obligations. Ineffective internal controls could also cause investors to lose
confidence in our reported financial information, which could have a negative effect on the trading
price of our common stock.
42
r
Our common stock may have a volatile public trading price.
An active public market for our common stock has not developed. Our stock can trade in small
volumes which may make the price of our stock highly volatile. The last reported price of our stock
may not represent the price at which you would be able to buy or sell the stock. The market prices
for securities of companies comparable to us have been highly volatile. Often, these stocks have
experienced significant price and volume fluctuations for reasons that are both related and
unrelated to the operating performance of the individual companies. In addition, the stock market
as a whole and biotechnology and other life science
stocks in particular have experienced significant recent volatility. Like our common stock,
these stocks have experienced significant price and volume fluctuations for reasons unrelated to
the operating performance of the individual companies. In addition, due to our existing stock
price, we may not continue to qualify for continued listing on the NASDAQ Global Market. To
maintain listing, we are required to maintain a minimum closing bid price of $1.00 per share and,
among other requirements, to maintain a minimum stockholders equity value of $10 million. Factors
giving rise to this volatility may include:
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disclosure of actual or potential clinical results with respect to product
candidates we are developing; |
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regulatory developments in both the United States and abroad; |
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developments concerning proprietary rights, including patents and litigation
matters; |
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public concern about the safety or efficacy of our product candidates or
technology, or related technology, or new technologies generally; |
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concern about the safety or efficacy of our product candidates or technology,
or related technology, or new technologies generally; |
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public announcements by our competitors or others; and |
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general market conditions and comments by securities analysts and investors. |
Fluctuations in our operating losses could adversely affect the price of our common stock.
Our operating losses may fluctuate significantly on a quarterly basis. Some of the factors
that may cause our operating losses to fluctuate on a period-to-period basis include the status of
our preclinical and clinical development programs, level of expenses incurred in connection with
our preclinical and clinical development programs, implementation or termination of collaboration,
licensing, manufacturing or other material agreements with third parties, non-recurring revenue or
expenses under any such agreement, and compliance with regulatory requirements. Period-to-period
comparisons of our historical and future financial results may not be meaningful, and investors
should not rely on them as an indication of future performance. Our fluctuating losses may fail to
meet the expectations of securities analysts or investors. Our failure to meet these expectations
may cause the price of our common stock to decline.
If securities or industry analysts do not publish research or reports about us, if they change
their recommendations regarding our stock adversely or if our operating results do not meet their
expectations, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that
industry or securities analysts publish about us. If one or more of these analysts cease coverage
of us or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one
or more of the analysts who cover us downgrade our stock or if our operating results do not meet
their expectations, our stock price could decline.
Anti-takeover provisions in our charter documents and provisions of Delaware law may make an
acquisition more difficult and could result in the entrenchment of management.
We are incorporated in Delaware. Anti-takeover provisions of Delaware law and our amended and
restated certificate of incorporation and amended and restated bylaws may make a change in control
or efforts to remove management more difficult. Also, under Delaware law, our Board of Directors
may adopt additional anti-takeover measures.
We have the authority to issue up to 5 million shares of preferred stock and to determine the
terms of those shares of stock without any further action by our stockholders. If the Board of
Directors exercises this power to issue preferred stock, it could be more difficult for a third
party to acquire a majority of our outstanding voting stock and vote the stock they acquire to
remove management or directors.
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Our amended and restated certificate of incorporation and amended and restated bylaws also
provides staggered terms for the members of our Board of Directors. Under Section 141 of the
Delaware General Corporation Law, our directors may be removed by stockholders only for cause and
only by vote of the holders of a majority of voting shares then outstanding. These provisions may
prevent stockholders from replacing the entire board in a single proxy contest, making it more
difficult for a third party to acquire control of us without the consent of our Board of Directors.
These provisions could also delay the removal of management by the Board of Directors with or
without cause. In addition, our directors may only be removed for cause and amended and restated
bylaws limit the ability our stockholders to call special meetings of stockholders.
Under Section 203 of the Delaware General Corporation Law, a corporation may not engage in a
business combination with any holder of 15% or more of its capital stock until the holder has held
the stock for three years unless, among other possibilities, the Board of Directors approves the
transaction. Our Board of Directors could use this provision to prevent changes in management. The
existence of the foregoing provisions could limit the price that investors might be willing to pay
in the future for shares of our common stock.
Certain severance-related agreements in our executive employment agreements may make an acquisition
more difficult and could result in the entrenchment of management.
In March 2008 (as amended in December 2008 with respect to our President and Chief Executive
Officer), we entered into employment agreements with our President and Chief Executive Officer and
our Executive Vice President, Finance, Chief Financial Officer and Chief Operating Officer, which
contain severance arrangements in the event that such executives employment is terminated without
cause or as a result of a change of control (as each such term is defined in each agreement).
The financial obligations triggered by these provisions may prevent a business combination or
acquisition that would be attractive to stockholders and could limit the price that investors would
be willing to pay in the future for our stock.
In the event of an acquisition of our common stock, we cannot assure our common stockholders that
we will be able to negotiate terms that would provide for a price equivalent to, or more favorable
than, the price at which our shares of common stock may be trading at such time.
We may not effect a consolidation or merger with another entity without the vote or consent of
the holders of at least a majority of the shares of our preferred stock (in addition to the
approval of our common stockholders), unless the preferred stock that remains outstanding and its
rights, privileges and preferences are unaffected or are converted into or exchanged for preferred
stock of the surviving entity having rights, preferences and limitations substantially similar, but
no less favorable, to our convertible preferred stock.
In addition, in the event a third party seeks to acquire our company or acquire control of our
company by way of a merger, but the terms of such offer do not provide for our preferred stock to
remain outstanding or be converted into or exchanged for preferred stock of the surviving entity
having rights, preferences and limitations substantially similar, but no less favorable, to our
preferred stock, the terms of the Certificate of Designation of our preferred stock provide for an
adjustment to the conversion ratio of our preferred stock such that, depending on the terms of any
such transaction, preferred stockholders may be entitled, by their terms, to receive up to $10.00
per share in common stock, causing our common stockholders not to receive as favorable a price as
the price at which such shares may be trading at the time of any such transaction. As of March 25,
2010, there were 1,923,413 shares of our preferred stock issued and outstanding. If the transaction
were one in which proceeds were received by the Company for distribution to shareholders, and the
terms of the Certificate of Designation governing the preferred stock were strictly complied with,
approximately $19,250,000 would be paid to the preferred holders before any distribution to the
common stockholders, although the form of transaction could affect how the holders of preferred
stock are treated. In such an event, although such a transaction would be subject to the approval
of our holders of common stock, we cannot assure our common stockholders that we will be able to
negotiate terms that would provide for a price equivalent to, or more favorable than, the price at
which our shares of common stock may be trading at such time. Thus, the terms of our preferred
stock might hamper a third partys acquisition of our company.
44
Our certificate of incorporation and bylaws and certain provisions of Delaware law may delay or
prevent a change in our management and make it more difficult for a third party to acquire us.
Our amended and restated certificate of incorporation and bylaws contain provisions that could
delay or prevent a change in our Board of Directors and management teams. Some of these provisions:
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authorize the issuance of preferred stock that can be created and issued by the
Board of Directors without prior stockholder approval, commonly referred to as
blank check preferred stock, with rights senior to those of our common stock; |
|
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|
provide for the Board of Directors to be divided into three classes; and |
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|
require that stockholder actions must be effected at a duly called stockholder
meeting and prohibit stockholder action by written consent. |
In addition, because we are incorporated in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law, which limits the ability of large stockholders
to complete a business combination with, or acquisition of, us. These provisions may prevent a
business combination or acquisition that would be attractive to stockholders and could limit the
price that investors would be willing to pay in the future for our stock.
These provisions also make it more difficult for our stockholders to replace members of our
Board of Directors. Because our Board of Directors is responsible for appointing the members of our
management team, these provisions could in turn affect any attempt to replace our current
management team. Additionally, these provisions may prevent an acquisition that would be attractive
to stockholders and could limit the price that investors would be willing to pay in the future for
our common stock.
We may have limited ability to pay cash dividends on the convertible preferred stock.
Delaware law may limit our ability to pay cash dividends on the convertible preferred stock.
Under Delaware law, cash dividends on our convertible preferred stock may only be paid from surplus
or, if there is no surplus, from the corporations net profits for the current or preceding fiscal
year. Delaware law defines surplus as the amount by which the total assets of a corporation,
after subtracting its total liabilities, exceed the corporations capital, as determined by its
Board of Directors. Since we are not profitable, our ability to pay cash dividends will require the
availability of adequate surplus. Even if adequate surplus is available to pay cash dividends on
the convertible preferred stock, we may not have sufficient cash to pay dividends on the
convertible preferred stock or we may choose not to declare the dividends. If that was to happen,
holders of preferred stock would be granted certain additional rights until such dividends were
paid.
If we continue not to declare the quarterly dividends on our 6% Convertible Exchangeable Preferred
Stock for a total of six quarterly dividend periods, we will have to grant additional rights to our
holders of Preferred Stock with respect to the management of the Company.
On April 6, 2009, September 22, 2009, October 19, 2009 and January 7, 2010, our Board of
Directors decided not to declare payment of the quarterly cash dividend on the Companys 6%
Convertible Exchangeable Preferred Stock, or the Preferred Stock, scheduled for May 1, 2009, August
1, 2009, November 1, 2009 and February 1, 2010, respectively. To the extent that any dividends
payable on the Preferred Stock are not paid, such unpaid dividends are accumulated. However, we
did not declare dividends on the Preferred Stock for four quarterly dividends periods and if we
fail to declare dividends on the Preferred Stock for six quarterly dividend periods (whether or not
consecutive), the size of our Board of Directors will be increased by two and the holders of the
Preferred Stock will have the right to vote to fill the two vacancies created thereby until we pay
all accumulated and unpaid dividends. Although our Board of Directors will continue to evaluate
the payment of a quarterly cash dividend on a quarterly basis, we cannot assure you that we will be
able to continue to pay the dividends and that holders of our Preferred Stock will not be granted
additional rights with respect to our management.
45
Our common and convertible preferred stock may experience extreme price and volume fluctuations,
which could lead to costly litigation for the Company and make an investment in the Company less
appealing.
The market price of our common and convertible preferred stock may fluctuate substantially due
to a variety of factors, including:
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additions to or departures of our key personnel; |
|
|
|
announcements of technological innovations or new products or services by us or
our competitors; |
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|
announcements concerning our competitors or the biotechnology industry in
general; |
|
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|
new regulatory pronouncements and changes in regulatory guidelines; |
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|
general and industry-specific economic conditions; |
|
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|
changes in financial estimates or recommendations by securities analysts; |
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|
variations in our quarterly results; |
|
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|
announcements about our collaborators or licensors; and |
|
|
|
changes in accounting principles. |
The market prices of the securities of biotechnology companies, particularly companies like us
without product revenues and earnings, have been highly volatile and are likely to remain highly
volatile in the future. This volatility has often been unrelated to the performance of particular
companies. In the past, companies that experience volatility in the market price of their
securities have often faced securities class action litigation. Moreover, market prices for stocks
of biotechnology-related and technology companies frequently reach levels that bear no relationship
to the performance of these companies. These market prices generally are not sustainable and are
highly volatile. Whether or not meritorious, litigation brought against us could result in
substantial costs, divert our managements attention and resources and harm our financial condition
and results of operations. In addition, due to our stock price from time to time, we may not
continue to qualify for continued listing on the NASDAQ Global Market. Please see Risk Factor: Our
common stock may have a volatile public trading price.
The future sale of our common and preferred stock and future issuances of our common stock upon
conversion of our preferred stock, could negatively affect our stock price.
If our common or preferred stockholders sell substantial amounts of our stock in the public
market, or the market perceives that such sales may occur, the market price of our common and
preferred stock could fall. For example, we were approached by a preferred stockholder that elected
to convert 123,400 of its shares of preferred stock, which shares were converted into 239,396
shares of common stock effective March 16, 2010. Thus if additional holders of preferred stock
elect to convert their shares to shares of common stock at renegotiated prices, such conversion as
well as the sale of substantial amounts of our common or preferred stock, could cause dilution to
existing holders of our common stock, thereby also negatively affecting the price of our common
stock.
If we exchange the convertible preferred stock for debentures, the exchange will be taxable but we
will not provide any cash to pay any tax liability that any convertible preferred stockholder may
incur.
An exchange of convertible preferred stock for debentures, as well as any dividend make-whole
or interest make-whole payments paid in our common stock, will be taxable events for United States
federal income tax purposes, which may result in tax liability for the holder of convertible
preferred stock without any corresponding receipt of cash by the holder. In addition, the
debentures may be treated as having original issue discount, a portion of which would generally be
required to be included in the holders gross income even though the cash to which such income is
attributable would not be received until maturity or
redemption of the debenture. We will not distribute any cash to the holders of the securities
to pay these potential tax liabilities.
46
If we automatically convert the convertible preferred stock, there is a substantial risk of
fluctuation in the price of our common stock from the date we elect to automatically convert to the
conversion date.
We may automatically convert the convertible preferred stock into common stock if the closing
price of our common stock has exceeded $35.30. There is a risk of fluctuation in the price of our
common stock between the time when we may first elect to automatically convert the preferred and
the automatic conversion date.
We do not intend to pay cash dividends on our common stock in the foreseeable future.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any
payment of cash dividends will depend on our financial condition, results of operations, capital
requirements, the outcome of the review of our strategic alternatives and other factors and will be
at the discretion of our Board of Directors. Accordingly, investors will have to rely on capital
appreciation, if any, to earn a return on their investment in our common stock. Furthermore, we may
in the future become subject to contractual restrictions on, or prohibitions against, the payment
of dividends.
The number of shares of common stock which are registered, including the shares to be issued upon
exercise of our outstanding warrants, is significant in relation to our currently outstanding
common stock and could cause downward pressure on the market price for our common stock.
The number of shares of common stock registered for resale, including those shares which are
to be issued upon exercise of our outstanding warrants, is significant in relation to the number of
shares of common stock currently outstanding. If the security holder determines to sell a
substantial number of shares into the market at any given time, there may not be sufficient demand
in the market to purchase the shares without a decline in the market price for our common stock.
Moreover, continuous sales into the market of a number of shares in excess of the typical trading
volume for our common stock, or even the availability of such a large number of shares, could
depress the trading market for our common stock over an extended period of time.
If persons engage in short sales of our common stock, including sales of shares to be issued upon
exercise of our outstanding warrants, the price of our common stock may decline.
Selling short is a technique used by a stockholder to take advantage of an anticipated decline
in the price of a security. In addition, holders of options and warrants will sometimes sell short
knowing they can, in effect, cover through the exercise of an option or warrant, thus locking in a
profit. A significant number of short sales or a large volume of other sales within a relatively
short period of time can create downward pressure on the market price of a security. Further sales
of common stock issued upon exercise of our outstanding warrants could cause even greater declines
in the price of our common stock due to the number of additional shares available in the market
upon such exercise, which could encourage short sales that could further undermine the value of our
common stock. You could, therefore, experience a decline in the value of your investment as a
result of short sales of our common stock.
Our distribution rights to the ALIGN products are licensed from others, and any termination of that
license could harm our business.
We have in-licensed from Sinclair the distribution rights to the ALIGN products. This license
agreement imposes obligations on us. Although we are currently in compliance with all of our
material obligations under this license, if we were to breach any such obligations, Sinclair would
be permitted to terminate the license. This would restrict us from distributing the ALIGN products.
47
If our supplier upon whom we rely fails to produce on a timely basis the finished goods in the
volumes that we require or fails to meet quality standards and maintain necessary licensure from
regulatory authorities, we may be unable to meet demand for our products, potentially resulting in
lost revenues.
Our licensor and supplier Sinclair contracts with third party manufacturers to supply the
finished goods to us to meet our needs. If any of Sinclairs third party manufacturers service
providers do not meet our or our licensors requirements for quality, quantity or timeliness, or do
not achieve and maintain compliance with all applicable regulations, demand for our products or our
ability to continue supplying such products could substantially decline. As the third party
manufacturers are the sole supplier of the products any delays may impact our sales.
In all the countries where we sell or may sell our products, governmental regulations exist to
define standards for manufacturing, packaging, labeling and storing. All of our suppliers of raw
materials and contract manufacturers must comply with these regulations. Failure to do so could
result in supply interruptions. In the United States, the FDA requires that all suppliers of
pharmaceutical bulk material and all manufacturers of pharmaceuticals for sale in or from the
United States achieve and maintain compliance with the FDAs Current Good Manufacturing Practice or
cGMP regulations and guidelines. Failure of our third-party manufacturers to comply with applicable
regulations could result in sanctions being imposed on them or us, including fines, injunctions,
civil penalties, disgorgement, suspension or withdrawal of approvals, license revocation, seizures
or recalls of products, operating restrictions and criminal prosecutions, any of which could
significantly and adversely affect supplies of our products. In addition, before any product batch
produced by our manufacturers can be shipped, it must conform to release specifications
pre-approved by regulators for the content of the pharmaceutical product. If the operations of one
or more of our manufacturers were to become unavailable for any reason, any required FDA review and
approval of the operations of an alternative supplier could cause a delay in the manufacture of our
products.
Our customer base is highly concentrated.
Our principal customers are a small number of wholesale drug distributors. These customers
comprise a significant part of the distribution network for pharmaceutical products in the United
States. Three large wholesale distributors, AmerisourceBergen Corporation, Cardinal Health, Inc.
and McKesson Corporation, control a significant share of the market in the United States. Our
ability to distribute any product, including Xclair® Cream, Numoisyn® Liquid and Numoisyn® Lozenges
and to recognize revenues on a timely basis is substantially dependent on our ability to maintain
commercially reasonable agreements with each of these wholesale distributors and the extent to
which these distributors, over whom we have no control, comply with such agreements. Our agreements
with wholesaler distributors may contain terms that are not favorable, given our relative lack of
market leverage as a company with only three approved products or other factors, which could
adversely affect our commercialization of Xclair® Cream, Numoisyn® Liquid and Numoisyn® Lozenges.
The loss of any of these customers could materially and adversely affect our ability to distribute
our products, resulting in a negative impact on our operations and financial condition.
We may be unable to accurately estimate demand and monitor wholesaler inventory of Xclair® Cream,
Numoisyn® Liquid or Numoisyn® Lozenges. Although we attempt to monitor wholesaler inventory of
Xclair® Cream, Numoisyn® Liquid or Numoisyn® Lozenges, we also rely on third party information,
which is inherently uncertain and may not be accurate, to assist us in monitoring estimated
inventory levels and prescription trends. Inaccurate estimates of the demand and inventory levels
of the product may cause our revenues to fluctuate significantly from quarter to quarter and may
cause our operating results for a particular quarter to be below expectations.
Inventory levels of Xclair® Cream, Numoisyn® Liquid or Numoisyn® Lozenges held by wholesalers
can also cause our operating results to fluctuate unexpectedly. For the years ended December 31,
2008 and 2009, approximately 85% and 86%, respectively, of our product sales in the United States
were to three wholesalers, Cardinal Health, Inc., McKesson Corporation and AmerisourceBergen.
Inventory levels held by those wholesalers can cause our operating results to fluctuate
unexpectedly if our sales to wholesalers do not match end user demand. We have entered into
inventory management agreements with these U.S. wholesalers under which they provide us with data
regarding inventory levels at these wholesalers.
However, these wholesalers may not be completely effective in matching inventory levels to end
user demand, as they make estimates to determine end user demand. In addition, inventory is held at
retail pharmacies and other non-wholesaler locations, for which we have no inventory management
agreements and have no control in respect to their buying patterns. Also, the non-retail sector in
the United States, which includes government institutions and large health maintenance
organizations, tends to be less consistent in terms of buying patterns, and often causes
quarter-over-quarter fluctuations in inventory and ordering patterns. We attempt to monitor
inventory of Xclair®, Numoisyn® Liquid or Numoisyn® Lozenges in the United States through the use
of internal sales forecasts and the expiration dates of product shipped, among other factors.
48
The commercialization of our products is substantially dependent on our ability to develop
effective sales and marketing capabilities.
Our successful commercialization of Xclair® Cream, Numoisyn® Liquid and Numoisyn® Lozenges in
the United States will depend on our ability to establish and maintain an effective sales and
marketing organization in the United States. We hired trained and deployed additional marketing
personnel and a small oncology specialty sales force. We may increase or decrease the size of our
sales force in the future, depending on many factors, including the effectiveness of the sales
force, the level of market acceptance of Xclair® Cream, Numoisyn® Liquid and Numoisyn® Lozenges and
the results of our clinical trials. Prior to our launches of these products, we had never sold or
marketed any products.
For our product candidates currently under development, our strategy is to develop compounds
through the Phase 2 stage of clinical testing and market or co-promote certain of our drugs on our
own. We have limited sales, marketing or distribution capabilities. We will depend primarily on
strategic alliances with third parties, which have established distribution systems and sales
forces, to commercialize our drugs. To the extent that we are unsuccessful in commercializing any
drugs or devices ourselves or through a strategic alliance, product revenues will suffer, we will
incur significant additional losses and our share price will be negatively affected.
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Item 1B. |
|
Unresolved Staff Comments |
None.
In October 2006, we entered into a five-year lease for office space of approximately 6,500
square feet in Berkeley Heights, New Jersey, which is our corporate headquarters.
In October 2000, we entered into a 25-year lease for our research and development facility in
Dundee, Scotland. Additionally, we lease approximately 40,500 square feet of space in Bothell,
Washington, with monthly payments of approximately $0.1 million. The lease term on this space
expires in December 2010. Activities have been discontinued at the Bothell facility since the third
quarter of 2005 and we do not plan to renew the lease.
We believe that our existing facilities are adequate to accommodate our business needs.
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Item 3. |
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Legal Proceedings |
From time to time, we may be involved in routine litigation incidental to the conduct of our
business. As of December 31, 2009, we were not a party to any material legal proceedings that we
believe will have a material impact on our financial position or results of operations.
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Item 4. |
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(Removed and Reserved) |
49
PART II
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Item 5. |
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities |
Market Information
Our common stock is traded on The NASDAQ Global Market, or NASDAQ, under the symbol CYCC. Our
preferred stock currently trades on NASDAQ under the symbol CYCCP. The following table
summarizes, for the periods indicated, the high and low sales prices for the common stock as
reported by NASDAQ:
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High |
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Low |
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2009 |
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|
|
|
Quarter ended March 31, 2009 |
|
$ |
0.54 |
|
|
$ |
0.26 |
|
Quarter ended June 30, 2009 |
|
$ |
1.66 |
|
|
$ |
0.30 |
|
Quarter ended September 30, 2009 |
|
$ |
1.24 |
|
|
$ |
0.79 |
|
Quarter ended December 31, 2009 |
|
$ |
1.69 |
|
|
$ |
0.75 |
|
2008 |
|
|
|
|
|
|
|
|
Quarter ended March 31, 2008 |
|
$ |
5.51 |
|
|
$ |
2.40 |
|
Quarter ended June 30, 2008 |
|
$ |
3.67 |
|
|
$ |
1.66 |
|
Quarter ended September 30, 2008 |
|
$ |
2.00 |
|
|
$ |
0.84 |
|
Quarter ended December 31, 2008 |
|
$ |
1.16 |
|
|
$ |
0.23 |
|
Holders of Common Stock
On March 22, 2010, we had approximately 55 registered holders of record of our common stock. On
March 26, 2010, the closing sale price of our common stock as
reported by NASDAQ was $2.36 per
share.
50
Performance Graph
The following graph and table compare the cumulative total return of our common stock, The
NASDAQ Composite Index and NASDAQ Biotechnology Index, as described below, for the period beginning
March 27, 2006 (the date we became a public company) and ending December 31, 2009, assuming an
initial investment of $100 and the reinvestment of any dividends. We obtained the information
reflected in the graph and table from independent sources we believe to be reliable, but we have
not independently verified the information.
COMPARISON OF 45 MONTH CUMULATIVE TOTAL RETURN*
Among Cyclacel Pharmaceuticals, Inc., The NASDAQ Composite Index
And The NASDAQ Biotechnology Index
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* |
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$100 invested on 3/27/06 in
stock or 2/28/06 in index, including reinvestment of dividends.
Fiscal year ending December 31. |
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Name |
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March 27, 2006 |
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December 31, 2006 |
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December 31, 2007 |
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December 31, 2008 |
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December 31, 2009 |
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Cyclacel |
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100.00 |
|
|
|
85.86 |
|
|
|
68.59 |
|
|
|
5.26 |
|
|
|
13.02 |
|
Nasdaq Composite |
|
|
100.00 |
|
|
|
107.56 |
|
|
|
117.24 |
|
|
|
68.71 |
|
|
|
101.05 |
|
NASDAQ Biotechnology |
|
|
100.00 |
|
|
|
93.30 |
|
|
|
94.18 |
|
|
|
88.44 |
|
|
|
100.49 |
|
Performance Graph and related information shall not be deemed soliciting material or filed
with the Securities and Exchange Commission, nor shall such information be incorporated by
reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of
1934, each as amended, except to the extent that the Company specifically incorporates it by
reference into such filing.
51
Dividends
We have never declared nor paid any cash dividends on our common stock and do not currently
anticipate declaring or paying any cash dividends on our outstanding shares of common stock in the
foreseeable future. We are, however, required to make or accrue quarterly dividend payments on our
Preferred Stock. Except for dividends paid on the Preferred Stock, we currently intend to retain
all of our future earnings, if any, to finance operations. Any future determination relating to our
dividend policy will be made at the discretion of our Board of Directors and will depend on a
number of factors, including future earnings, capital requirements, financial conditions, future
prospects, contractual restrictions and other factors that our board of directors may deem
relevant. Pursuant to the terms of our outstanding Preferred Stock, since inception through
February 1, 2009, we paid these dividends when they have fallen due. However, as part of our
program to reduce expenditure, on April 6, 2009, June 22, 2009, October 19, 2009 and January 7,
2010, our Board of Directors decided not to declare the quarterly cash dividend. The Board of Directors will continue to evaluate the payment of a cash
dividend on a quarterly basis. Any dividends must be declared by our board of directors and must
come from funds that are legally available for dividend payments.
Unregistered Sales of Securities
During the fiscal year ended December 31, 2009, we sold an aggregate of 1,255,024 shares of
our common stock to Kingsbridge under the terms of our CEFF, in consideration of an aggregate of
$1.03 million in funds drawn down from the CEFF. Following the fiscal year-end, we sold an
additional aggregate of 1,563,208 shares of our common stock to Kingsbridge under the CEFF, in
consideration of an aggregate proceeds of $3.1 million. We relied on the exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder, in connection with the sale of the shares of common stock under the CEFF.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides certain aggregate information with respect to all of our equity
compensation plans in effect as of December 31, 2009:
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(c) |
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Number of |
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securities remaining |
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(b) |
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available for future |
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(a) |
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Weighted-average |
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issuance under |
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No. of securities to |
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exercise price |
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equity compensation |
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be issued upon exercise |
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of outstanding |
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|
plans (excluding |
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of outstanding options, |
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|
options, warrants |
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securities reflected in |
|
Plan Category |
|
warrants and rights |
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and rights |
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|
column (a)) |
|
Total equity
compensation plans
approved by
security holders (1) |
|
|
3,441,021 |
|
|
$ |
4.11 |
|
|
|
1,703,766 |
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Equity compensation
plans not approved
by security holders |
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(1) |
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Consists of our Amended and Restated 2006 Stock Option Plan (the 2006 Plan). The 2006 Plan
provides for the grant of incentive stock options, nonqualified stock options, stock appreciation
rights, restricted stock, restricted stock units, and performance units. The number of shares available for issuance, as of
March 30, 2010, under the 2006 Plan is 5,200,000. |
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Item 6. |
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Selected Financial Data |
This section presents our historical financial data. The consolidated statement of operations
data for the years ended December 31, 2007, 2008, 2009 and for the period from August 13, 1996
(inception) to December 31, 2009 and the consolidated balance sheet data as of December 31, 2008
and 2009 have been derived from our audited financial statements included elsewhere in this Annual
Report on Form 10-K. The statement of operations data for the years ended 2005 and 2006 and the
balance sheet data as of December 31, 2005, 2006 and 2007 have been derived from our audited
financial statements that are not included in this Annual Report on Form 10-K. Historical results
are not necessarily indicative of future results.
52
The information contained in the following tables should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements included in this Annual Report on Form 10-K.
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Period from |
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August 13, |
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1996 |
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(inception) to |
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Years Ended December 31, |
|
|
December 31, |
|
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2005 |
|
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2006 |
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2007 |
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2008 |
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2009 |
|
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2009 |
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(in thousands) |
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Consolidated Statements of Operations: |
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|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration and research and
development income |
|
$ |
245 |
|
|
$ |
231 |
|
|
$ |
10 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,000 |
|
Product revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
838 |
|
|
|
910 |
|
|
|
1,748 |
|
Grant income |
|
|
111 |
|
|
|
156 |
|
|
|
119 |
|
|
|
39 |
|
|
|
1 |
|
|
|
3,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356 |
|
|
|
387 |
|
|
|
129 |
|
|
|
877 |
|
|
|
911 |
|
|
|
8,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
429 |
|
|
|
545 |
|
|
|
974 |
|
Research and development |
|
|
15,841 |
|
|
|
21,205 |
|
|
|
19,569 |
|
|
|
18,869 |
|
|
|
9,766 |
|
|
|
170,179 |
|
Selling, general and administrative |
|
|
5,290 |
|
|
|
12,598 |
|
|
|
12,033 |
|
|
|
15,354 |
|
|
|
8,538 |
|
|
|
71,846 |
|
Goodwill and intangibles impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,934 |
|
|
|
|
|
|
|
7,934 |
|
Other restructuring costs |
|
|
|
|
|
|
225 |
|
|
|
1,554 |
|
|
|
489 |
|
|
|
366 |
|
|
|
2,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
21,131 |
|
|
|
34,028 |
|
|
|
33,156 |
|
|
|
43,075 |
|
|
|
19,215 |
|
|
|
253,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(20,775 |
) |
|
|
(33,641 |
) |
|
|
(33,027 |
) |
|
|
(42,198 |
) |
|
|
(18,304 |
) |
|
|
(245,183 |
) |
Total other income (expense) |
|
|
801 |
|
|
|
2,138 |
|
|
|
6,933 |
|
|
|
63 |
|
|
|
(2,214 |
) |
|
|
5,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes |
|
|
(19,948 |
) |
|
|
(31,503 |
) |
|
|
(26,094 |
) |
|
|
(42,135 |
) |
|
|
(20,518 |
) |
|
|
(239,507 |
) |
Income tax benefit |
|
|
1,900 |
|
|
|
2,245 |
|
|
|
2,041 |
|
|
|
1,749 |
|
|
|
948 |
|
|
|
17,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(18,048 |
) |
|
|
(29,258 |
) |
|
|
(24,053 |
) |
|
|
(40,386 |
) |
|
|
(19,570 |
) |
|
|
(222,285 |
) |
Dividends on preferred shares |
|
|
(11,876 |
) |
|
|
(2,827 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common shareholders |
|
$ |
(29,924 |
) |
|
$ |
(32,085 |
) |
|
$ |
(24,053 |
) |
|
$ |
(40,386 |
) |
|
$ |
(19,570 |
) |
|
$ |
(260,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted |
|
$ |
(4.50 |
) |
|
$ |
(2.40 |
) |
|
$ |
(1.21 |
) |
|
$ |
(1.98 |
) |
|
$ |
(0.88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and
diluted net loss per share |
|
|
6,656,732 |
|
|
|
13,390,933 |
|
|
|
19,873,911 |
|
|
|
20,433,129 |
|
|
|
22,196,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,117 |
|
|
$ |
44,238 |
|
|
$ |
30,987 |
|
|
$ |
24,220 |
|
|
$ |
11,493 |
|
Short-term investments |
|
|
10,690 |
|
|
|
9,764 |
|
|
|
27,766 |
|
|
|
1,502 |
|
|
|
|
|
Working capital |
|
|
2,152 |
|
|
|
50,244 |
|
|
|
49,065 |
|
|
|
20,387 |
|
|
|
3,547 |
|
Total assets |
|
|
19,071 |
|
|
|
63,276 |
|
|
|
75,912 |
|
|
|
30,957 |
|
|
|
14,466 |
|
Long-term liabilities, net of current portion |
|
|
(78 |
) |
|
|
(1,436 |
) |
|
|
(3,231 |
) |
|
|
(1,688 |
) |
|
|
|
|
Total stockholders equity |
|
|
4,119 |
|
|
|
53,919 |
|
|
|
57,969 |
|
|
|
20,642 |
|
|
|
4,644 |
|
In connection with the stock purchase agreement entered into with Xcyte Therapies Inc.
or Xcyte in March 2006, Cyclacel Limited was considered to be the acquiring company for accounting
purposes. Accordingly, the assets and liabilities of Xcyte were recorded, as of March 27, 2006, at
their respective fair values and added to those of Cyclacel Limited. The results of operations and
balance sheet data for 2006 reflect the results of the combined companies from March 28, 2006
through December 31, 2006. Additionally, the historical results of operations and balance sheet
data shown for comparative purposes in this Annual Report on Form 10-K reflect those of Cyclacel
Limited prior to the reverse acquisition.
54
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Cautionary Statement Regarding Forward-Looking Statements
This report contains certain statements that may be deemed forward-looking statements within
the meaning of United States securities laws. All statements, other than statements of historical
fact, that address activities, events or developments that we intend, expect, project, believe or
anticipate will or may occur in the future are forward-looking statements. Such statements are
based upon certain assumptions and assessments made by our management in light of their experience
and their perception of historical trends, current conditions, expected future developments and
other factors they believe to be appropriate. Certain factors that could cause results to differ
materially from those projected or implied in the forward looking statements are set forth in this
Annual Report on Form 10-K for the year ended December 31, 2009 under the caption Item 1A Risk
factors
We encourage you to read those descriptions carefully. We caution you not to place undue
reliance on the forward-looking statements contained in this report. These statements, like all
statements in this report, speak only as of the date of this report (unless an earlier date is
indicated) and we undertake no obligation to update or revise the statements except as required by
law. Such forward-looking statements are not guarantees of future performance and actual results
will likely differ, perhaps materially, from those suggested by such forward-looking statements.
Overview
We are a diversified biopharmaceutical business dedicated to the discovery, development and
commercialization of novel, mechanism- targeted drugs to treat cancer and other serious disorders.
We are focused on delivering leading edge therapeutic management of cancer patients based on a
clinical development pipeline of novel drug candidates. Our core area of expertise, and a
foundation of the Company since our inception, is in cell cycle biology; the processes by which
cells divide and multiply. We focus primarily on the discovery and development of orally available
anticancer agents that target the cell cycle with the aim of slowing the progression or shrinking
the size of tumors, and enhancing the quality of life and improving survival rates of cancer
patients.
Our clinical development priorities are focused on sapacitabine in the following indications:
|
|
|
Acute myeloid leukemia, or AML in the elderly; |
|
|
|
Myelodysplastic syndromes, or MDS; and |
|
|
|
Non-small cell lung cancer or NSCLC. |
We have ongoing clinical programs in development which are currently pending availability of
data. Once data become available and are reviewed, we will determine the feasibility of pursuing
further development and/or partnering these assets, including sapacitabine in combination with
seliciclib, seliciclib in NSCLC and nasopharyngeal cancer, or NPC, and CYC116. In addition, we
market directly in the United States Xclair® Cream for radiation dermatitis and Numoisyn® Liquid
and Numoisyn® Lozenges for xerostomia.
Our core area of expertise is in cell cycle biology and we focus primarily on the development
of orally available anticancer agents that target the cell cycle with the aim of slowing the
progression or shrinking the size of tumors, and enhancing the quality of life and improving
survival rates of cancer patients. We are generating several families of anticancer drugs that act
on the cell cycle including nucleoside analogues, cyclin dependent kinase or CDK inhibitors and
Aurora kinase/Vascular Endothelial Factor Receptor 2 or AK/VEGFR2 inhibitors. Although a number of
pharmaceutical and biotechnology companies are currently attempting to develop nucleoside
analogues, CDK inhibitor and AK inhibitor drugs, we believe that our drug candidates are
differentiated in that they are orally available and interact with unique target profiles and
mechanisms. For example we believe that our sapacitabine is the only orally available nucleoside
analogue presently being tested in Phase 2 trials in AML and MDS and seliciclib is the only orally
available
CDK inhibitor currently in Phase 2 trials. Although our resources are primarily directed
towards advancing our anticancer drug candidate sapacitabine through in-house development
activities we are also progressing, but with lower levels of investment than in previous years, our
other novel drug series which are at earlier stages. As a consequence of our focus on sapacitabine
clinical development and related cost reduction program, research and development expenditures for
the year ended December 31, 2009 were reduced by $9.1 million, or 48%, to $9.8 million compared to
$18.9 million for the year ended December 31, 2008.
55
We have worldwide rights to commercialize sapacitabine, seliciclib and CYC116 and our business
strategy is to enter into selective partnership arrangements with these programs. Taken together,
our pipeline covers all four phases of the cell cycle, which we believe will improve the chances of
successfully developing and commercializing novel drugs that work on their own or in combination
with approved conventional chemotherapies or with other targeted drugs to treat human cancers.
Our corporate headquarters is located in Berkeley Heights, New Jersey, with a research
facility located in Scotland.
From our inception in 1996 through December 31, 2009, we have devoted substantially all our
efforts and resources to our research and development activities. We have incurred significant net
losses since inception. As of December 31, 2009, our accumulated deficit during the development
stage was approximately $222.3 million. We expect to continue incurring substantial losses for the
next several years as we continue to develop our clinical and pre-clinical drug candidates. Our
operating expenses comprise research and development expenses and selling and general and
administrative expenses.
To date, we have not generated significant product revenue but have financed our operations
and internal growth through private placements, registered direct financings, licensing revenue,
interest on investments, government grants and research and development tax credits. Prior to
October 2007, our revenue consisted of collaboration and grant revenue. We did not start
recognizing sales from our commercial products until 2008. We have recognized revenues from
inception through December 31, 2009 totaling approximately $8.4 million of which approximately $3.0
million is derived from fees under collaborative agreements, approximately $3.6 million of grant
revenue from various United Kingdom government grant awards and approximately $1.8 million from
product sales. We have also recognized amounts receivable from the United Kingdoms tax authority,
H.M. Revenue & Customs of $17.2 million for research and development tax credits since inception.
Recent Events
On January 27, 2010, we announced that The NASDAQ Global Market, or NASDAQ, had notified us
that we regained compliance with the minimum $50 million market value of listed securities
requirement and that we currently comply with all other applicable standards for continued listing
on NASDAQ.
On January 25, 2010, we completed the sale of 2,350,000 units in a registered direct
offering at a purchase price of $2.50 per unit to certain existing institutional investors of the
Company for approximately $5.9 million in gross proceeds. Each unit consisted of one share of our
common stock and one warrant to purchase 0.30 of one share of our common stock. The warrants have a
five-year term from the date of issuance, are exercisable beginning six months from the date of
issuance and will be exercisable at an exercise price of $2.85 per share of common stock.
On January 13, 2010, we completed the sale of 2,850,000 units in a registered direct
offering to certain institutional investors. Each unit was sold at a purchase price of $2.51 per
unit and consists of one share of our common stock and one warrant to purchase 0.25 of one share of
our common stock totaling approximately $7.2 million in gross proceeds. The warrants have a
five-year term from the date of issuance, are exercisable beginning six months from the date of
issuance and will be exercisable at an exercise price of $3.26 per share of common stock.
56
On January 7, 2010, the Board of Directors of Cyclacel decided not to declare the quarterly
cash dividend on the Companys 6% Convertible Exchangeable Preferred Stock, or Preferred Stock,
with respect
to the fourth quarter of 2009 that would have otherwise been payable on February 1, 2010. As
previously disclosed, the Board also did not declare the quarterly cash dividend with respect to
the first, second and third quarters of 2009. To the extent that any dividends payable on the
Preferred Stock are not paid, such unpaid dividends are accrued. This is the fourth quarterly
dividend that we have not declared and if we fail to pay dividends for at least six quarters
(whether or not consecutive) on the Preferred Stock, the size of our Board of Directors
could be increased by two members and the holders of the Preferred Stock, voting separately as a
class, will have the right to vote to fill the two vacancies created thereby until all accrued but
unpaid dividends have been paid in full, at which time such right is terminated.
During January and February 2010, we issued 2,618,266 shares of our common stock for gross
proceeds of approximately $2.6 million through the exercise of warrants. In addition, we completed
a draw down from our CEFF under which we issued 1,563,208 shares for proceeds of approximately $3.1
million.
During March 2010, we issued 239,396 shares of our common stock to a stockholder in exchange
for the stockholders delivery to us of 123,400 shares of our outstanding Preferred Stock.
Results of Operations
In connection with the stock purchase agreement entered into with Xcyte in March 2006,
Cyclacel Limited was considered to be the acquiring company for accounting purposes. Accordingly,
the assets and liabilities of Xcyte were recorded, as of March 27, 2006, at their respective fair
values and added to those of Cyclacel Limited. The results of operations and balance sheet data for
2006 reflect the results of the combined companies from March 28, 2006 through December 31, 2006.
Additionally, the historical results of operations and balance sheet data shown for comparative
purposes in this Annual Report on Form 10-K reflect those of Cyclacel Limited prior to the reverse
acquisition.
In connection with the asset purchase agreement with ALIGN, Cyclacel recorded the assets and
liabilities of ALIGN at fair value on October 5, 2007. The results of operations and balance sheet
data for 2007 reflect the results of the combined companies from October 5, 2007 through
December 31, 2007.
Years ended December 31, 2008 and 2009 compared to years ended December 31, 2007 and 2008,
respectively.
Revenues
The following table summarizes the components of our revenues for the years ended December 31,
2007, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended |
|
|
$ Differences |
|
|
% Differences |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration and research and development revenue |
|
$ |
10 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(10 |
) |
|
$ |
|
|
|
|
(100 |
)% |
|
|
|
% |
Product Revenue |
|
|
|
|
|
|
838 |
|
|
|
910 |
|
|
|
838 |
|
|
|
72 |
|
|
|
100 |
% |
|
|
9 |
% |
Grant revenue |
|
|
119 |
|
|
|
39 |
|
|
|
1 |
|
|
|
(80 |
) |
|
|
(38 |
) |
|
|
(67 |
)% |
|
|
(97 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
129 |
|
|
$ |
877 |
|
|
$ |
911 |
|
|
$ |
748 |
|
|
$ |
34 |
|
|
|
580 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration and research and development revenue is derived from several agreements under
which the Company provides compounds for evaluation for an agreed consideration. No revenue was
recognized under collaborative agreements during 2008 and 2009.
Product revenue is derived from the sale of Xclair® Cream, Numoisyn® Liquid and Numoisyn®
Lozenges following the ALIGN asset acquisition on October 5, 2007. During the years ended December
31, 2008 and 2009, we recognized approximately $0.8 million and $0.9 million, respectively in
accordance with our revenue recognition policy.
57
Grant revenue is recognized as we incur and pay for qualifying costs and services under the
applicable grant. Grant revenue is primarily derived from various United Kingdom government grant
awards. Grant revenue decreased by 97% from $39,000 for the year ended December 31, 2008 to
approximately $1,000 for the year ended December 31, 2009. This was as a result of finalization of
a three year European Union grant which concluded in 2009.
The future
This was the second full year of ALIGN product sales since we acquired ALIGN in October 2007.
We expect to continue to grow the sales of ALIGN products in 2010 through the support of a small
sales force infrastructure and marketing efforts. We expect that grant revenue will decrease as we
focus our expenditure on the advancement of sapacitabine, which is currently waiting to advance
into a Phase 3 clinical trial, and away from grant qualifying research expenditure.
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended |
|
|
$ Differences |
|
|
% Differences |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
|
|
|
$ |
429 |
|
|
$ |
545 |
|
|
$ |
429 |
|
|
$ |
116 |
|
|
|
100 |
% |
|
|
27 |
% |
Total cost of sales represented 51% and 60%, respectively, of product revenue for the years
ended December 31, 2008 and 2009. During 2009, we included an inventory provision of approximately
$0.1 million based upon current inventory levels, expiration dates, and future sales. Excluding the
inventory provision, the cost of sales for the year ended December 31, 2009 represented 45% of
product revenues and in the future we expect to maintain a similar margin level as we incurred in
2009.
Research and development expenses
To date, we have focused on drug discovery and development programs, with particular emphasis
on orally available anticancer agents and our research and development expenses have represented
costs incurred to discover and develop novel small molecule therapeutics, including clinical trial
costs for sapacitabine, seliciclib, sapacitabine in combination with seliciclib and CYC116. We have
also incurred costs in the advancement of product candidates toward clinical and pre-clinical
trials and the development of in-house research to advance our biomarker program and technology
platforms. However, during 2008 and 2009, in response to changing market conditions, we
extensively reduced or stopped expenditure on development and preclinical activities outside of our
core focus on sapacitabine. The benefit of these cost reductions was realized in 2009 and will be
also be realized in 2010. We expense all research and development costs as they are incurred.
Research and development expenses primarily include:
|
|
|
clinical trial and regulatory-related costs; |
|
|
|
payroll and personnel-related expenses, including consultants and contract
research; |
|
|
|
preclinical studies and laboratory supplies and materials; |
|
|
|
technology license costs; and |
|
|
|
rent and facility expenses for our laboratories. |
58
The following table provides information with respect to our research and development
expenditure for the years ended December 31, 2007, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended |
|
|
$ Differences |
|
|
% Differences |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Sapacitabine |
|
$ |
3,326 |
|
|
$ |
6,601 |
|
|
$ |
7,001 |
|
|
$ |
3,275 |
|
|
$ |
400 |
|
|
|
98 |
% |
|
|
6 |
% |
Seliciclib |
|
|
3,270 |
|
|
|
2,906 |
|
|
|
(84 |
) |
|
|
(364 |
) |
|
|
(2,990 |
) |
|
|
(11 |
)% |
|
|
(103 |
)% |
CYC116 |
|
|
2,626 |
|
|
|
1,695 |
|
|
|
162 |
|
|
|
(931 |
) |
|
|
(1,533 |
) |
|
|
(35 |
)% |
|
|
(90 |
)% |
Other costs related to research and
development programs, management and
exploratory research |
|
|
10,347 |
|
|
|
7,667 |
|
|
|
2,687 |
|
|
|
(2,680 |
) |
|
|
(4,980 |
) |
|
|
(26 |
)% |
|
|
(65 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses |
|
$ |
19,569 |
|
|
$ |
18,869 |
|
|
$ |
9,766 |
|
|
$ |
(700 |
) |
|
$ |
(9,103 |
) |
|
|
(4 |
)% |
|
$ |
(9,103 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses represented 59%, 44% and 51% of our operating expenses for
the years ended December 31, 2007, 2008 and 2009, respectively. Included in research and
development
expenses is stock-based compensation of approximately $0.8 million, $0.7 million and $0.3
million for the years ended December 31, 2007, 2008 and 2009, respectively.
Fiscal 2009 as compared to fiscal 2008. Research and development costs decreased by 51%, or
approximately $9.1 million, from approximately $18.9 million for the year ended December 31, 2008
to approximately $9.8 million for the year ended December 31, 2009. Starting in September 2008 with
our announced cost containment efforts, we reduced or eliminated costs of all programs other than
the sapacitabine clinical trials, and as of result, the research and development costs were reduced
by approximately $9.5 million in 2009 from 2008. The sapacitabine program increased by
approximately $0.2 million due to the increase in clinical trial costs of running the AML and MDS
programs.
Fiscal 2008 as compared to fiscal 2007. Research and development costs decreased by 4%, or
approximately $0.7 million, from approximately $19.6 million for the year ended December 31, 2007
to approximately $18.9 million for the year ended December 31, 2008. The sapacitabine program
increased by approximately $3.3 million relating to the increased clinical trial activities, in
particular the commencement of the Phase 2 trial in elderly AML in December 2007, the expansion of
the trial to explore myelodysplastic syndromes, as well as additional pre-clinical efforts and
product scale-up. This has been offset by cost reductions in other programs and cost savings from
the workforce reduction in September 2008 to allow us to concentrate on the advancement of
sapacitabine. The increase in strength of the U.S. dollar against the British Pound has also
contributed to lower research and development expenses being recognized on the consolidated
statement of operations for the year ended December 31, 2008 as compared to the year ended December
31, 2007.
The future
Following our reduction of expenditure in 2008 and 2009 in our non-core research and
development programs, we have concentrated our resources on the development of sapacitabine in
three indications. We anticipate that overall research and development expenditures in 2010 will
be similar to 2009 levels.
Selling, general and administrative expenses
Selling, general and administrative expenses include costs for sales and marketing operations,
administrative personnel, legal and other professional expenses and general corporate expenses. The
following table summarizes the total selling, general and administrative expenses for the years
ended December 31, 2007, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended |
|
|
$ Differences |
|
|
% Differences |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
$ |
12,033 |
|
|
$ |
15,354 |
|
|
$ |
8,538 |
|
|
$ |
3,321 |
|
|
$ |
(6,816 |
) |
|
|
28 |
% |
|
|
(44 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
Total selling, general and administrative expenses represented 36%, 36% and 44 % of our
operating expenses for the years ended December 31, 2007, 2008 and 2009, respectively.
Fiscal 2009 as compared to fiscal 2008. Selling, general and administrative expenditure
decreased by 44%, or $6.8 million, from approximately $15.4 million for the year ended December 31,
2008 to approximately $8.5 million for the year ended December 31, 2009. This was as a result of
cost saving measures first established in September 2008 and then during the second and third
quarters of 2009. The cost savings resulted from reductions in employment related costs of $2.6
million, intellectual property expenditures of $1.3 million, stock-based compensation expenses of
$0.5 million, professional fees of $0.5 million, investor relations of $0.2 million, information
technology costs of $0.2 million and travel costs of $0.1 million. Additionally, sales and
marketing costs related to ALIGN in 2009 were reduced by $0.1 million compared to 2008, which
included one-time business launch costs not repeated in 2009. During 2008, a charge for
amortization of intangibles of $0.7 million with no corresponding charge in 2009 was recognized as
the intangible assets were impaired during the third quarter of 2008.
Fiscal 2008 as compared to fiscal 2007. Selling, general and administrative expenditure
increased 28% or $3.3 million to approximately $15.3 million for the year ended December 31, 2008
from approximately $12.0 million for the year ended December 31, 2007, primarily attributable to
the sales operations of ALIGN. Included within the expense of $15.3 million for the year ended
December 31, 2008 are approximately $2.3 million of costs in respect of the support and development
of ALIGNs commercial operations and sales and marketing, reflecting the fact that 2008 is the
first full year of reporting for the ALIGN business following its acquisition in October 2007. In
addition, $0.7 million of intangible asset amortization charges were recognized prior to the
intangible asset impairment. Included in selling, general and administrative expenses is stock
compensation of approximately $0.9 million and $1.0 million for the years ended December 31, 2007
and 2008, respectively.
The future
Following our reduction in expenditure in 2008 and 2009, we expect our selling, general and
administrative expenditures in 2010 to remain at the same levels as in 2009 or be lower.
Goodwill and intangible asset impairment
The following table summarizes the goodwill and intangibles impairment charges for the years
ended December 31, 2007, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended |
|
|
$ Differences |
|
|
% Differences |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Goodwill and intangibles impairment |
|
$ |
|
|
|
$ |
7,934 |
|
|
$ |
|
|
|
$ |
7,934 |
|
|
$ |
(7,934 |
) |
|
|
100 |
% |
|
|
(100 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In September 2008, the goodwill acquired in the Xcyte transaction was written down in full and
we recorded an impairment charge of approximately $2.7 million in accordance with Accounting
Standard Codification, or ASC, 350 IntangiblesGoodwill
and Other, or ASC 350. This
impairment charge was identified through our annual impairment review process and was triggered
primarily by a decline in our stock price that reduced our market capitalization below book value
of the net assets of the Xcyte reporting unit. Our reduced market capitalization reflected the
general decline in the economic environment.
Intangible assets acquired in the ALIGN transaction were also fully written down in September
2008, in accordance with Accounting Standard Codification, Codification Topic 360, entitled
Property, Plant and Equipment, or ASC 360. An impairment charge of approximately $3.6 million
was identified through our annual impairment review process and was recognized on the consolidated
statement of operations. This one-time non-cash charge was triggered by a downwards revision of
our projected net cash flows from product sales, required due to budgetary constraints experienced
by health care providers and restrictions of the cost reimbursement regime. As a result, the sum
of the expected undiscounted cash flows was less than the carrying amount of the intangible assets
on September 30, 2008.
60
In December 2008, goodwill allocated to our ALIGN reporting unit following the ALIGN
acquisition was fully written down in accordance with ASC 350, resulting in an impairment charge of
approximately $1.6 million being recognized on the consolidated statement of operations. A further
decline in our stock price during the fourth quarter of 2008 caused us to perform an impairment
analysis during December 2008. In determining the impairment charge, we considered the negative
impact the current economic situation might have on sales growth expectations of the ALIGN products
resulting in a downward revisions of projected net cash flows from product sales. These factors
caused the discounted cash flows for the reporting unit to be less than its carrying value on
December 31, 2008.
The future
Previously recognized goodwill and intangible assets acquired have been fully impaired as of
December 31, 2008.
Restructuring charge
The following table summarizes the restructuring charges for years ended December 31, 2007,
2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended |
|
|
$ Differences |
|
|
% Differences |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Total restructuring charge |
|
$ |
1,554 |
|
|
$ |
546 |
|
|
$ |
366 |
|
|
$ |
(1,008 |
) |
|
$ |
(180 |
) |
|
|
(65 |
)% |
|
|
(33 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 as compared to fiscal 2008. The restructuring charge decreased by 33% or $0.1
million from approximately $0.5 million for the year ended December 31, 2008 to $0.4 million for
the year ended December 31, 2009.
In September 2008, we announced a revision of our operating plan that concentrates our
resources on the advancement of our lead drug, sapacitabine, while maintaining a core competency in
drug discovery and cell cycle biology. The plan initially reduced our workforce across all
locations by 25 people. We recorded and paid approximately $0.4 million of severance costs and $0.1
million of accelerated depreciation for assets that will no longer be utilized. In addition we have
accrued a charge of $0.1 million in respect of costs of exiting the lease of our redundant
Cambridge research facility. During the second and third quarters of 2009, we further reduced our
workforce across all locations by an additional twenty six (26) people, making a total reduction of
fifty one (51) people, or 63% of our workforce, since September 2008, totaling approximately $0.4
million.
Fiscal 2008 as compared to fiscal 2007. The restructuring charge decreased by 65% or $1.0
million from approximately $1.5 million for the year ended December 31, 2007 to $0.5 million for
the year ended December 31, 2008.
In September 2008, we announced a revision of our operating plan that concentrates our
resources on the advancement of our lead drug, sapacitabine, while maintaining a core competency in
drug discovery and cell cycle biology. The plan initially reduced the workforce across all
locations by 25 people. We recorded and paid approximately $0.4 million of severance costs and $0.1
million of accelerated depreciation for assets that will no longer be utilized. In addition we have
accrued a charge of $0.1 million in respect of costs of exiting the lease of our redundant
Cambridge research facility.
During the year ended December 31, 2008, there were no changes to the assumption and estimates
underlying the restructuring liability associated with exiting the Bothell facility. In 2007, we
recognized a charge of $1.7 million in respect of the lease. As of December 31, 2009, the fair
value of the remaining lease payments, net of estimated sub-lease income was approximately $1.1
million.
61
The future
As of December 31, 2009, the restructuring liability associated with exiting the Bothell
facility was approximately $1.1 million representing the present value of the remaining lease
payments, net of estimated sub-lease income. The restructuring liability is subject to a variety of
assumptions and estimates. We review these assumptions and estimates on a quarterly basis and
adjust the accrual if necessary. These changes may be material.
As a result of the workforce reduction in September 2008, and during the second and third
quarters of 2009, we vacated our laboratory facility in Cambridge, England. Further revisions to
our operating plan, if any, will be assessed as circumstances dictate.
Other income / (expense)
The following table summarizes the other income for years ended December 31, 2007, 2008 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended |
|
|
$ Differences |
|
|
% Differences |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Payment under guarantee |
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,652 |
) |
|
$ |
|
|
|
$ |
(1,652 |
) |
|
|
|
|
|
|
(100 |
)% |
Change in valuation of derivative |
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
100 |
% |
|
|
0 |
% |
Change in valuation of warrants liability |
|
|
3,205 |
|
|
|
3,502 |
|
|
|
(299 |
) |
|
$ |
297 |
|
|
|
(3,801 |
) |
|
|
9 |
% |
|
|
(109 |
)% |
Change in valuation of warrant |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
(100 |
)% |
Foreign Exchange gain/(loss) |
|
|
490 |
|
|
|
(4,501 |
) |
|
|
(144 |
) |
|
|
(4,991 |
) |
|
|
4,357 |
|
|
|
(1019 |
)% |
|
|
97 |
% |
Interest income |
|
|
3,554 |
|
|
|
1,380 |
|
|
|
102 |
|
|
|
(2,174 |
) |
|
|
(1,278 |
) |
|
|
(61 |
)% |
|
|
(93 |
)% |
Interest expense |
|
|
(223 |
) |
|
|
(318 |
) |
|
|
(177 |
) |
|
|
(95 |
) |
|
|
141 |
|
|
|
(42 |
)% |
|
|
44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net |
|
$ |
6,933 |
|
|
$ |
63 |
|
|
$ |
(2,214 |
) |
|
$ |
(6,870 |
) |
|
$ |
(2,277 |
) |
|
|
(99 |
)% |
|
|
3,614 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 as compared to fiscal 2008. Total other income (expense), net, reduced by
approximately $2.3 million from a gain $0.1 million in 2008 to an expense of $2.2 million in 2009
due to the reduction in interest income of $1.3 million arising form lower yields available on
lower average interest bearing cash and cash equivalents, an increase of $3.8 million in the
valuation of warrants liability and $1.6 million in respect of a payment under guarantee related to
our arrangement with Scottish Enterprise. This increase in expense was offset by a reduction in
foreign exchange losses of $4.4 million in 2009 compared to 2008. The differences related to these
items are explained further below.
Change in valuation of derivative
On November 3, 2007, the embedded derivative associated with the dividend make-whole payment
expired reducing the liability to $0 and thus no further marked to market adjustments will be made
with regard to this embedded derivative.
62
Change in value of warrants
The change in valuation of warrants relates to the issue of warrants to purchase shares of our
common stock under the registered direct financing completed in February 2007. The warrants issued
to the investors meet the requirements of and are being accounted for as a liability in accordance
with ASC 840 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled
in, a Companys Own Stock. (ASC 840). The value of the warrants is being marked to market each
reporting period as a derivative gain or loss until exercised or expiration. For the year ended
December 31, 2008, we recorded a gain of approximately $3.5 million in the change in the value of
warrants. For the year ended December 31, 2009, we recognized an expense of approximately $0.3
million as the change in the value of warrants.
Foreign Exchange gain / (loss)
In conjunction with the operational review conducted by the Company in September 2008, the
nature of intercompany funding was considered. It was concluded that as repayment of intercompany
loans is not expected in the foreseeable future, the nature of the funding advanced was of a
long-term investment nature and that the terms of the loans should be amended to reflect this.
Effective October 1, 2008, intercompany loans ceased to be repayable on demand and have no fixed
repayment date. As a result of the change in repayment terms, from October 1, 2008, all unrealized
foreign exchange gains or losses arising on the intercompany loans will be recognized in other
comprehensive income on the consolidated statement of stockholders equity until repayment of the
intercompany loan becomes foreseeable. For the year ended December 31, 2009 unfavorable unrealized
foreign exchange movements recorded in other comprehensive income totaled $5.7 million compared to
$12.3 million in 2008.
As a result of this change only foreign exchange gains/losses unrelated to the intercompany
loans are recorded in income (expense) in the year ended December 31, 2009 which totaled $0.1
million expense
compared to a $4.5 million of expense in 2008 of which $4.8 million related to unrealized
foreign exchange gains or losses arising on the intercompany loans charged to this category before
the October 1, 2008 change offset by a realized gain of $0.3 million on transactions in the year in
respect of underlying operations.
Interest Income
Interest income decreased by approximately $1.3 million from $1.4 million for the year ended
December 31, 2008 to $0.1 million for the year ended December 31, 2009. During 2008, maturing
short-term investments were reinvested in cash and cash equivalents, being a more secure form of
investment and providing greater liquidity. As a result, these assets attracted a lower rate of
interest. This was compounded by a reduction in the average balance of cash and cash equivalents
and short-term investments during 2008 as compared to 2009.
Interest Expense
Interest expense decreased by $0.1 million from $0.3 million for year ended December 31, 2008
to $0.2 million for the year ended December 31, 2009. For each of the years ended December 31,
2007 and 2008, we recorded accretion expense associated with the Bothell restructuring lease of
$0.2 million and $0.1 million in 2009 on the consolidated statement of operations as interest
expense. A further $0.1 million of accretion expense will be recognized over the remaining life of
the lease to December 2010.
The future
The valuation of the warrant liability will continue to be re-measured at the end of each
reporting period. The valuation of the warrants is dependent upon many factors, including our
stock price, interest rates and the remaining term of the instrument and may fluctuate
significantly, which may have a significant impact on our statement of operations.
As the nature of funding advanced through inter-company loans is that of a long-term
investment in nature, future unrealized foreign exchange gains and losses on such funding will be
recognized in other comprehensive income until repayment of the intercompany loan becomes
foreseeable. This will minimize the future impact of unrealized foreign exchange fluctuations on
earnings.
A further accretion expense of approximately $0.1 million associated with the Bothell lease
restructuring charge will be recognized over the remaining life of the lease through December 2010.
63
Income tax benefit
Credit is taken for research and development tax credits, which are claimed from the United
Kingdoms taxation and customs authority, in respect of qualifying research and development costs
incurred.
The following table summarizes research and development tax credits for the years ended
December 31, 2007, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended |
|
|
$ Differences |
|
|
% Differences |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
2007 to 2008 |
|
|
2008 to 2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Total income tax
benefit |
|
$ |
2,041 |
|
|
$ |
1,749 |
|
|
$ |
948 |
|
|
$ |
(292 |
) |
|
$ |
(801 |
) |
|
|
(14 |
)% |
|
|
(46 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 as compared to fiscal 2008. Research and development tax credits recoverable
decreased by 46%, or approximately $0.8 million, from approximately $1.7 million for the year ended
2008 to approximately $0.9 million for the year ended December 31, 2009. The level of tax credits
recoverable is linked directly to qualifying research and development expenditure incurred in any
one year but restricted to
payroll taxes paid by us in the United Kingdom in that same year. The decrease was a
reflection of decreased income taxes available for recovery as a consequence of the lower eligible
research and development payroll expenses in the United Kingdom following the workforce reductions
commenced in September 2008 and continued in the second and third quarters of 2009.
Fiscal 2008 as compared to fiscal 2007. Research and development tax credits recoverable
decreased by 14%, or approximately $0.3 million, from approximately $2.0 million for the year ended
2007 to approximately $1.7 million for the year ended December 31, 2008. The level of tax credits
recoverable is linked directly to qualifying research and development expenditure incurred in any
one year but restricted to payroll taxes paid by us in the United Kingdom in that same year. The
decrease was a reflection of decreased income taxes available for recovery as a consequence of the
lower eligible research and development payroll expenses in the United Kingdom in 2008 following
the workforce reductions announced in September 2008.
The future
We expect to continue to be eligible to receive United Kingdom research and development tax
credits for the foreseeable future and will elect to do so, however as a result of our revised
operating plan announced in September 2008 and the subsequent reduction in workforce in the second
and third quarters of 2009 the amount of payroll taxes payable in future periods will be lower than
in previous periods, restricting available income tax credits to that lower amount.
Liquidity and Capital Resources
The following is a summary of our key liquidity measures as at December 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Difference |
|
|
% Difference |
|
|
|
(in thousands) |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24,220 |
|
|
$ |
11,493 |
|
|
$ |
(12,727 |
) |
|
|
(53 |
)% |
Short-term investments, available for sale |
|
|
1,502 |
|
|
|
|
|
|
|
(1,502 |
) |
|
|
(100 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents and
short-term investments |
|
$ |
25,722 |
|
|
$ |
11,493 |
|
|
$ |
(14,229 |
) |
|
|
(55 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
29,014 |
|
|
$ |
13,369 |
|
|
$ |
(15,645 |
) |
|
|
(54 |
)% |
Current liabilities |
|
|
8,627 |
|
|
|
9,822 |
|
|
|
1,195 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
20,387 |
|
|
$ |
3,547 |
|
|
$ |
(16,840 |
) |
|
|
(83 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
At December 31, 2009, we had cash and cash equivalents and short-term investments of $11.5
million as compared with $25.7 million at December 31, 2008. The lower balance at December 31,
2009 was primarily due to funding ongoing clinical trials, research and development, and to a
lesser extent, sales and marketing activities.
Current liabilities increased by 14%, or $1.2 million, to $9.8 million at December 31, 2009
from $8.6 million at December 31, 2008. Of the $1.2 million increase, $0.8 million relates to the
amount payable under guarantee to Scottish Enterprise as part of the amendment in July 2009 to the
March 2006 Agreement. In addition, the accounts payable balance increased by $1.0 million
primarily related to the manufacture of clinical trial supplies. This was offset by a $0.6 million
reduction in accrued compensation.
Since our inception, we have not generated any significant product revenues and have relied
primarily on the proceeds from sales of equity and preferred securities to finance our operations
and internal growth. Additional funding has come through interest on investments, licensing
revenue, government grants and research and development tax credits. We have incurred significant
losses since our inception. As of December 31, 2009, we had an accumulated deficit of $222.3
million.
We believe that existing funds together with cash generated from operations and recent
financing activities are sufficient to satisfy our planned working capital, capital expenditures,
debt service and other
financial commitments for at least the next twelve months. Current business and capital
market risks could have a detrimental affect on the availability of sources of funding and our
ability to access them in the future which may delay or impede our progress of advancing our drugs
currently in the clinic to approval by the FDA for commercialization.
Cash provided by (used in) operating, investing and financing
activities
Cash provided by (used in) operating, investing and financing activities for the years ended
December 31, 2007, 2008 and 2009 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
(in thousands) |
|
Net cash used in operating activities |
|
$ |
(23,140 |
) |
|
$ |
(29,905 |
) |
|
$ |
(15,193 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used by) investing activities |
|
$ |
(22,693 |
) |
|
$ |
27,342 |
|
|
$ |
1,559 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used by) financing activities |
|
$ |
32,208 |
|
|
$ |
(1,238 |
) |
|
$ |
3,852 |
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 as compared to fiscal 2008.
Operating activities
Net cash used in operating activities decreased by $14.7 million, from $29.9 million in 2008
to $15.2 million in 2009. Our net cash used in operating activities significantly decreased
primarily as a result of our cost reduction plan first implemented in September 2008 and then again
during June of 2009 and the focus to advancing sapacitabine into a pivotal Phase 3 trial. Net cash
used in operating activities during the year ended December 31, 2009 of $15.2 million resulted from
our net operating loss of $19.6 million, adjusted for material non-cash activities comprising
amortization of investment premiums (discounts), change in valuation of liability-classified
warrants, depreciation and amortization, unrealized foreign exchange losses and non-cash stock
based compensation expense, amounting to $2.1 million and a net reduction in working capital of
$2.1 million due to a decrease in prepaid expenses combined with a net increase in accounts payable
and other current liabilities.
65
Net cash used in operating activities increased by $6.8 million, to $29.9 million in 2008 from
$23.1 million in 2007. Net cash used in operating activities during the year ended December 31,
2008 of $29.9 million resulted from our net operating loss of $40.4 million, adjusted for material
non-cash activities comprising amortization of investment premiums (discounts), change in valuation
of liability-classified warrants, depreciation and amortization, goodwill and intangibles
impairment, unrealized foreign exchange losses and non-cash stock based compensation expense,
amounting to $11.4 million and a net reduction in working capital of $0.9 million due to a decrease
in prepaid expenses combined with a net decrease in accounts payable and other current liabilities.
The decrease of $14.7 million in net cash used in operations was mainly due to downsizing of
operations and the year on year change in working capital.
Investing activities
Net cash provided by investing activities in the year ended December 31, 2008 amounted to
$27.3 million. During the year ended December 31, 2009, cash provided by investing activities
amounted to $1.6 million. During the year ended December 31, 2007, we purchased short-term
investments totalling $153.6 million which was offset by maturities of $136.4 million in short term
investments and incurred cash expenditures of $3.8 million for the acquisition of ALIGN on October
5, 2007. During 2008, the proceeds from maturing short-term investments were reinvested in cash
and cash equivalents to reduce our risk profile. In addition, the net proceeds from $27.7 million
of maturing short-term investments were used to fund our operating
activities.
Capital expenditure was reduced to $15,000 for the year ended December 31, 2009 compared to
expenditures of $0.4 million for the year ended December 31, 2008.
Financing activities
Net cash provided by financing activities increased by $5.1 million, from a use of $1.2
million for the year ended December 31, 2008 to a source of $3.9 million for the year ended
December 31, 2009.
For year ended December 31, 2009, the net cash provided by financing activities related
primarily to net proceeds received from the registered direct financing of $2.9 million in July
2009. On December 10, 2007, we entered into a CEFF with Kingsbridge, which was subsequently amended
on November 24, 2009, in which Kingsbridge committed to purchase the lesser of 4,084,590 shares of
common stock or $60 million of common stock from us over a three years-year period.
Under the terms of the agreement, we will determine the exact timing and amount of any CEFF
financings, subject to certain conditions. All amounts drawn down under the CEFF will be settled
via the issuance of our common stock. We may access capital under the CEFF in tranches as described
below, with each tranche being issued and priced over an eight-day pricing period. Kingsbridge
will purchase shares of common stock pursuant to the CEFF at discounts ranging from 6% to 10%
depending on the average market price of the common stock during the eight-day pricing period.
Pursuant to the amendment to the CEFF, we may, subject to certain conditions require
Kingsbridge to purchase shares of common stock at a price that is between 80% and 94% of the volume
weighted average price for each trading day during an eight-day pricing period. Additionally, we
may access capital under the CEFF in maximum draw downs of (i) 4.0% of our market capitalization at
the time of the draw down, with respect to the first draw down, (ii) 3.0% of our market
capitalization at the time of the draw down with respect to one draw down per calendar quarter
beginning on February 1, 2010, and (iii) 2.0% of our market capitalization at the time of the draw
down with respect to all other draw downs. Finally, the interest rate applicable to any outstanding
Make Whole Amount (as defined in the amendment) that may arise out of the our failure to deliver
draw down shares on time was changed from five percent (5%) per annum to a rate equal to the
greater of (i) the prime rate of interest then in effect as published by the Wall Street Journal
plus three percent (3%) and (ii) ten percent (10%).
During
December 2009 and subsequent to the year end, we sold an
aggregate of 2,818,232 shares of our
common stock to Kingsbridge under the terms of the CEFF in
consideration of an aggregate of $4.1 million, of which $1.0 million was received in 2009 and
$3.1 million in 2010. Because we did not declare the payment of dividends on our preferred stock for several quarters
during the fiscal year 2009, we will not be able to use our Registration Statement on Form S-3,
which covers the shares subject to the CEFF and therefore, we may not be able to access the
CEFF until such time as an effective registration statement covering
such shares be in place.
In July 2009,
we sold our securities to select institutional investors consisting of 4,000,000 units in a
registered direct offering at a purchase price of $0.85 per unit for
approximately $3.4 million in gross proceeds.
66
For the year ended December 31, 2008, the net cash outflow for financing activities primarily
related to the payment of our preferred stock dividend of $1.2 million.
During 2007 the net cash provided by financing activities related primarily to gross proceeds
received from the registered direct financing which raised $36.0 million in gross proceeds, before
deducting placement agent fees and offering expenses of $2.6 million.
In February 2007, we sold approximately 4.2 million units, each unit consisting of one share
of our common stock and a seven-year warrant to purchase 0.25 shares of our common stock, at a
purchase price of $8.47125 per unit in a registered direct offering. The purchase price for the
shares and the exercise price for the warrants was $8.44 per share, the closing bid price for our
common stock on February 12, 2007. Investors paid $0.125 per warrant. We issued 4,249,668 shares of
common stock and warrants to purchase 1,062,412 shares of common stock.
For the years ended December 31, 2008 and 2009, the net cash outflow for financing activities
primarily related to the payment of our preferred stock dividend of $1.2 million and $0.3 million,
respectively.
Operating Capital and Capital Expenditure Requirements
We expect to continue to incur substantial operating losses in the future. While we have
generated modest product revenues from ALIGN product sales for the years ended December 31, 2008
and 2009, we can not guarantee that we will generate any significant product revenues until a
product candidate has been approved by the FDA or similar regulatory agencies in other countries
and successfully commercialized.
We currently anticipate that our cash, cash equivalents and short-term investments, together
with funds raised in January and February 2010, will be sufficient to fund our operations for at
least the next 12 months. We can not be certain that any of our programs will be successful or
that we will be able to raise sufficient funds to complete the development and commercialize any of
our product candidates currently in development, should they succeed. Additionally, we plan to
continue to evaluate in-licensing and acquisition opportunities to gain access to new drugs or drug
targets that would fit with our strategy. Any such transaction would likely increase our funding
needs in the future.
Our future funding requirements will depend on many factors, including but not limited to:
|
|
|
the rate of progress and cost of our clinical trials, preclinical studies and
other discovery and research and development activities; |
|
|
|
the costs associated with establishing manufacturing and commercialization
capabilities; |
|
|
|
the costs of acquiring or investing in businesses, product candidates and
technologies; |
|
|
|
the costs of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights; |
|
|
|
the costs and timing of seeking and obtaining FDA and other regulatory
approvals; |
|
|
|
the effect of competing technological and market developments; and |
|
|
|
the economic and other terms and timing of any collaboration, licensing or
other arrangements into which we may enter. |
Until we can generate a sufficient amount of product revenue to finance our cash requirements,
which we may never do, we expect to finance future cash needs primarily through public or private
equity offerings, debt financings or strategic collaborations. Although we are not reliant on
institutional credit finance and therefore not subject to debt covenant compliance requirements or
potential withdrawal of credit by banks, the current economic climate has also impacted the
availability of funds and activity in equity markets. We do not know whether additional funding
will be available on acceptable terms, or at all. If we are not able to secure additional funding
when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical
trials or research and development programs or make changes to our operating plan similar to the
revision made in September 2008. In addition, we may have to partner one or more of our product
candidate programs at an earlier stage of development, which would lower the economic value of
those programs to us.
67
Off-Balance Sheet Arrangements
As of December 31, 2009, we had no off-balance sheet arrangements.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on
our financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. Our significant accounting policies are described in Note
2 of the consolidated financial statements. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities and
expenses and related disclosure of contingent assets and liabilities. We review our estimates on an
ongoing basis. We base our estimates on historical experience and on various other assumptions that
we believe to be reasonable under the
circumstances. Actual results may differ from these estimates under different assumptions or
conditions. We believe the judgments and estimates required by the following accounting policies to
be critical in the preparation of our consolidated financial statements.
Revenue Recognition
Product sales
We have adopted the following revenue recognition policy related to the sales of Xclair®
Cream, Numoisyn® Liquid and Numoisyn® Lozenges. We recognize revenue from these product sales when
persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered;
the price is fixed and determinable; and collectability is reasonably assured.
As we offer a general right of return on these product sales, we must consider the guidance in
ASC 605, and ASC 605 10. Under these pronouncements, we account for all product sales using the
sell-through method. Under the sell-through method, revenue is not recognized upon shipment of
product to distributors. Instead, we record deferred revenue at gross invoice sales price and
deferred cost of sales at the cost at which those goods were held in inventory. We recognize
revenue when such inventory is sold through to the end user. To estimate product sold through to
end users, we rely on third-party information, including information obtained from significant
distributors with respect to their inventory levels and sell-through to customers.
Stock-based Compensation
The Company grants stock options, restricted stock units and restricted stock to officers,
employees, directors and consultants under the Companys 2006 Amended and Restated 2006 Equity
Incentive Plan, which was amended and restated as of April 14, 2008. We also have outstanding
options under various stock-based compensation plans for employees and directors.
ASC 718 requires measurement of compensation cost for all stock-based awards at fair value on
date of grant and recognition of compensation over the requisite service period for awards expected
to vest. The fair value of restricted stock and restricted stock units is determined based on the
number of shares granted and the quoted price of our common stock on the date of grant. The
determination of grant-date fair value for stock option awards is estimated using an option-pricing
model, which includes variables such as the expected volatility of our share price, the anticipated
exercise behavior of our employees, interest rates, and dividend yields. These variables are
projected based on our historical data, experience, and other factors. Changes in any of these
variables could result in material adjustments to the expense recognized for share-based payments.
68
Such value is recognized as an expense over the requisite service period, net of estimated
forfeitures, using the straight-line attribution method. The estimation of stock awards that will
ultimately vest requires judgment, and to the extent actual results or updated estimates differ
from our current estimates, such amounts will be recorded as a cumulative adjustment in the period
estimates are revised. We consider many factors when estimating expected forfeitures, including
types of awards, employee class, and historical experience. During the quarter ended March 31,
2009, we revised the forfeiture rates because actual forfeiture rates were higher than that
previously estimated primarily due to the lapsing of stock option grants on the termination of
employees. The revision to past forfeiture estimates for the three months ended March 31, 2009
resulted in a reversal of stock-based compensation cost recognized in prior years with a consequent
net gain of approximately $0.2 million on the consolidated statement of operations. During the
second and third quarters of 2009, we reduced the scale of our operations, including a workforce
reduction across all locations. As a result, we recorded an expense of approximately $0.4 million.
Warrants Liability
February 2007 Financing
ASC 840 requires freestanding contracts that are settled in our own stock, including common
stock warrants to be designated as an equity instrument, asset or liability. Under the provisions
of ASC 840, a contract designated as an asset or a liability must be carried at fair value until
exercised or expired, with any changes in fair value recorded in the results of operations. A
contract designated as an equity instrument must be included within equity, and no subsequent fair
value adjustments are required. We review the classification of the contracts at each balance sheet
date. Pursuant to ASC 840, since we are unable to control all the events or actions necessary to
settle the warrants in registered shares the warrants have been recorded as a current liability at
fair value. The fair value of the outstanding warrants is evaluated at each reporting period with
any resulting change in the fair value being reflected in the consolidated statements of
operations. For the year ended December 31, 2009, we recorded a charge of $0.3 million. For the
year ended December 31, 2008, we recorded a gain of $3.5 million. Fair value is estimated using an
option-pricing model, which includes variables such as the expected volatility of our share price,
interest rates, and dividend yields. These variables are projected based on our historical data,
experience, and other factors. Changes in any of these variables could result in material
adjustments to the expense recognized for changes in the valuation of the warrants liability.
Goodwill and Intangible Assets
We recorded goodwill in March 2006 with respect to the merger with Xcyte and in October 2007
with respect to the acquisition of ALIGN. In accordance with ASC 350, we are required to test for
impairment of goodwill, and intangible assets with indefinite lives which are not amortized, on an
annual basis and at any other time if events occur or circumstances indicate that the carrying
amount of goodwill and intangible assets may not be recoverable. Circumstances that could indicate
impairment and require us to perform impairment tests more frequently than annually include
significant adverse changes in market and economic conditions; adverse regulatory action;
unanticipated competition or significant adverse change in perceived revenue potential.
We are organized as a single operating segment with two reporting units; ALIGN and Xcyte, to
which goodwill was assigned along with relevant identifiable assets and liabilities. To test for
impairment, we compared the fair value of each reporting unit to their respective carrying values,
including assigned goodwill. To the extent the carrying amount of the reporting units exceeds its
fair value; we compare the implied fair value of the reporting units goodwill with its carrying
amount. The implied fair value of goodwill is determined by allocating the fair value of the
reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting
unit in a manner similar to a purchase price allocation, in accordance with ASC 805, Business
Combinations (ASC 805). The residual fair value after this allocation represents the implied
fair value of the goodwill. To the extent the implied fair value of goodwill is less than its
carrying amount we are required to recognize an impairment loss.
69
The fair value of our Xcyte reporting unit is determined by the market value of our
outstanding common stock. However, the fair value of our ALIGN reporting unit is determined by
using the income based valuation approach with respect to projected product sales. The
income-based valuation measures the current value of the reporting unit by calculating the present
value of its future cash flows using appropriate discount factors with regard to cost of capital
experienced by entities of the same size and condition as us.
In September 2008, the goodwill acquired in the Xcyte transaction was written down in full and
we recorded an impairment charge of approximately $2.7 million in accordance with ASC 350. This
impairment charge was identified through our annual impairment review process and was triggered
primarily by a decline in our stock price that reduced our market capitalization below book value
of the net assets of the Xcyte reporting unit. Our reduced market capitalization reflected the
general decline in the economic environment.
In December 2008, goodwill allocated to our ALIGN reporting unit following the ALIGN
acquisition was fully written down in accordance with ASC 350, resulting in an impairment charge of
approximately $1.6 million being recognized on the consolidated statement of operations. In
determining the impairment
charge, we considered the negative impact the current economic situation might have on sales
growth expectations of the ALIGN products resulting in a downward revision of projected net cash
flows from product sales. These factors caused the discounted cash flows for the reporting unit to
be less than its carrying value on December 31, 2008.
Impairment of Long-Lived Assets
In accordance with ASC 360, when indicators of impairment exist, we assess the recoverability
of the potentially affected long-lived assets by determining whether the carrying value of such
assets can be recovered through undiscounted future operating cash flows. If impairment is
indicated, we measure the amount of such impairment by comparing the carrying value of the asset to
the estimated fair value of the related asset, which is generally determined based on the present
value of the expected future cash flows.
Measurement of fair value is determined using the income-based valuation methodology. The
income based valuation approach measures the current value of an asset (or asset group) by
calculating the present value of the future expected cash flows to be derived from that asset, from
the perspective of a market participant. Such cash flows are discounted using a rate of return
that incorporates the risk-free rate for the use of funds, the expected rate of inflation and risks
associated with using the asset. If the carrying amount of a long-lived asset exceeds its fair
value, an impairment loss is recognized immediately and cannot be relieved at a later date.
Intangible assets acquired in the ALIGN transaction were also fully written down in September
2008, in accordance with ASC 360. An impairment charge of approximately $3.6 million was
identified through our annual impairment review process and was recognized in the consolidated
statement of operations. This one-time, non-cash charge was triggered by a downwards revision of
projected net cash flows from product sales, required due to budgetary constraints experienced by
health care providers and restrictions of the cost reimbursement regime. As a result the sum of
the expected undiscounted cash flows was less than the carrying amount of the intangible assets on
September 30, 2008.
Recent Accounting Pronouncements
For information about recently issued accounting pronouncements please see Note 2 of our
consolidated financial statements.
70
In May 2009, the FASB issued ASC 855, Subsequent Events (ASC 855), which provides guidance
to establish general standards of accounting for and disclosures of events that occur after the
balance sheet date but before financial statements are issued or are available to be issued. ASC
855 also requires entities to disclose the date through which subsequent events were evaluated as
well as the rationale for why that date was selected. This disclosure should alert all users of
financial statements that an entity has not evaluated subsequent events after that date in the set
of financial statements being presented. ASC 855 is effective for interim and annual periods ending
after June 15, 2009 and will be effective for the Company beginning with its interim period June
30, 2009. On February 24, 2010, The FASB issued Accounting Standards Update (ASU)
2010-09 to amend ASC 855. As a result of the ASU, SEC Registrants
will not disclose the date through which management evaluated
subsequent events in the financial statements. Since ASC 855 at most requires additional disclosures, the Company does not expect the
adoption to have a material impact on its consolidated financial position, results of operations or
cash flows.
In June 2009, the FASB issued FAS 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, which establishes the FASB Accounting
Standards Codification (Codification) as the source of authoritative US GAAP recognized by the
FASB to be applied to nongovernmental entities. Codification does not change current U.S. GAAP but
is intended to simplify user access to all authoritative US GAAP by providing all the authoritative
literature related to a particular topic in one place. All existing accounting standard documents
will be superseded and all other accounting literature not included in the Codification will be
considered non-authoritative. Rules and interpretive releases of the SEC under authority of federal
securities laws are also included in the Codification as sources of authoritative US GAAP for SEC
registrants. FAS 168 and the Codification are effective for financial statements issued for interim
and annual periods ending after September 15, 2009. The Codification is effective for the Company
during its interim period ending September 30, 2009 and did not have an impact on its financial
condition or results of operations.
|
|
|
Item 7A. |
|
Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to market risk related to fluctuations in foreign currency exchange rates,
interest rates and investment credit ratings.
Investment and Interest Rate Risk
Financial instruments which potentially subject us to interest rate risk consist principally
of cash and cash equivalents and short-term investments. At December 31, 2009, our cash and cash
equivalents of $11.5 million are primarily invested in highly liquid money market accounts, and
commercial paper, both of which have remaining maturities of 90 days or less.
The primary objective of our investment activities is to preserve principal while at the same
time maximizing yields without significantly increasing risk. Pursuant to our investment
guidelines, all investments in commercial paper and corporate bonds of financial institutions and
corporations are rated A or better by both Moodys and Standard and Poors, no one individual
security shall have a maturity of greater than 18 months and investments in any one corporation is
restricted to 5% of the total portfolio. To minimize our exposure to adverse shifts in interest
rates, we invest in short-term instruments and at December 31, 2009 we held no investments with a
maturity in excess of one year. Due to the short-term nature of our investments, portfolio
diversification, and our investment policy we believe that our exposure to market interest rate
fluctuations is minimal, liquidity is maintained and we do not have a material financial market
risk exposure.
A hypothetical 10% change in short-term interest rates from those in effect at December 31,
2009 would not have a significant impact on our financial position or our expected results of
operations, however we may continue to have risk exposure to our holdings in cash, money market
accounts and cash equivalents, which may adversely impact the fair value of our holdings. As of
December 31, 2009, there were no indicators of credit risk impact to the valuation of our cash,
cash equivalents or short term investments. We do not currently hold any derivative financial
instruments with interest rate risk.
71
Foreign Currency Risk
We are exposed to foreign currency rate fluctuations related to the operation of our
subsidiary in the United Kingdom. At the end of each reporting period, income and expenses of the
subsidiary are remeasured into U.S. dollars using the average currency rate in effect for the
period and assets and liabilities are remeasured into U.S. dollars using either historical rates or
the exchange rate in effect at the end of the period. Intercompany loans with this subsidiary are
denominated in U.S. dollars and unrealized foreign exchange gains and losses arising on these loans
have been recorded in the consolidated statement of operations within the separate line item
foreign exchange gains/(losses) within other income (expense) up to September 30, 2008.
During the year ended December 31, 2008, there were unfavorable unrealized foreign exchange
movements of approximately $17.2 million on intercompany loans due to the increase in the strength
of the United States dollar against the British pound. Of the $17.2 million, $4.8 million is
recorded in the consolidated statement of operations within the separate line item foreign exchange
gains/(losses), within other income (expense). This has been offset by a realized gain of $0.3
million on transactions in the year in respect of underlying operations, resulting in a net foreign
exchange loss of $4.5 million.
In conjunction with the operational review conducted by us in September 2008, the nature of
intercompany funding was considered. It was concluded that as repayment of intercompany loans is
not expected in the foreseeable future, the nature of the funding advanced was of a long-term
investment nature and that the terms of the loans should be amended to reflect this. Effective
October 1, 2008, intercompany loans ceased to be repayable on demand and have no fixed repayment
date. As a result of the change in repayment terms, from October 1, 2008 all unrealized foreign
exchange gains or losses arising on intercompany loans are recognized in other comprehensive
income. This has restricted the unfavorable unrealized foreign exchange movements recorded in
other income to $4.8 million, with $12.3 million recognized in other comprehensive income for the
three months from October 1, 2008 to December 31, 2008. Future unrealized foreign exchange gains
or losses arising on the intercompany loans will be recognized in other comprehensive income on the
consolidated statement of stockholders equity until repayment of the intercompany loan becomes
foreseeable.
We currently do not engage in foreign currency hedging. We enter into certain transactions
denominated in foreign currencies in respect of underlying operations and, therefore, we are
subject to currency exchange risks. During the years ended December 31, 2009 and 2008, we realized
losses of $0.1 million and gains of approximately $0.3 million on such transactions, respectively.
Other differences on foreign currency translation arising on consolidation of $14.9 million are
also recorded as a movement in other comprehensive income.
72
Common Stock Price Risk
In February 2007, we issued common stock and warrants. Pursuant to ASC 840, we recorded the
fair value of the warrants as a current liability. The fair value of the outstanding warrants is
evaluated at each reporting period with any resulting change in the fair value being reflected in
the condensed consolidated statements of operations. The change in fair value recognized in the
financial statements during the years to December 31, 2008 and 2009 was a $3.5 million gain and a
$0.3 million loss, respectively. Fair value of the derivative instruments will be affected by
estimates of various factors that may affect the respective instrument, including our stock price,
the risk free rate of return and expected volatility in the fair value of our stock price. As the
fair value of this derivative may fluctuate significantly from period to period, the resulting
change in valuation may have a significant impact on our results of operations.
In December 2007 and amended in November 2009, we entered into a CEFF with Kingsbridge, in
which Kingsbridge committed to provide us up to $60 million of capital during the next three years.
We may access capital under the CEFF in tranches, with each tranche being issued and priced over an
eight-day pricing period. Kingsbridge will purchase shares of common stock pursuant to the CEFF at
discounts ranging from 10% to 20% depending on the average market price of the common stock during
the eight-day pricing period, provided that the minimum acceptable purchase price for any shares to
be issued to Kingsbridge during the eight-day period is determined by the higher of $0.40 or 85% of
our common stock closing price the day before the commencement of each draw down.
During December 2009 and subsequent to year-end, we sold an aggregate of 2,818,232 shares of our common
stock to Kingsbridge under the terms of the CEFF in consideration of an aggregate of $4.1 million
in funds received by us.
73
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data |
INDEX TO CYCLACEL PHARMACEUTICALS, INC. FINANCIAL STATEMENTS
74
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Cyclacel Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Cyclacel Pharmaceuticals, Inc.
(a development stage company) as of December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2009 and the period from August 13, 1996 (inception) to December 31,
2009. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Cyclacel Pharmaceuticals, Inc.(a development stage
company) at December 31, 2009 and 2008, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 2009 and for the period from
August 13, 1996 (inception) to December 31, 2009, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Cyclacel Pharmaceuticals, Inc.s internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 29, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
London, England
March 29, 2010
75
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(In $000s, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
24,220 |
|
|
|
11,493 |
|
Short-term investments |
|
|
1,502 |
|
|
|
|
|
Inventory |
|
|
508 |
|
|
|
145 |
|
Prepaid expenses and other current assets |
|
|
2,784 |
|
|
|
1,731 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
29,014 |
|
|
|
13,369 |
|
Property, plant and equipment (net) |
|
|
1,748 |
|
|
|
901 |
|
Deposits and other assets |
|
|
195 |
|
|
|
196 |
|
|
|
|
|
|
|
|
Total assets |
|
|
30,957 |
|
|
|
14,466 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
754 |
|
|
|
1,709 |
|
Accrued and other current liabilities |
|
|
6,801 |
|
|
|
6,709 |
|
Warrant liability |
|
|
43 |
|
|
|
342 |
|
Current portion of other accrued restructuring charges |
|
|
1,029 |
|
|
|
1,062 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
8,627 |
|
|
|
9,822 |
|
Other accrued restructuring charges, net of current |
|
|
1,062 |
|
|
|
|
|
Other long term payables |
|
|
626 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
10,315 |
|
|
|
9,822 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 5,000,000 shares
authorized at December 31, 2008 and 2009,
respectively; 2,046,813 shares issued and outstanding
at December 31, 2008 and 2009, respectively.
Aggregate preference in liquidation of $20,673,000 at
December 31, 2008 and December 31, 2009 |
|
|
2 |
|
|
|
2 |
|
Common stock, $0.001 par value; 100,000,000 shares
authorized at December 31, 2008 and 2009,
respectively; 20,433,129 and 25,743,363 shares issued
and outstanding at December 31, 2008 and 2009,
respectively |
|
|
20 |
|
|
|
26 |
|
Additional paid-in capital |
|
|
223,377 |
|
|
|
226,881 |
|
Accumulated other comprehensive (loss)/income |
|
|
(42 |
) |
|
|
20 |
|
Deficit accumulated during the development stage |
|
|
(202,715 |
) |
|
|
(222,285 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
20,642 |
|
|
|
4,644 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
|
30,957 |
|
|
|
14,466 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
76
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000s, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 13, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996 |
|
|
|
Year ended |
|
|
Year ended |
|
|
Year ended |
|
|
(inception) to |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration and research and development revenue |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
Product Revenue |
|
|
|
|
|
|
838 |
|
|
|
910 |
|
|
|
1,748 |
|
Grant revenue |
|
|
119 |
|
|
|
39 |
|
|
|
1 |
|
|
|
3,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129 |
|
|
|
877 |
|
|
|
911 |
|
|
|
8,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
|
429 |
|
|
|
545 |
|
|
|
974 |
|
Research and development |
|
|
19,569 |
|
|
|
18,869 |
|
|
|
9,766 |
|
|
|
170,179 |
|
Selling, general and administrative |
|
|
12,033 |
|
|
|
15,354 |
|
|
|
8,538 |
|
|
|
71,846 |
|
Goodwill and intangibles impairment |
|
|
|
|
|
|
7,934 |
|
|
|
|
|
|
|
7,934 |
|
Other restructuring costs |
|
|
1,554 |
|
|
|
489 |
|
|
|
366 |
|
|
|
2,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
33,156 |
|
|
|
43,075 |
|
|
|
19,215 |
|
|
|
253,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(33,027 |
) |
|
|
(42,198 |
) |
|
|
(18,304 |
) |
|
|
(245,183 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with aborted 2004 IPO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,550 |
) |
Payment under guarantee |
|
|
|
|
|
|
|
|
|
|
(1,652 |
) |
|
|
(1,652 |
) |
Change in valuation of derivative |
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
(308 |
) |
Change in valuation of warrants liability |
|
|
3,205 |
|
|
|
3,502 |
|
|
|
(299 |
) |
|
|
6,408 |
|
Warrant re-pricing |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
(44 |
) |
Foreign exchange gains / (losses) |
|
|
490 |
|
|
|
(4,501 |
) |
|
|
(144 |
) |
|
|
(4,187 |
) |
Interest income |
|
|
3,554 |
|
|
|
1,380 |
|
|
|
102 |
|
|
|
13,643 |
|
Interest expense |
|
|
(223 |
) |
|
|
(318 |
) |
|
|
(177 |
) |
|
|
(4,634 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net |
|
|
6,933 |
|
|
|
63 |
|
|
|
(2,214 |
) |
|
|
5,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes |
|
|
(26,094 |
) |
|
|
(42,135 |
) |
|
|
(20,518 |
) |
|
|
(239,507 |
) |
Income tax benefit |
|
|
2,041 |
|
|
|
1,749 |
|
|
|
948 |
|
|
|
17,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(24,053 |
) |
|
|
(40,386 |
) |
|
|
(19,570 |
) |
|
|
(222,285 |
) |
Dividends on Preferred Ordinary shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common shareholders |
|
|
(24,053 |
) |
|
|
(40,386 |
) |
|
|
(19,570 |
) |
|
|
(260,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted |
|
$ |
(1.21 |
) |
|
$ |
(1.98 |
) |
|
$ |
(0.88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
19,873,911 |
|
|
|
20,433,129 |
|
|
|
22,196,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
77
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(In $000s, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
other |
|
|
|
|
|
|
during |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
paid in |
|
|
comprehensive |
|
|
Deferred |
|
|
development |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
capital |
|
|
income/(loss) |
|
|
compensation |
|
|
stage |
|
|
Total |
|
|
|
No. |
|
|
$000 |
|
|
No. |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
On incorporation, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of shares for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Loss for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(290 |
) |
|
|
(290 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(294 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 1997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
(4 |
) |
|
|
|
|
|
|
(290 |
) |
|
|
(293 |
) |
Issue of shares for cash, net of
issuance costs |
|
|
|
|
|
|
|
|
|
|
266,778 |
|
|
|
|
|
|
|
4,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,217 |
|
Issue of shares for IP rights agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262 |
|
Deferred stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,002 |
|
|
|
|
|
|
|
(2,002 |
) |
|
|
|
|
|
|
|
|
Amortization of deferred stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
302 |
|
|
|
|
|
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
55 |
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,534 |
) |
|
|
(2,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 1998 |
|
|
|
|
|
|
|
|
|
|
266,778 |
|
|
|
|
|
|
|
6,482 |
|
|
|
51 |
|
|
|
(1,700 |
) |
|
|
(2,824 |
) |
|
|
2,009 |
|
Amortization of deferred stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406 |
|
|
|
|
|
|
|
406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,964 |
) |
|
|
(3,964 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,953 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 1999 |
|
|
|
|
|
|
|
|
|
|
266,778 |
|
|
|
|
|
|
|
6,482 |
|
|
|
62 |
|
|
|
(1,294 |
) |
|
|
(6,788 |
) |
|
|
(1,538 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
78
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (contd)
(In $000s, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
other |
|
|
|
|
|
|
during |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
paid in |
|
|
comprehensive |
|
|
Deferred |
|
|
development |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
capital |
|
|
income/(loss) |
|
|
compensation |
|
|
stage |
|
|
Total |
|
|
|
No. |
|
|
$000 |
|
|
No. |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
Issue of shares for cash, net of
issuance costs |
|
|
|
|
|
|
|
|
|
|
538,889 |
|
|
|
1 |
|
|
|
12,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,717 |
|
Issue of shares on conversion of
bridging loan |
|
|
|
|
|
|
|
|
|
|
90,602 |
|
|
|
|
|
|
|
1,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,638 |
|
Issue of shares in lieu of cash bonus |
|
|
|
|
|
|
|
|
|
|
9,060 |
|
|
|
|
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164 |
|
Issue of shares for research &
development agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409 |
|
Exercise of share options |
|
|
|
|
|
|
|
|
|
|
2,265 |
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
Deferred stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167 |
|
|
|
|
|
|
|
(167 |
) |
|
|
|
|
|
|
|
|
Amortization of deferred stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
433 |
|
|
|
|
|
|
|
433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194 |
) |
|
|
|
|
|
|
|
|
|
|
(194 |
) |
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,686 |
) |
|
|
(5,686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2000 |
|
|
|
|
|
|
|
|
|
|
907,594 |
|
|
|
1 |
|
|
|
21,616 |
|
|
|
(132 |
) |
|
|
(1,028 |
) |
|
|
(12,474 |
) |
|
|
7,983 |
|
Deferred stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294 |
|
|
|
|
|
|
|
(294 |
) |
|
|
|
|
|
|
|
|
Amortization of deferred stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275 |
|
|
|
|
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(466 |
) |
|
|
|
|
|
|
|
|
|
|
(466 |
) |
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,382 |
) |
|
|
(10,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2001 |
|
|
|
|
|
|
|
|
|
|
907,594 |
|
|
|
1 |
|
|
|
21,910 |
|
|
|
(598 |
) |
|
|
(1,047 |
) |
|
|
(22,856 |
) |
|
|
(2,590 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
79
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (contd)
(In $000s, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
other |
|
|
|
|
|
|
during |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
paid in |
|
|
comprehensive |
|
|
Deferred |
|
|
development |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
capital |
|
|
income/(loss) |
|
|
compensation |
|
|
stage |
|
|
Total |
|
|
|
No. |
|
|
$000 |
|
|
No. |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
Issue of shares for cash, net of
issuance costs |
|
|
|
|
|
|
|
|
|
|
5,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of share options for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
Issue of shares for license agreement |
|
|
|
|
|
|
|
|
|
|
4,510 |
|
|
|
|
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183 |
|
Fair value of warrants issued to
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215 |
|
Deferred stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363 |
|
|
|
|
|
|
|
(363 |
) |
|
|
|
|
|
|
|
|
Amortization of deferred stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
672 |
|
|
|
|
|
|
|
672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
191 |
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,853 |
) |
|
|
(14,853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,662 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2002 |
|
|
|
|
|
|
|
|
|
|
917,555 |
|
|
|
1 |
|
|
|
23,777 |
|
|
|
(407 |
) |
|
|
(738 |
) |
|
|
(37,709 |
) |
|
|
(15,076 |
) |
Exercise of share options for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
Deferred stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
84 |
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305 |
|
|
|
|
|
|
|
305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,846 |
) |
|
|
|
|
|
|
|
|
|
|
(1,846 |
) |
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,542 |
) |
|
|
(15,542 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2003 |
|
|
|
|
|
|
|
|
|
|
917,555 |
|
|
|
1 |
|
|
|
23,705 |
|
|
|
(2,253 |
) |
|
|
(349 |
) |
|
|
(53,251 |
) |
|
|
(32,147 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
80
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (contd)
(In $000s, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
other |
|
|
|
|
|
|
during |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
paid in |
|
|
comprehensive |
|
|
Deferred |
|
|
development |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
capital |
|
|
income/(loss) |
|
|
compensation |
|
|
stage |
|
|
Total |
|
|
|
No. |
|
|
$000 |
|
|
No. |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
Issue of shares for cash, net of
issuance costs |
|
|
|
|
|
|
|
|
|
|
1,510,288 |
|
|
|
1 |
|
|
|
27,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,635 |
|
Exercise of share options for cash |
|
|
|
|
|
|
|
|
|
|
6,549 |
|
|
|
|
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115 |
|
Conversion of Preferred C Ordinary
shares |
|
|
|
|
|
|
|
|
|
|
3,769,139 |
|
|
|
4 |
|
|
|
58,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,148 |
|
Amortization of deferred
stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217 |
|
|
|
|
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,343 |
) |
|
|
|
|
|
|
|
|
|
|
(1,343 |
) |
Loss for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,977 |
) |
|
|
(14,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
6,203,531 |
|
|
|
6 |
|
|
|
109,598 |
|
|
|
(3,596 |
) |
|
|
(132 |
) |
|
|
(68,228 |
) |
|
|
37,648 |
|
Issues of shares for cash, net of
issuance costs |
|
|
|
|
|
|
|
|
|
|
430,571 |
|
|
|
1 |
|
|
|
8,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,541 |
|
Exercise of warrants for cash |
|
|
|
|
|
|
|
|
|
|
22,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
81
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
other |
|
|
|
|
|
|
during |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
paid-in |
|
|
comprehensive |
|
|
Deferred |
|
|
development |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
capital |
|
|
income/(loss) |
|
|
compensation |
|
|
stage |
|
|
Total |
|
|
|
No. |
|
|
$000 |
|
|
No. |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
Deferred stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,050 |
) |
|
|
|
|
|
|
132 |
|
|
|
|
|
|
|
(1,918 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,424 |
|
|
|
|
|
|
|
|
|
|
|
2,424 |
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,742 |
) |
|
|
(22,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the
year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
6,656,732 |
|
|
|
7 |
|
|
|
116,088 |
|
|
|
(1,172 |
) |
|
|
|
|
|
|
(90,970 |
) |
|
|
23,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,786 |
) |
|
|
|
|
|
|
|
|
|
|
(1,786 |
) |
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,048 |
) |
|
|
(18,048 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the
year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
6,656,732 |
|
|
|
7 |
|
|
|
116,088 |
|
|
|
(2,958 |
) |
|
|
|
|
|
|
(109,018 |
) |
|
|
4,119 |
|
Issue of shares to certain
directors and officers |
|
|
|
|
|
|
|
|
|
|
648,413 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of shares on
conversion of Loan Note
Instrument |
|
|
|
|
|
|
|
|
|
|
456,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse Acquisition |
|
|
2,046,813 |
|
|
|
2 |
|
|
|
1,967,928 |
|
|
|
2 |
|
|
|
16,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,255 |
|
Loan from Cyclacel Group
plc waived |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,420 |
|
Issue of common stock and
warrants for cash |
|
|
|
|
|
|
|
|
|
|
6,428,572 |
|
|
|
6 |
|
|
|
42,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,362 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized loss
on investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
416 |
|
|
|
|
|
|
|
|
|
|
|
416 |
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,258 |
) |
|
|
(29,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
82
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
other |
|
|
|
|
|
|
during |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
paid-in |
|
|
comprehensive |
|
|
Deferred |
|
|
development |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
capital |
|
|
income/(loss) |
|
|
compensation |
|
|
stage |
|
|
Total |
|
|
|
No. |
|
|
$000 |
|
|
No. |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
Comprehensive loss for the
year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,842 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
2,046,813 |
|
|
|
2 |
|
|
|
16,157,953 |
|
|
|
16 |
|
|
|
194,714 |
|
|
|
(2,537 |
) |
|
|
|
|
|
|
(138,276 |
) |
|
|
53,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,053 |
) |
|
|
(24,053 |
) |
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the
year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,733 |
|
Issue of common stock upon
exercise of stock options |
|
|
|
|
|
|
|
|
|
|
25,508 |
|
|
|
|
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163 |
|
Issue of common stock for
cash on registered direct
offering, net of expenses |
|
|
|
|
|
|
|
|
|
|
4,249,668 |
|
|
|
4 |
|
|
|
33,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,357 |
|
Preferred stock dividends
declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(307 |
) |
Issue of warrants in
connection with registered
direct offering |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
2,046,813 |
|
|
|
2 |
|
|
|
20,433,129 |
|
|
|
20 |
|
|
|
222,906 |
|
|
|
(2,630 |
) |
|
|
|
|
|
|
(162,329 |
) |
|
|
57,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,386 |
) |
|
|
(40,386 |
) |
Unrealized foreign exchange
on intercompany loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,330 |
) |
|
|
|
|
|
|
|
|
|
|
(12,330 |
) |
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,918 |
|
|
|
|
|
|
|
|
|
|
|
14,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the
year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,798 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
83
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
other |
|
|
|
|
|
|
during |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
paid-in |
|
|
comprehensive |
|
|
Deferred |
|
|
development |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
capital |
|
|
income/(loss) |
|
|
compensation |
|
|
stage |
|
|
Total |
|
|
|
No. |
|
|
$000 |
|
|
No. |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,698 |
|
Preferred stock dividends
declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
2,046,813 |
|
|
|
2 |
|
|
|
20,433,129 |
|
|
|
20 |
|
|
|
223,377 |
|
|
|
(42 |
) |
|
|
|
|
|
|
(202,715 |
) |
|
|
20,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,570 |
) |
|
|
(19,570 |
) |
Unrealized foreign exchange
on intercompany loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,651 |
|
|
|
|
|
|
|
|
|
|
|
5,651 |
|
Translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,589 |
) |
|
|
|
|
|
|
|
|
|
|
(5,589 |
) |
Warrant re-pricing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
Issue of common stock for
cash on registered direct
offering, net of expenses |
|
|
|
|
|
|
|
|
|
|
4,000,000 |
|
|
|
4 |
|
|
|
2,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,847 |
|
Issue of common stock upon
draw down of Committed
Equity Finance Facility |
|
|
|
|
|
|
|
|
|
|
1,255,024 |
|
|
|
2 |
|
|
|
1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,030 |
|
Issue of common stock upon
exercise of stock options,
restricted stock units and
restricted stock |
|
|
|
|
|
|
|
|
|
|
55,210 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810 |
|
Preferred stock dividends
declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December, 2009 |
|
|
2,046,813 |
|
|
|
2 |
|
|
|
25,743,363 |
|
|
|
26 |
|
|
|
226,881 |
|
|
|
20 |
|
|
|
|
|
|
|
(222,285 |
) |
|
|
4,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
84
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 13, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996 |
|
|
|
Year ended |
|
|
Year ended |
|
|
Year ended |
|
|
(inception) to |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(24,053 |
) |
|
|
(40,386 |
) |
|
|
(19,570 |
) |
|
|
(222,285 |
) |
Adjustments to reconcile net loss to net cash
used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of guaranteed stock |
|
|
10 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
Amortization of interest payable on notes
payable |
|
|
19 |
|
|
|
79 |
|
|
|
2 |
|
|
|
100 |
|
Amortization of investment premiums, net |
|
|
(844 |
) |
|
|
(1,444 |
) |
|
|
20 |
|
|
|
(2,297 |
) |
Change in valuation of derivative |
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
308 |
|
Change in valuation of warrants |
|
|
(3,205 |
) |
|
|
(3,502 |
) |
|
|
299 |
|
|
|
(6,408 |
) |
Warrant re-pricing |
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
44 |
|
Depreciation |
|
|
946 |
|
|
|
1,154 |
|
|
|
668 |
|
|
|
11,857 |
|
Amortization of intangible assets |
|
|
178 |
|
|
|
708 |
|
|
|
|
|
|
|
886 |
|
Fixed asset impairment |
|
|
|
|
|
|
|
|
|
|
221 |
|
|
|
221 |
|
Unrealized foreign exchange (gains) losses |
|
|
(449 |
) |
|
|
4,831 |
|
|
|
|
|
|
|
7,747 |
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98 |
) |
Compensation for warrants issued to non
employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215 |
|
Shares issued for IP rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
446 |
|
Gain on disposal of property, plant and
equipment |
|
|
|
|
|
|
2 |
|
|
|
83 |
|
|
|
112 |
|
Goodwill and intangibles impairment |
|
|
|
|
|
|
7,934 |
|
|
|
|
|
|
|
7,934 |
|
Stock-based compensation |
|
|
1,733 |
|
|
|
1,698 |
|
|
|
810 |
|
|
|
16,395 |
|
Provision for restructuring |
|
|
1,554 |
|
|
|
|
|
|
|
|
|
|
|
1,779 |
|
Amortization of issuance costs of Preferred
Ordinary C shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,517 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
(653 |
) |
|
|
1,732 |
|
|
|
1,716 |
|
|
|
(748 |
) |
Accounts payable and other current
liabilities |
|
|
1,531 |
|
|
|
(2,701 |
) |
|
|
514 |
|
|
|
(986 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(23,140 |
) |
|
|
(29,905 |
) |
|
|
(15,193 |
) |
|
|
(181,261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
85
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 13, 1996 |
|
|
|
Year ended |
|
|
Year ended |
|
|
Year ended |
|
|
(inception) to |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of ALIGN |
|
|
(3,763 |
) |
|
|
|
|
|
|
|
|
|
|
(3,763 |
) |
Purchase of property, plant and equipment |
|
|
(1,773 |
) |
|
|
(366 |
) |
|
|
(15 |
) |
|
|
(8,823 |
) |
Proceeds from sale of property, plant
and equipment |
|
|
|
|
|
|
|
|
|
|
91 |
|
|
|
117 |
|
Purchase of short-term investments on
deposit, net of maturities |
|
|
(153,597 |
) |
|
|
(3,057 |
) |
|
|
|
|
|
|
(156,657 |
) |
Cash proceeds from redemption of short
term securities |
|
|
136,440 |
|
|
|
30,765 |
|
|
|
1,483 |
|
|
|
162,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
(22,693 |
) |
|
|
27,342 |
|
|
|
1,559 |
|
|
|
(6,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of capital lease obligations |
|
|
(89 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
(3,719 |
) |
Proceeds from issuance of ordinary and
preferred ordinary shares, net of
issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,858 |
|
Proceeds from issuance of common stock
and warrants, net of issuance costs |
|
|
33,357 |
|
|
|
|
|
|
|
3,845 |
|
|
|
79,828 |
|
Proceeds from the exercise of stock
options and issue of warrants, net of
issuance costs |
|
|
163 |
|
|
|
|
|
|
|
7 |
|
|
|
170 |
|
Payment of preferred stock dividend |
|
|
(1,223 |
) |
|
|
(1,227 |
) |
|
|
|
|
|
|
(3,372 |
) |
Repayment of government loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(455 |
) |
Government loan received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414 |
|
Loan received from Cyclacel Group plc |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,103 |
|
Proceeds of committable loan notes
issued from shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,883 |
|
Loans received from shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,645 |
|
Cash and cash equivalents assumed on
stock purchase of Xcyte |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,915 |
|
Costs associated with stock purchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,951 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
|
32,208 |
|
|
|
(1,238 |
) |
|
|
3,852 |
|
|
|
199,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents |
|
|
374 |
|
|
|
(2,966 |
) |
|
|
(2,945 |
) |
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash
equivalents |
|
|
(13,251 |
) |
|
|
(6,767 |
) |
|
|
(12,727 |
) |
|
|
11,493 |
|
Cash and cash equivalents, beginning of
period |
|
|
44,238 |
|
|
|
30,987 |
|
|
|
24,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period. |
|
|
30,987 |
|
|
|
24,220 |
|
|
|
11,493 |
|
|
|
11,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
86
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 13, 1996 |
|
|
|
Year ended |
|
|
Year ended |
|
|
Year ended |
|
|
(inception) to |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
2,437 |
|
|
|
723 |
|
|
|
59 |
|
|
|
11,704 |
|
Taxes |
|
|
2,045 |
|
|
|
2,033 |
|
|
|
1,523 |
|
|
|
16,440 |
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
(858 |
) |
|
|
|
|
|
|
(78 |
) |
|
|
(1,759 |
) |
Schedule of non-cash transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of equipment purchased
through capital leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,470 |
|
Issuance of common shares in connection
with license agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
592 |
|
Issuance of Ordinary shares on
conversion of bridging loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,638 |
|
Issuance of Preferred Ordinary
C shares on conversion of secured
convertible loan notes and accrued
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,893 |
|
Issuance of Ordinary shares in lieu of
cash bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164 |
|
Issuance of other long term on ALIGN
acquisition |
|
|
1,122 |
|
|
|
|
|
|
|
|
|
|
|
1,122 |
|
The accompanying notes are an integral part of these consolidated financial statements.
87
CYCLACEL PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Organization of the Company
Cyclacel
Pharmaceuticals, Inc. (Cyclacel or the Company) is a development-stage
biopharmaceutical company dedicated to the development and commercialization of novel,
mechanism-targeted drugs to treat human cancers and other serious disorders. Cyclacels strategy is
to build a diversified biopharmaceutical business focused in hematology and oncology based on a
portfolio of commercial products and a development pipeline of novel drug candidates.
Our clinical development priorities are focused on sapacitabine in the following indications:
|
|
|
Acute myeloid leukemia, or AML in the elderly; |
|
|
|
Myelodysplastic syndromes, or MDS; and |
|
|
|
Non-small cell lung cancer or NSCLC. |
The Company has additional clinical programs in development which are currently pending
availability of clinical data. Once data become available and are reviewed, the Company will
determine the feasibility of pursuing further development and/or partnering these assets, including
sapacitabine in combination with seliciclib, seliciclib in NSCLC and nasopharyngeal cancer or NPC
and CYC116. In addition, we market directly in the United States Xclair® Cream for radiation
dermatitis and Numoisyn® Liquid and Numoisyn® Lozenges for xerostomia.
As a development stage enterprise, substantially all efforts of the Company to date have been
devoted to performing research and development, conducting clinical trials, developing and
acquiring intellectual properties, raising capital and recruiting and training personnel.
As disclosed in Note 19, subsequent to the year end the Company raised approximately $18.8
million through the completion of two registered direct financings, drawdown of the Companys
Committed Equity Financing Facility, or CEFF, and the exercise of warrants. Consequently the
Company believes that it has sufficient resources to fund its operations for at least the next
twelve months.
Basis of Presentation
The accompanying consolidated financial statements as of December 31, 2008 and 2009, and for
each of the three years in the period ended December 31, 2009, have been prepared in accordance
with accounting principles generally accepted in the United States. The consolidated financial
statements include the financial statements of Cyclacel Pharmaceuticals, Inc. and all of the
Companys wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated.
2 Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and related disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Cyclacel reviews its estimates on an ongoing basis. The
estimates were based on historical experience and on various other assumptions that the Company
believes to be reasonable under the circumstances. Actual results may differ from these estimates
under different assumptions or conditions. Cyclacel believes the judgments and estimates required
by the following accounting policies to be critical in the preparation of the Companys
consolidated financial statements.
88
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments which potentially subject the Company to concentrations of risk consist
principally of cash and cash equivalents, short-term investments and accounts receivable. The
Company invests its cash, cash equivalents and short-term investments in the United States and the
United Kingdom in highly liquid money market accounts, federal agency obligations & municipal bonds
and commercial paper & corporate bonds of financial institutions and corporations which are rated
A or better by both Moodys and Standard and Poors. Pursuant to the Companys investment
guidelines, no one individual security shall have a maturity of greater than 18 months and
investments in any one corporation is restricted to 5% of the total portfolio. At December 31, 2008
and 2009, the Company held no investments with a maturity in excess of one year. Due to the
short-term nature of our investments, portfolio diversification, and the Companys investment
policy we believe that concentration of credit risk is limited and liquidity is maintained.
The Company has significant customer concentration and the loss of any major customer could
have a significant negative impact on the Companys revenue. During the years ended December 31,
2008 and 2009, approximately 85% and 86%, respectively, of our product sales in the United States
were to three wholesalers: Cardinal Health, Inc., McKesson Corporation and AmerisourceBergen. As
of December 31, 2008 and 2009, these three wholesalers accounted for 83% and 98%, respectively, of
the Companys trade accounts receivable. The loss of any of these major wholesalers or reduced
demand for products by a major wholesaler could have a significant negative impact on the Companys
revenue. It is likely that we will continue to have significant customer concentration in the
future.
Drug candidates developed by the Company may require approvals or clearances from the U.S.
Food and Drug Administration, or FDA, or other international regulatory agencies prior to
commercialize sales. There can be no assurance that the Companys drug candidates will receive any
of the required approvals or clearances. If the Company was denied approval or clearance or such
approval was delayed, it may have a material adverse impact on the Company.
Foreign currency and currency translation
Average rates of exchange ruling during the year have been used to translate the statement of
operations of the overseas subsidiary from its functional currency. Transactions which do not take
place in an entitys functional currency are converted at the rate on the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated from their
functional currency at balance sheet exchange rates. The balance sheet of the overseas subsidiary
is translated at rates ruling at the balance sheet date from their functional currency.
Translation adjustments arising on consolidation due to differences between average rates and
balance sheet rates and unrealized foreign exchange gains or losses arising on translation of
intercompany loans which are of a long-term-investment nature are shown as a movement in other
comprehensive income. Other exchange rate differences are reported in the statements of operations
for the year.
Segments
The Company has adopted Statement of ASC 280, Segment Reporting (ASC 280) and related
disclosures about products, services, geographic areas and major customers. The Company has
determined that it has one reportable segment.
Cash and Cash Equivalents
Cash equivalents are stated at cost, which equates to market value. The Company considers all
highly liquid investments with an original maturity of three months or less at the time of initial
deposit to be cash equivalents. The objectives of the Companys cash management policy are the
safety and preservation of funds, liquidity sufficient to meet Cyclacels cash flow requirements
and attainment of a market rate of return.
89
Short-term Investments
The Company invests in certain marketable debt securities. Debt securities at December 31,
2008 and 2009 comprise investment-grade government and commercial securities purchased to generate
a higher yield than cash equivalents. In accordance with ASC 320 Debt and Equity Securities (ASC
320) such investment securities are classified as available-for-sale and are carried at fair
value. Under ASC 320, unrealized gains and losses, net of tax, are reported in a separate component
of stockholders equity until realized. Amortization, accretion, interest and dividends, realized
gains and losses and declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income. For the purpose of computing realized gains and losses,
the cost of securities sold is based on the specific-identification method. Investments in
securities with maturities of less than one year or which management intends to use to fund current
operations are classified as short-term investments.
The Company evaluates whether an investment is other-than-temporarily impaired. This
evaluation is dependent upon the specific facts and circumstances. Factors that are considered in
determining whether an other-than-temporary decline in value has occurred include the market value
of the security in relation to its cost basis and the financial condition of the issuer. The
Company also invests its surplus cash in bank term deposits having a maturity period of between one
day and one year. Accordingly, all cash resources with original maturity of three months or less
have been classified as cash and cash equivalents and those with original maturity of more than
three months as short-term investments.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Receivables are reserved based on their respective aging categories and historical collection
experience, taking into consideration the type of payer, historical and projected collection
experience, and current economic and business conditions that could affect the collectability of
our receivables. The allowance for doubtful accounts is reviewed for adequacy, at a minimum, on a
quarterly basis. Changes in the allowance for doubtful accounts are recorded as an adjustment to
bad debt expense within general and administrative expenses. Material revisions to reserve
estimates may result from adverse changes in collection experience. The Company writes off accounts
against the allowance for doubtful accounts when reasonable collection efforts have been
unsuccessful and it is probable the receivable will not be recovered.
Inventory
Cyclacel values inventories at lower of cost or market value. The Company determines cost
using the first-in, first-out method. As December 31, 2008 and 2009, all inventories were
classified as finished goods. The Company analyzes its inventory levels quarterly and writes-down
inventory that has become obsolete or that has a cost basis in excess of its expected net
realizable value. Expired inventory is disposed of and the related costs are written off. If actual
market conditions are less favorable than those projected by management, additional inventory
write-downs may be required in future periods.
The Company analyzes its inventory levels to identify inventory that may expire prior to sale,
inventory that has a cost basis in excess of its estimated realizable value, or inventory in excess
of expected sales requirements. The determination of whether or not inventory costs will be
realizable requires estimates by the Companys management. A critical input in this determination
is future expected inventory requirements, based on internal sales forecasts. The Company then
compares these requirements to the expiry dates of inventory on hand. To the extent that inventory
is expected to expire prior to being sold, the Company will write down the value of inventory. If
actual results differ from those estimates, additional inventory write-offs may be required. During
2009, the Company determined and recorded a reserve of approximately $0.1 million, based upon
current inventory levels, expiration dates, and future sales. This amount was recorded within cost
of sales on the condensed consolidated statement of operations. In the future, reduced demand,
quality issues or excess supply may result in write-downs, which would be recorded as adjustments
to cost of sales.
90
Fair Value of Financial Instruments
For financial instruments consisting of cash and cash equivalents, short-term investments,
accounts payable and accrued liabilities included in the Companys financial statements, the
carrying amounts are reasonable estimates of fair value due to their short maturities.
Property, Plant and Equipment
Property, plant and equipment is stated at cost and depreciated on a straight-line basis over
the estimated useful lives of the related assets, which are generally three to five years.
Amortization of leasehold improvements is computed using the straight-line method over the shorter
of the remaining lease term or the estimated useful life of the related assets, currently between
five and fifteen years. Upon sale or retirement of assets, the costs and related accumulated
depreciation and amortization are removed from the balance sheet and the resulting gain or loss is
reflected as a component of operating income or loss. Expenditures for maintenance and repairs are
charged to operating expenses as incurred. During 2009, the Company sold fixed assets totaling $0.1
million, as part of its previously announced closing of the Cambridge facility and the reduction of
workforce.
Goodwill and intangible assets
Goodwill represents the difference between the purchase price and the fair value of net
tangible and identifiable intangible assets acquired in the business combination. Goodwill and
intangible assets acquired in a purchase business combination and determined to have an indefinite
useful life are not amortized, but instead are tested for impairment at least annually in
accordance with the provisions of ASC 350, Intangibles Goodwill and Other (ASC 350).
To test for impairment, the Company compares the fair value of its reporting units to their
respective carrying values, including assigned goodwill. The Company is organized as a single
operating segment with two reporting units; ALIGN and Xcyte. To the extent the carrying amount of
the reporting units exceeds its fair value, the Company would be required to perform the second
step of the impairment analysis, as this is an indication that goodwill may be impaired. In this
second step, the Company compares the implied fair value of the reporting units goodwill with its
carrying amount. The implied fair value of goodwill is determined by allocating the fair value of
the reporting units to all of the assets (recognized and unrecognized) and liabilities of the
reporting units in a manner similar to a purchase price allocation, in accordance with ASC 805,
Business Combinations (ASC 805). The residual fair value after this allocation represents the
implied fair value of the goodwill. To the extent the implied fair value of goodwill is less than
its carrying amount, the Company would be required to recognize an impairment loss.
Impairment of Long-lived Assets
In accordance with the provisions of ASC 360, Property, Plant, and Equipment (ASC 360),
the Company reviews long-lived assets, including property, plant and equipment and intangible
assets which are subject to amortization, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets may not be fully recoverable. We
assess the recoverability of the potentially affected long-lived assets under ASC 360 by
determining whether the carrying value of such assets can be recovered through undiscounted future
operating cash flows.
Impairment, if any, is measured as the amount by which the carrying amount of a long-lived
asset exceeds its fair value. If impairment is indicated, the Company measures the amount of such
impairment by comparing the carrying value of the asset to the estimated fair value of the related
asset, which is generally determined based on the present value of the expected future cash flows.
Measurement of fair value is determined using the income-based valuation methodology. The
income -based valuation approach measures the current value of an asset (or asset group) by
calculating the present value of the future expected cash flows to be derived from that asset, from
the perspective of a market participant. Such cash flows are discounted using a rate of return
that incorporates the risk-free rate for the use of funds, the expected rate of inflation and risks
associated with using the asset. If the carrying amount of a long-lived asset exceeds its fair
value, an impairment loss is recognized.
91
Revenue Recognition
Product sales
The Company recognizes revenue from product sales when persuasive evidence of an arrangement
exists; delivery has occurred or services have been rendered; the selling price is fixed and
determinable; and collectability is reasonably assured.
The Company offers a general right of return on these product sales, and has considered the
guidance in ASC 605-15, Revenue Recognition -Products (ASC 605-15) and ASC 605 10 Revenue
Recognition Overall (ASC 605-10). Under these pronouncements, the Company accounts for all
product sales using the sell-through method. Under the sell-through method, revenue is not
recognized upon shipment of product to distributors. Instead, the Company records deferred revenue
at gross invoice sales price and deferred cost of sales at the cost at which those goods were held
in inventory. The Company recognizes revenue when such inventory is sold through to the end user
based upon prescriptions filled. To estimate product sold through to end users, the Company relies
on third-party information, including information obtained from significant distributors with
respect to their inventory levels and sell-through to customers.
Collaboration, research and development, and grant revenue
Certain of the Companys revenues are earned from collaborative agreements. The Company
recognizes revenue when persuasive evidence of an arrangement exists; delivery has occurred or
services have been rendered; the fee is fixed and determinable; and collectability is reasonably
assured. Determination of whether these criteria have been met is based on managements judgments
regarding the nature of the research performed, the substance of the milestones met relative to
those the Company must still perform, and the collectability of any related fees. Should changes in
conditions cause management to determine these criteria are not met for certain future
transactions, revenue recognized for any reporting period could be adversely affected.
Research and development revenues, which are earned under agreements with third parties for
contract research and development activities, are recorded as the related services are performed.
Milestone payments are non-refundable and recognized as revenue when earned, as evidenced by
achievement of the specified milestones and the absence of ongoing performance obligations. Any
amounts received in advance of performance are recorded as deferred revenue. None of the revenues
recognized to date are refundable if the relevant research effort is not successful.
Grant revenues from government agencies and private research foundations are recognized as the
related qualified research and development costs are incurred, up to the limit of the prior
approval funding amounts. Grant revenues are not refundable.
Clinical Trial Accounting
Data management and monitoring of all of the Companys clinical trials are performed by
contract research organizations (CROs) or clinical research associates (CRAs) in accordance
with the Companys standard operating procedures. Typically, CROs and some CRAs bill monthly for
services performed, and others bill based upon milestones achieved. For outstanding amounts, the
Company accrues unbilled clinical trial expenses based on estimates of the level of services
performed each period. Costs of setting up clinical trial sites for participation in the trials are
expensed immediately as research and development expenses. Clinical trial site costs related to
patient enrollment are accrued as patients are entered into the trial and any initial payment made
to the clinical trial site is recognized upon execution of the clinical trial agreements and
expensed as research and development expenses.
Research and Development Expenditures
Research and development expenses consist primarily of costs associated with the Companys
product candidates, upfront fees, milestones, compensation and other expenses for research and
development
personnel, supplies and development materials, costs for consultants and related contract
research, facility costs, amortization of purchased technology and depreciation. Expenditures
relating to research and development are expensed as incurred.
92
Patent Costs
Costs relating to prosecution are charged to operations as incurred as recoverability of such
expenditure is uncertain.
Leased Assets
The costs of operating leases are charged to operations on a straight-line basis over the
lease term.
Where the Company enters into a lease which entails taking substantially all the risks and
rewards of ownership of an asset, the lease is treated as a capital lease. The asset is recorded in
the balance sheet as an asset and is depreciated in accordance with the aforementioned depreciation
policies. The capital elements of future lease payments are recorded as liabilities and the
interest is charged to operations over the period of the lease.
Income Taxes
The Company accounts for income taxes under the liability method. Under this method, deferred
tax assets and liabilities are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company adopted the guidance related to accounting for uncertainty in income taxes,
primarily codified in ASC 740 Income taxes (ASC 740). ASC 740 clarifies the accounting for
uncertainty in income taxes recognized in a companys financial statements by prescribing a minimum
probability threshold a tax position is required to meet before being recognized in the financial
statements. It also provides guidance on derecognition, measurement, classification, interest and
penalties, accounting in interim periods as well as disclosure and transition.
Credit is taken in the accounting period for research and development tax credits, which will
be claimed from H. M. Revenue & Customs, the United Kingdoms taxation and customs authority, in
respect of qualifying research and development costs incurred in the same accounting period.
Net Loss Per Common Share
The Company calculates net loss per common share in accordance with ASC 260 Earnings Per
Share (ASC 260). Basic and diluted net loss per common share was determined by dividing net loss
applicable to common stockholders by the weighted average number of common shares outstanding
during the period. The Companys potentially dilutive shares, which include outstanding common
stock options, restricted stock, restricted stock units, convertible preferred stock, make-whole
dividend payments of common stock on convertible preferred stock and common stock warrants, have
not been included in the computation of diluted net loss per share for all periods as the result
would be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Stock options |
|
|
2,592,246 |
|
|
|
3,674,899 |
|
|
|
3,349,876 |
|
Restricted Stock and Restricted Stock Units |
|
|
|
|
|
|
141,700 |
|
|
|
91,145 |
|
Convertible preferred stock |
|
|
870,980 |
|
|
|
870,980 |
|
|
|
870,980 |
|
Cyclacel stock to be issued on October 5, 2008 |
|
|
46,044 |
|
|
|
|
|
|
|
|
|
Common stock issuable to Kingsbridge |
|
|
|
|
|
|
|
|
|
|
328,602 |
|
Common stock warrants |
|
|
3,809,703 |
|
|
|
3,809,272 |
|
|
|
7,044,363 |
|
|
|
|
|
|
|
|
|
|
|
Total shares excluded from calculation |
|
|
7,318,973 |
|
|
|
8,496,851 |
|
|
|
11,684,966 |
|
|
|
|
|
|
|
|
|
|
|
93
Derivative Instruments
The Company issued warrants to purchase shares of common stock under the registered direct
financing completed in February 2007. These warrants are being accounted for as a liability in
accordance with ASC 815 Derivatives and Hedging (ASC 815). At the date of the transaction, the
fair value of the warrants of $6.8 million was determined utilizing the Black-Scholes option
pricing model utilizing the following assumptions: risk free interest rate 4.68%, expected
volatility 85%, expected dividend yield 0%, and a remaining contractual life of 7 years. The
value of the warrant shares is being marked to market each reporting period as a derivative gain or
loss on the consolidated statement of operations until exercised or expiration. At December 31,
2008, the fair value of the warrants was approximately $43,000 (utilizing the following
assumptions: risk free interest rate 1.47%, expected volatility 75%, expected dividend yield
0%, and a remaining contractual life of 5.13 years). At December 31, 2009, the fair value of the
warrants was $0.3 million (utilizing the following assumptions: risk free interest rate 2.13%,
expected volatility 96%, expected dividend yield 0%, and a remaining contractual life of
4.13 years). During 2009, the Company recognized the change in the value of warrants of
approximately $0.3 million as a loss on the consolidated statement of operations. During 2008, the
Company recognized the change in the value of warrants of approximately $3.5 million as a gain on
the consolidated statement of operations.
The terms of the Companys November 2004 convertible preferred stock offering included a
make-whole dividend payment feature. If the Company elected to automatically convert, or the
holder elected to voluntarily converted, some or all of the convertible preferred stock into shares
of its common stock prior to November 3, 2007, the Company was required to make an additional
payment on the convertible preferred stock equal to the aggregate amount of dividends that would
have been payable on the convertible preferred stock through and including November 3, 2007, less
any dividends already paid on the convertible preferred stock. This additional payment was payable
in cash or, at the Companys option, in shares of its common stock, or a combination of cash and
shares of common stock. This make-whole dividend payment feature was considered to be an embedded
derivative and was recorded on the balance sheet at fair value as a current liability. During the
year ended December 31, 2007 the Company recognized other income (expense) in the consolidated
statement of operations as the fair value of this derivative fluctuated from period to period. The
conversion feature expired on November 3, 2007.
The accounting for derivatives requires significant judgments and estimates in determining the
fair value in the absence of quoted market values. These estimates are based on valuation
methodologies and assumptions deemed appropriate in the circumstances. The fair value of the
dividend make-whole payment feature is based on various assumptions, including the estimated market
volatility and discount rates used in determination of fair value. The use of different assumptions
may have a material effect on the estimated fair value amount and the Companys results of
operations.
Stock-based Compensation
The Company grants stock options, restricted stock units and restricted stock to officers,
employees and directors under the 2006 Plans, which were approved on March 16, 2006. The Company
has outstanding options under various stock-based compensation plans for employees and directors.
These plans are described more fully in Note 14 Stock-Based Compensation Arrangements. The
Company accounts for these plans under ASC 718 Compensation Stock Compensation (ASC 718)
which was adopted effective January 1, 2006 under the modified prospective transition method.
ASC 718 requires measurement of compensation cost for all stock-based awards at fair value on
date of grant and recognition of compensation over the requisite service period for awards expected
to vest. The fair value of restricted stock and restricted stock units is determined based on the
number of shares granted and the quoted price of our common stock on the date of grant. Such value
is recognized as expense over the service period, net of estimated forfeitures, using the
straight-line attribution method. The estimation of stock awards that will ultimately vest requires
judgment, and to the extent actual results or updated
estimates differ from our current estimates, such amounts will be recorded as a cumulative
adjustment in the period estimates are revised. We consider many factors when estimating expected
forfeitures, including types of awards, employee class, and historical experience. Actual results
and future estimates may differ substantially from our current estimates.
94
Comprehensive Income (Loss)
In accordance with ASC 220, Comprehensive Income (ASC 220) all components of comprehensive
income (loss), including net income (loss), are reported in the financial statements in the period
in which they are recognized. Comprehensive income (loss) is defined as the change in equity during
a period from transactions and other events and circumstances from non owner sources. Net income
(loss) and other comprehensive income (loss), including foreign currency translation adjustments,
are reported, net of any related tax effect, to arrive at comprehensive income (loss). No taxes
were recorded on these items.
Restructuring Expense
The Company records costs and liabilities associated with exit and disposal activities, when
certain criteria have been met in accordance with ASC 420 Exit or Disposal Cost Obligation (ASC
420), at fair value in the period the liability is incurred. The Companys restructuring and
integration plan is subject to continued future refinement as additional information becomes
available.
On September 16, 2008, the Company announced a revision of its operating plan that
concentrates its resources on the advancement of our lead drug, sapacitabine, while maintaining its
core competency in drug discovery and cell cycle biology. The plan reduced its workforce across all
locations by 25 people. During the year ended December 31, 2008, the Company recorded approximately
$0.4 million for severance payments and $0.1 million of accelerated depreciation for assets that
will no longer be utilized. All severance payments were paid as of December 31, 2008. The Company
assigned the lease of its redundant Cambridge research facility back to the landlord and, in
accordance with the terms of the lease, incurred a net charge, incorporating a surrender fee, of
$0.1 million. In June 2009, the Company further reduced its workforce across all locations by 26
people making a total reduction of 51 people (or 63% of the workforce) since September 2008. The
Company recorded approximately $0.4 million for severance payments all of which were paid as of
December 31, 2009. An asset impairment amounting to $0.2 million was also charged to the
consolidated statement of operations as a result of assets being identified that were no longer
being utilized.
Recent Accounting Pronouncements
95
In May 2009, the FASB issued ASC 855, Subsequent Events (ASC 855), which provides guidance
to establish general standards of accounting for and disclosures of events that occur after the
balance sheet date but before financial statements are issued or are available to be issued. ASC
855 also requires entities to disclose the date through which subsequent events were evaluated as
well as the rationale for why that date was selected. This disclosure should alert all users of
financial statements that an entity has not evaluated subsequent events after that date in the set
of financial statements being presented.
ASC 855 is effective for interim and annual periods ending after June 15, 2009 and was
effective for the Company beginning with its interim period June 30, 2009. On February 24, 2010, The FASB issued Accounting Standards Update (ASU)
2010-09 to amend ASC 855. As a result of the ASU, SEC Registrants
will not disclose the date through which management evaluated
events in the financial statements. The adoption of ASC 855
did not to have a material impact on the Companys consolidated financial position, results of
operations or cash flows as it mostly requires only additional disclosures.
96
In June 2009, the FASB issued FAS 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, primarily codified in ASC 105, which
establishes the FASB Accounting Standards Codification (Codification) as the source of
authoritative US GAAP recognized by the FASB to be applied to nongovernmental entities.
Codification does not change current U.S. GAAP but is intended to simplify user access to all
authoritative US GAAP by providing all the authoritative literature related to a particular topic
in one place. All existing accounting standard documents will be superseded and all other
accounting literature not included in the Codification will be considered non-authoritative. Rules
and interpretive releases of the SEC under authority of federal securities laws are also included
in the Codification as sources of authoritative US GAAP for SEC registrants. FAS 168 and the
Codification are effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The Codification was adopted on September 30, 2009 and it did not have a
material impact on the Companys financial condition or results of operations.
3 Significant Contracts
Distribution, Licensing and Research Agreements
The Company has entered into licensing agreements with academic and research organizations.
Under the terms of these agreements, the Company has received licenses to technology and patent
applications. The Company is required to pay royalties on future sales of product employing the
technology or falling under claims of patent applications. Additional payments are due if the
Company sublicenses the technology or patent applications or if the Company achieves predefined
milestones.
In respect of Licensing Agreements, additional payments of $23.4 million would be payable if
the Company achieves predefined milestones subject to achievement of all the specific contractual
milestones and the Companys decision to continue with these projects. Under these agreements the
Company makes annual payments that do not presently exceed $0.1 million. Moreover, these payments
will not exceed $0.1 million per annum while the defined milestones set out in the related
agreements have not been achieved.
In connection with the asset acquisition with ALIGN on October 5, 2007, the Company acquired
license agreements for the exclusive rights to sell and distribute three products in the United
States. The Company, as part of securing long term supply arrangements had commitments to make
future payments totaling approximately $1.3 million of which $0.6 million was paid in 2009 and the
remainder of $0.7 million is due in 2010. Also, the Company has a minimum purchase obligation
equivalent to the value of product purchased in the previous year. For the year ended December 31,
2010 this equates to $0.1 million.
4 Acquisition
On October 5, 2007, Achilles Acquisition, LLC renamed immediately following the acquisition to
ALIGN Pharmaceuticals, LLC, or ALIGN, a wholly-owned subsidiary of Cyclacel, entered into a
definitive asset purchase agreement with ALIGN Pharmaceuticals, LLC and ALIGN Holdings, LLC or
Sellers, to acquire substantially all of the Sellers assets for a purchase price of approximately
$3.8 million. The Company also committed, as part of securing long term supply arrangements, to make
future payments totaling approximately $1.3 million of which $0.6 million was paid in 2009 and the
remainder of $0.7 million will be paid in 2010. The present value of these commitments has been
reported as other short term payables and other long term payables on the consolidated balance
sheet as at December 31, 2008 and as short term payables as of December 31, 2009.
97
5 Cash and Cash Equivalents
The following is a summary of cash and cash equivalents at December 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
|
$000 |
|
|
$000 |
|
Cash |
|
|
4,580 |
|
|
|
2,996 |
|
Deposits with original maturity of less than three months |
|
|
19,640 |
|
|
|
8,497 |
|
|
|
|
|
|
|
|
|
|
|
24,220 |
|
|
|
11,493 |
|
|
|
|
|
|
|
|
6 Short-term Investments
The following is a summary of short-term investments at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
|
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
Fair value |
|
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
Corporate bonds & commercial paper |
|
|
1,501 |
|
|
|
1 |
|
|
|
|
|
|
|
1,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the Company did not own any short-term investments. In 2008, the Company
disposed of short-term securities prior to maturity, realizing a gain of approximately $9,000.
For investments that are in an unrealized loss position, the Company has evaluated the nature
of the investments, the duration of the impairments and concluded that the impairments are not
other-than-temporary.
At December 31, 2008, the Company had marketable securities at fair value with contractual
maturities of greater than one year but less than 5 years of $1.5 million. At December 31, 2009,
the Company did not own any marketable securities.
Fair value measurements
The Company adopted ASC 820 Fair
Value Measurements and Disclosures (ASC 820) for its financial assets and liabilities on January 1, 2008, and
for non-financial assets and non-financial liabilities that are not recognized or disclosed at fair
value in the financial statements on a recurring basis on January 1, 2009. The Companys adoption
of ASC 820 did not materially affect the Companys financial position, results of operations or
liquidity. As defined in ASC 820, fair value is based on the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. In order to increase consistency and comparability in fair value
measurements, ASC 820 establishes a fair value hierarchy that prioritizes observable and
unobservable inputs used to measure fair value into three broad levels, which are described below:
|
|
|
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the
measurement date for assets or liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs. |
|
|
|
Level 2: Inputs other than quoted prices within Level 1 that are observable for the
asset or liability, either directly or indirectly. |
|
|
|
Level 3: Unobservable inputs that are used when little or no market data is available.
The fair value hierarchy gives the lowest priority to Level 3 inputs. |
98
In determining fair value, the Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs to the extent possible as well as
considers counterparty credit risk in its assessment of fair value.
Financial assets and liabilities carried at fair value on a recurring basis as of December 31,
2009 are classified in the table below in one of the three categories described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
342 |
|
|
|
|
|
|
|
342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 Prepaid Expenses and Other Current Assets
The following is a summary of prepaid expenses and other current assets at December 31, 2008
and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
|
$000 |
|
|
$000 |
|
Research and development tax credit receivable |
|
|
1,530 |
|
|
|
1,096 |
|
Prepayments |
|
|
1,017 |
|
|
|
456 |
|
Other current assets |
|
|
237 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
2,784 |
|
|
|
1,731 |
|
|
|
|
|
|
|
|
8 Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful lives in years from |
|
December 31, |
|
|
|
date of acquisition |
|
2008 |
|
|
2009 |
|
|
|
|
|
$000 |
|
|
$000 |
|
Leasehold improvements |
|
Life of lease (15 yrs) |
|
|
811 |
|
|
|
860 |
|
Research and laboratory equipment |
|
3 to 5 yrs |
|
|
7,170 |
|
|
|
7,894 |
|
Office equipment and furniture |
|
3 to 5 yrs |
|
|
1,859 |
|
|
|
1,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,840 |
|
|
|
10,034 |
|
Less: accumulated depreciation
and amortization |
|
|
|
|
(8,003 |
) |
|
|
(8,912 |
) |
Impairment |
|
|
|
|
(89 |
) |
|
|
(221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,748 |
|
|
|
901 |
|
|
|
|
|
|
|
|
|
|
The depreciation and amortization of property, plant and equipment amounted to $1.0 million,
$1.1 million and $0.7 million for each of the years ended December 31, 2007, 2008 and 2009,
respectively. These charges include depreciation of assets held under capital leases.
Depreciation and amortization expense for the period from inception or August 13, 1996 through
to December 31, 2009 was $11.9 million. At December 31, 2008 and 2009 there were no assets held
under capital lease.
As a result of the Company revising its operating plan in September 2008, the Company
identified that certain research and development assets at its Cambridge, UK facility would no
longer be utilized (see note 14 Restructuring). For the years ended December 31, 2008 and 2009,
the Company recorded an asset impairment of $0.1 million and $0.2 million, respectively, in respect
of these assets as accelerated depreciation in accordance with ASC 420 which are shown within
research and development expense on the
consolidated income statement. There were no impairments of property, plant and equipment
during the year ended December 31, 2007.
99
9 Intangible Assets and Goodwill
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contract |
|
|
|
|
|
|
|
License |
|
|
Customer |
|
|
ALIGN trade |
|
|
Non-compete |
|
|
pricing |
|
|
|
|
|
|
|
agreements |
|
|
relationships |
|
|
name |
|
|
agreements |
|
|
arrangement |
|
|
Total |
|
Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful lives in years from date of acquisition |
|
7 yrs |
|
|
7 yrs |
|
|
2 yrs |
|
|
2 yrs |
|
|
2 yrs |
|
|
|
|
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
$000 |
|
|
Balance as of December 31, 2007 |
|
|
2,945 |
|
|
|
516 |
|
|
|
88 |
|
|
|
343 |
|
|
|
413 |
|
|
|
4,305 |
|
Less: amortization |
|
|
(295 |
) |
|
|
(51 |
) |
|
|
(38 |
) |
|
|
(147 |
) |
|
|
(177 |
) |
|
|
(708 |
) |
Less: impairment charge |
|
|
(2,650 |
) |
|
|
(465 |
) |
|
|
(50 |
) |
|
|
(196 |
) |
|
|
(236 |
) |
|
|
(3,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
As part of the acquisition of ALIGN, the Company acquired rights to a license agreement with
Sinclair as well as to various customer relationships. The license agreement allows Cyclacel to
exclusively sell and distribute Xclair® Cream, Numoisyn® Liquid and Numoisyn® Lozenges in the
United States. The Company has amortized the license agreement and customer relationship
intangible assets over the remaining life of the contract of approximately seven years. The
Company also assumed all rights to the ALIGN trade name, as well as non-compete agreements signed
between ALIGN and its senior managers and a beneficial contract pricing arrangement. The Company
has amortized the fair values of these assets over 2 years, which represents the approximate time
period that the non-compete agreements will remain in effect based on the employment contracts of
the existing ALIGN management team.
The Company performed its annual impairment review of these assets as of September 2008. The
fair values of these assets, when treated as an asset group in accordance with ASC 360, was
established by using the income based valuation methodology, and an impairment charge of
approximately $3.6 million was recognized in the consolidated statement of operations. This
one-time, non-cash charge was triggered by a downwards revision of projected net cash flows from
product sales, required due to budgetary constraints experienced by health care providers and
restrictions of the cost reimbursement regime. As a result the sum of the expected undiscounted
cash flows was less than the carrying amount of the intangible assets on September 30, 2008.
Goodwill
The Company recognized goodwill arising on the Xcyte and ALIGN purchase transactions in 2006
and 2007 respectively in accordance with ASC 805, Business Combinations (ASC 805), The Company
is organized as a single operating segment with two reporting units; ALIGN and Xcyte. The Company
performed impairment analyses of goodwill for both Xcyte and ALIGN as at September 30, 2008 and of
ALIGN as at December 31, 2008. The fair value of the Companys Xcyte reporting unit was determined
by the fair market value of the Companys outstanding common stock and in the case of the ALIGN
reporting unit by using the income based valuation approach with respect to projected product
sales. The income-based valuation measures the current value of the reporting unit by calculating
the present value of its future cash flows using appropriate discount factors with regard to cost
of capital experienced by entities of the same size and condition as the Company.
To test for impairment, the Company compares the fair value of its reporting units to their
respective carrying values, including assigned goodwill. To the extent the carrying amount of the
reporting units exceeds its fair value; the Company is required to perform the second step of the
impairment analysis, as this is an indication that goodwill may be impaired. In this second step,
the Company compares the implied
fair value of the reporting units goodwill with its carrying amount. The implied fair value
of goodwill is determined by allocating the fair value of the reporting units to all of the assets
(recognized and unrecognized) and liabilities of the reporting units in a manner similar to a
purchase price allocation, in accordance with ASC 805. The residual fair value after this
allocation represents the implied fair value of the goodwill. To the extent the implied fair value
of goodwill is less than its carrying amount the Company is required to recognize an impairment
loss.
100
In September 2008, the goodwill acquired in the Xcyte transaction was written down in full and
we recorded an impairment charge of approximately $2.7 million in accordance with ASC 350. This
impairment charge was identified through our annual impairment review process and was triggered
primarily by a decline in our stock price that reduced our market capitalization below book value
of the net assets of the Xcyte reporting unit. Our reduced market capitalization reflected the
general decline in the economic environment.
In December 2008, goodwill allocated to our ALIGN reporting unit following the ALIGN
acquisition was fully written down in accordance with ASC 350, resulting in an impairment charge of
approximately $1.6 million being recognized on the consolidated statement of operations. In
determining the impairment charge, we considered the negative impact the current economic situation
might have on sales growth expectations of the ALIGN products resulting in a downward revisions of
projected net cash flows from product sales. These factors caused the discounted cash flows for
the reporting unit to be less than its carrying value on December 31, 2008.
10 Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
|
$000 |
|
|
$000 |
|
Accrued research and development |
|
|
3,653 |
|
|
|
2,654 |
|
Accrued IP / Patent costs |
|
|
264 |
|
|
|
283 |
|
Accrued compensation |
|
|
707 |
|
|
|
136 |
|
Amount payable under license agreement |
|
|
594 |
|
|
|
651 |
|
Amount payable under guarantee |
|
|
|
|
|
|
796 |
|
Proposed preference dividend |
|
|
307 |
|
|
|
1,228 |
|
Other current liabilities |
|
|
1,276 |
|
|
|
961 |
|
|
|
|
|
|
|
|
|
|
|
6,801 |
|
|
|
6,709 |
|
|
|
|
|
|
|
|
11 Commitments and contingencies
General
Please refer to Notes 3 and 4 for a further discussion of certain of the Companys commitments
and contingencies.
Leases
The following is a summary of the Companys contractual obligations and commitments relating
to its facilities and equipment leases as at December 31, 2009:
|
|
|
|
|
|
|
Operating |
|
|
|
lease |
|
|
|
obligations |
|
|
|
$ 000 |
|
2010 |
|
|
1,606 |
|
2011 |
|
|
671 |
|
2012 |
|
|
415 |
|
2013 |
|
|
407 |
|
2014 |
|
|
407 |
|
Thereafter |
|
|
4,396 |
|
101
Rent expense, which includes lease payments related to the Companys research and development
facilities and corporate headquarters and other rent related expenses, was, $1.1 million, $0.9
million and $0.9 million for the years ended December 31, 2007, 2008 and 2009, respectively.
In October 2000, the Company entered into a 25-year lease for its research and development
facility in Dundee, Scotland. In October 2006, the Company entered into a five-year lease for
office space in Berkeley Heights, New Jersey which is the location of the Companys corporate
headquarters.
The Company continues to lease approximately 40,500 square feet of space in Bothell,
Washington, with monthly payments of approximately $0.1 million. The lease term on this space
expires December 2010. However, activities were discontinued at the Bothell facility during the
third quarter of 2005 and the Company continued to explore options for the future of this
facility. Market conditions for subleasing space in Bothell are currently considered poor
primarily due to an overabundance of available space. Accordingly, as part of the Stock Purchase
on March 27, 2006, the Company recorded an accrued restructuring liability which was computed as
the present value of the difference between the remaining lease payments due less the estimate of
net sublease income and expenses.
As of December 31, 2009 the accrued restructuring liability was $1.1 million. This represents
the Companys best estimate of the fair value of the liability as determined under ASC 420.
Subsequent changes in the liability due to accretion, or changes in estimates of sublease
assumptions, etc. will be recognized as adjustments to restructuring charges in future periods.
(See Restructuring under Footnote 14).
The Company also leased a second research facility at the Babraham Research Campus, Cambridge,
England with a lease expiration date of August 2010. Under the revised plan announced in September
2008, the Cambridge laboratory facility will no longer be used by the Company. In 2009, the
Company assigned the lease of its redundant Cambridge research facility back to the landlord and,
in accordance with the terms of the lease, incurred a net charge, incorporating a surrender fee, of
$0.1 million.
Guarantee
On July 28, 2005 and amended on March 27, 2006, Cyclacel Group plc (Group) signed a
convertible Loan Note Instrument constituting convertible unsecured loan notes (the Loan) and
entered into a Facility Agreement (Agreement) with Scottish Enterprise (SE), as lender, whereby
SE subscribed for £5 million, or approximately $9 million at the time, of the convertible loan
notes. The loan was subsequently converted into 1,231,527 preferred D shares of the Group in
satisfaction of all amounts owed by Group under the convertible loan notes. The number of preferred
D shares that SE received was calculated by dividing the principal amount outstanding under the
loan note by £4.06. The preferred D shares were exchanged for shares in Xcyte Therapies, Inc. on
March 27, 2006 as part of the transaction between Xcyte and Cyclacel Limited. However, Scottish
Enterprise retained the ability it had under the Agreement to receive a cash payment should the
research operations in Scotland be significantly reduced. Cyclacel Limited guaranteed approximately
£5 million, the amount potentially due to SE, which will be calculated as a maximum of £5 million
less the market value of the shares held (or would have held in the event they dispose of any
shares) by SE at the time of any significant reduction in research facilities.
102
On June 22, 2009, the Company amended the March 2006 Agreement with SE, in order to allow the
Company to implement a reduction of the Companys research operations located in Scotland in
exchange for the parties agreement to modify the payment terms of the Agreement in the
principal amount of £5 million (approximately $8.0 million at December 31, 2009), which SE had
previously entered into with the Company. The original agreement dated March 27, 2006, provided for
repayment of £5 million in the event the Company significantly reduced its Scottish research
operations. Pursuant to the terms of the Amendment, in association with Cyclacels material
reduction in staff at its Scottish research facility, the parties agreed to a modified payment of
£1 million (approximately $1.7 million at June 22, 2009) payable in two equal tranches. On July 1,
2009 the first installment of £0.5 (approximately $0.8 million) million was paid and the remaining
amount of $0.8 million was paid on January 6, 2010. In addition, should a further reduction below
current minimum staff levels be effectuated before July 2014 without SEs prior consent, the
Company will guarantee approximately £4 million, the amount potentially due to SE, which will be
calculated as a maximum of £4 million less the market value of the shares held (or would have held
in the event they dispose of any shares) by SE at the time of any further reduction in research
facilities. This resulted in a charge to the income statement in the second quarter of 2009 of
£1 million ($1.7 million), with the outstanding liability being recorded under accrued liabilities
on the condensed consolidated balance sheet as at December 31, 2009.
Purchase Obligations
At December 31, 2008 and December 31, 2009, the Company had obligations in relation to the
purchase of manufactured products within the ALIGN business of $0.4 million and $0.1 million
respectively.
Preferred Dividends
Pursuant to the terms of the Companys outstanding preferred stock, since inception through
January 2009, the Company paid quarterly cash dividends when they have fallen due. However, as part of the program to
reduce expenditure, on April 6, 2009, June 22, 2009, October 19, 2009 and January 7, 2010, the
Board of Directors decided not to declare the
quarterly cash dividend.
Legal proceedings
In the ordinary course of business the Company may be subject to legal proceedings and claims.
The Company is not currently subject to any material legal proceedings.
12 Stockholders Equity
Preferred stock
On November 3, 2004, the Company completed a public offering of 2,990,000 shares of its 6%
convertible exchangeable preferred stock (the Preferred Stock) at $10.00 per share, including the
shares sold to the underwriters pursuant to the over-allotment option granted in connection with
the offering. Net proceeds from the offering, after deducting underwriting discounts and
offering-related expenses, totaled $27.5 million.
Dividends on the Preferred Stock are cumulative from the date of original issuance at the
annual rate of 6% of the liquidation preference of the Preferred Stock, payable quarterly on the
first day of February, May, August and November, commencing February 1, 2005. Since inception until
April 6, 2009, the Company paid these dividends when due. However, as part of the Companys program
to reduce expenditure, on April 6, 2009, June 22, 2009, October 19, 2009 and January 7, 2010, the
Companys Board of Directors resolved to suspend payment of, but continue to accumulate, the cash
dividend. The Board of Directors will continue to evaluate the payment of a quarterly cash dividend
on a quarterly basis. Any dividends must be declared by the Companys Board of Directors and must
come from funds that are legally available for dividend payments. The Preferred Stock has a
liquidation preference of $10 per share, plus accrued and unpaid dividends. Each quarterly dividend
distribution totals $0.3 million.
103
The Preferred Stock is convertible at the option of the holder at any time into the Companys
common stock at a conversion rate of approximately 0.42553 shares of common stock for each share of
Preferred
Stock, based on a price of $23.50 after giving effect to the one for ten reverse stock split
of Xcytes common stock pursuant to the Stock Purchase. In the year ended December 31, 2004,
holders voluntarily converted 910,187 shares of Preferred Stock into 3,873,124 shares of common
stock and in the year ended December 31, 2005, holders voluntarily converted 33,000 shares of
preferred stock into 140,425 shares of common stock (before giving effect to the one for ten
reverse stock split of Xcytes common stock). During 2007, 2008 and 2009 no shares of Preferred
Stock were converted into common stock. The Company has reserved 870,980 shares of common stock
for issuance upon conversion of the remaining shares of Preferred Stock outstanding at December 31,
2009.
The Company may automatically convert the Preferred Stock into common stock if the closing
price of the Companys common stock has exceeded $35.25, which is 150% of the conversion price of
the Preferred Stock, for at least 20 trading days during any 30-day trading period, ending within
five trading days prior to notice of automatic conversion. To date, the Company has not elected to
automatically convert the Preferred Stock in whole or part into common stock.
Prior to November 3, 2007, the Company was required to make an additional payment on the
Preferred Stock equal to the aggregate amount of dividends that would have been payable on the
Preferred Stock through November 3, 2007, less any dividends already paid on the Preferred Stock,
for each Preferred Stock converted to the Companys common stock, whether at the option of the
holder or the Company, the Make-Whole Dividend Payment. This additional payment was payable in
cash or, at the Companys option, in shares of the Companys common stock, or a combination of cash
and shares of common stock. The Company issued 81,927 shares of common stock (before giving effect
to the one for ten reverse stock split of Xcytes common stock) to converting holders in 2004 and
2005 in satisfaction of this additional payment.
In accordance with Statement of ASC 815, the Company was required to separate and account for,
as an embedded derivative, the Make-Whole Dividend Payment feature of the Preferred Stock. As an
embedded derivative instrument, the Make-Whole Dividend Payment feature was measured at fair value
and reflected as a liability. Changes in the fair value of the derivative were recognized as a gain
or loss in the consolidated statement of operations as a component of other income (expense). Since
this feature lapsed on November 3, 2007, the liability was reduced to $0. During 2007, the Company
recorded a charge of $0.1 million on the consolidated statement of operations.
From November 6, 2007, the Company may, at its option, redeem the Preferred Stock in whole or
in part, out of funds legally available at the redemption prices per share stated below, plus an
amount equal to accrued and unpaid dividends up to the date of redemption:
|
|
|
|
|
Year from November 1, 2009 to October 31, 2010 |
|
$ |
10.30 |
|
Year from November 1, 2010 to October 31, 2011 |
|
$ |
10.24 |
|
Year from November 1, 2011 to October 31, 2012 |
|
$ |
10.18 |
|
Year from November 1, 2012 to October 31, 2013 |
|
$ |
10.12 |
|
Year from November 1, 2013 to October 31, 2014 |
|
$ |
10.06 |
|
November 1, 2014 and thereafter |
|
$ |
10.00 |
|
The Preferred Stock is exchangeable, in whole but not in part, at the option of the Company on
any dividend payment date beginning on November 1, 2005 (the Exchange Date) for the Companys 6%
Convertible Subordinated Debentures (Debentures) at the rate of $10 principal amount of
Debentures for each share of Preferred Stock. The Debentures, if issued, will mature 25 years after
the Exchange Date and have terms substantially similar to those of the Preferred Stock.
The Preferred Stock has no maturity date and no voting rights prior to conversion into common
stock, except under limited circumstances.
104
Common Stock
March 2006 Stock Purchase Agreement
In March 2006, in connection with the Stock Purchase Agreement, the Company issued 7,761,453
shares of common stock (after adjustment for a 1 for 10 reverse stock split which occurred on March
27, 2006) to Cyclacel Group plc which represented 79.7% of the outstanding shares of the Companys
common stock.
April 2006 Securities Purchase Agreement
On April 26 2006, the Company entered into a Securities Purchase Agreement pursuant to which
it sold to certain investors, for an aggregate purchase price of $45.3 million, 6,428,572 shares of
its common stock and warrants to purchase up to 2,571,429 additional shares of its common stock.
The purchase price for the common stock and the exercise price for the warrants is $7.00 per share.
Investors in the financing paid an additional purchase price equal to $0.125 per warrant or an
additional $0.05 for each share underlying the warrants. The warrants became exercisable six months
after the closing and have an expiration date seven years thereafter. As of December 31, 2009, all
warrants are outstanding.
February 2007 Registered Direct Offering
On February 16, 2007, the Company raised $36.0 million in gross proceeds, before deducting
placement agent fees and offering expenses of $2.6 million, in a registered direct offering through
the sale of shares of the Companys common stock and warrants. The Company entered into
subscription agreements with these investors pursuant to which it sold approximately 4.2 million
units, each unit consisting of one share of common stock and a seven-year warrant to purchase 0.25
shares of common stock, at a purchase price of $8.47125 per unit. The purchase price for the shares
and the exercise price for the warrants was $8.44 per share, the closing bid price for the
Companys common stock on February 12, 2007. Investors paid $0.125 per warrant. The Company issued
4,249,668 shares of common stock and warrants to purchase 1,062,412 shares of common stock. As of
December 31, 2009, all of the warrants remain outstanding.
The warrants issued to the investors are being accounted for as a liability in accordance with
ASC 840. At the date of the transaction, the fair value of the warrants of $6.8 million was
determined utilizing the Black-Scholes option pricing model utilizing the following assumptions:
risk free interest rate 4.58%, expected volatility 85%, expected dividend yield 0%, and a
remaining contractual life of 6.88 years. The value of the warrant shares is being marked to market
each reporting period as a derivative gain or loss on the consolidated statement of operations
until exercised or expiration. At December 31, 2008 and 2009, the fair value of the warrants
determined utilizing the Black-Scholes option pricing model was approximately $43,000 and
approximately $0.3 million, respectively. The fair value at December 31, 2009 reflects the
increase in the Companys common stock price, risk free rate of return and the remaining expected
term of the warrants. During 2008, the Company recognized the change in the value of warrants of
approximately $3.5 million as a gain on the consolidated statement of operations. During 2009, the
Company recorded the change in the value of warrants of $0.3 million as a loss on the consolidated
statement of operations.
July 2009 Registered Direct Financing
On July 29, 2009, the Company sold its securities to certain institutional investors
consisting of 4,000,000 units in a registered direct offering (the Offering) at a purchase
price of $0.85 per unit (each, a Unit). Each Unit consisted of (i) one share of the Companys
common stock, par value $0.001 per share (the Common Stock), (ii) one warrant to purchase 0.625
of one share of Common Stock (a Series I Warrant) and (iii) one warrant to purchase 0.1838805 of
one share of Common Stock (a Series II Warrant. The Series I Warrants have a seven-month term
from the date of issuance, are exercisable beginning six months from the date of issuance and will
be exercisable at an exercise price of $1.00 per share of Common Stock. As of December 31, 2009,
all of the Series I Warrants remain outstanding. The
Series II Warrants have a five-year term from the date of issuance, are exercisable beginning
six months from the date of issuance and will be exercisable at an exercise price of $1.00 per
share of Common Stock. As of December 31, 2009, all of the Series II Warrants remain outstanding.
The sale of the Units was made pursuant to Subscription Agreements, dated July 23, 2009, with each
of the investors. The net proceeds to the Company from the sale of the Units, after deducting for
the Placement Agents fees and offering expenses, were approximately $2.9 million.
105
As of December 31, 2009, the warrants issued to the investors have been classified as equity
in accordance with ASC 815. The transaction date fair value of the Series I Warrants of
$1.0 million was determined utilizing the Black-Scholes option pricing model utilizing the
following assumptions: risk free interest rate 0.26%, expected volatility 125%, expected
dividend yield 0%, and a remaining contractual life of 0.58 years. The transaction date fair
value of the Series II Warrants of $0.6 million was determined utilizing the Black-Scholes option
pricing model utilizing the following assumptions: risk free interest rate 2.69%, expected
volatility 90%, expected dividend yield 0%, and a remaining contractual life of 5.00 years.
December 2007 Committed Equity Financing Facility (CEFF)
On December 10, 2007 and amended on November 24, 2009, Cyclacel entered into a CEFF with
Kingsbridge, in which Kingsbridge committed to purchase the lesser of 4,084,590 shares of common
stock or $60 million of common stock from Cyclacel of capital over a three-year period. Under the
terms of the agreement, Cyclacel will determine the exact timing and amount of any CEFF financings,
subject to certain conditions. All amounts drawn down under the CEFF will be settled via the
issuance of Cyclacels common stock. Cyclacel may access capital under the CEFF in tranches of
either (a) 2% of Cyclacels market capitalization at the time of the draw down or (b) the lesser of
(i) 3% of Cyclacels market capitalization at the time of the draw down and (ii) an alternative
draw down amount based on the product of (A) the average trading volume of the 30-day trading
period preceding the draw down excluding the five highest and five lowest trading days during such
period, (B) the volume-weighted average trading price (VWAP) on the trading day prior to the
notice of draw down, (C) the number of days during the draw down period and (D) 85%, subject to
certain conditions. Each tranche will be issued and priced over an eight-day pricing period.
Kingsbridge will purchase shares of common stock pursuant to the CEFF at discounts ranging from 10%
to 20% depending on the average market price of the common stock during the eight-day pricing
period, provided that the minimum acceptable purchase price for any shares to be issued to
Kingsbridge during the eight-day period is determined by the higher of $0.40 or 90% of Cyclacels
common stock closing price the day before the commencement of each draw down.
During December 2009 and January 2010, the Company sold an aggregate of 1,583,626 shares of its common
stock to Kingsbridge under the terms of the CEFF with Kingsbridge, dated as of December 10, 2007,
as amended, in consideration of an aggregate of $1.3 million, of which approximately $1.0 million
was received in 2009 with the balance of $0.3 million in respect of common shares subscribed but unissued at December 31, 2009, received by the Company in January 2010.
In connection with the Amendment, the Company issued an amended and restated warrant to
Kingsbridge to purchase 175,000 shares of its common stock at an exercise price of $1.40 per share,
(from an original exercise price of $7.17) which represents 175% of the closing bid price of our
common stock on the date prior to the date on which the Amendment was signed. The warrant amends
and restates the original warrant issued by the Company to Kingsbridge in connection with the CEFF.
No other changes were made to the original warrant. As a result of the change in exercise price,
the Company recorded an expense of approximately $44,000. The warrant will become exercisable six
months from the date of the agreement and will remain exercisable, subject to certain exceptions,
for a period of five years thereafter. As of December 31, 2007 and 2008, the warrants issued to the
investors have been classified as equity in accordance with ASC 840. The transaction date fair
value of the warrants of $0.6 million was determined utilizing the Black-Scholes option pricing
model utilizing the following assumptions: risk free interest rate 3.605%, expected volatility
70%, expected dividend yield 0%, and a remaining contractual life of 5.5 years.
106
Common Stock Warrants
The following table summarizes information about warrants outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Expiration |
|
|
Common Shares |
|
|
Average |
|
Issued in Connection With |
|
Date |
|
|
Issuable |
|
|
Exercise Price |
|
March 2006 stock issuance |
|
|
2013 |
|
|
|
2,571,429 |
|
|
|
7.00 |
|
February 2007 stock issuance |
|
|
2014 |
|
|
|
1,062,412 |
|
|
|
8.44 |
|
December 2007 CEFF |
|
|
2012 |
|
|
|
175,000 |
|
|
|
1.40 |
|
July 2009 Series I stock issuance |
|
|
2010 |
|
|
|
2,500,000 |
|
|
|
1.00 |
|
July 2009 Series II stock issuance |
|
|
2014 |
|
|
|
735,522 |
|
|
|
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
7,044,363 |
|
|
|
4.32 |
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of Stock Options
During 2007, 25,508 shares of common stock were issued from the exercise of stock options
resulting in proceeds of $0.2 million. There were no exercises of stock options during 2008. During
2009, 17,180 shares of common stock were issued from the exercise of stock options resulting in
proceeds of approximately $7,000.
13 Stock-Based Compensation Arrangements
The Company adopted ASC 718 on January 1, 2006 using the modified prospective method of
transition as detailed in Note 2 Summary of significant accounting policies.
ASC 718 requires compensation expense associated with share-based awards to be recognized over
the requisite service period, which for the Company is the period between the grant date and the
date the award vests or becomes exercisable. Most of the awards granted by the Company (and still
outstanding), vest ratably over four years, with 1/4 of the award vesting one year from the date of
grant and 1/48 of the award granted vesting each month thereafter. However, a large grant of
awards issued in June 2006 vests (a) two-thirds upon grant, and (b) one-third over a one-year
vesting period. In addition, certain awards made to executive officers vest over three to five
years, depending on the terms of their employment with the Company.
Effective January 1, 2006, the Company has elected to recognize all share-based awards issued
after the adoption of ASC 718 under the straight-line attribution method. ASC 718 requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. This analysis is evaluated quarterly and the
forfeiture rate adjusted as necessary. Ultimately, the actual expense recognized over the vesting
period is based on only those shares that vest.
Stock based compensation has been reported within expense line items on the consolidated
statement of operations for 2007, 2008 and 2009 as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
Year ended |
|
|
Year ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
($000s) |
|
Research and development |
|
|
837 |
|
|
|
736 |
|
|
|
271 |
|
Selling, general and administrative |
|
|
896 |
|
|
|
962 |
|
|
|
539 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation costs
before income taxes |
|
$ |
1,733 |
|
|
$ |
1,698 |
|
|
$ |
810 |
|
|
|
|
|
|
|
|
|
|
|
107
2006 Plans
On March 16, 2006, Xcyte stockholders approved the adoption of the 2006 Plans, under which
Cyclacel, may make equity incentive grants to its officers, employees, directors and consultants.
On May 14, 2008, at the Company annual stockholders meeting the stockholders increased the number
of shares reserved under the 2006 Plans to 5.2 million shares of common stock from 3.0 million
shares of common stock.
During 2006, the Company granted 829,079 stock options under the 2006 Plans, two-thirds of
which vested immediately on grant. The remaining unvested options became fully vested 12 months
following the date of grant of the options on June 13, 2007.
The total fair value of all options granted in 2006 under the 2006 Plans was $5.7 million, of
which $5.2 million has been recognized as of December 31, 2009. During 2007, the Company granted
approximately 1.3 million options to employees and directors with a grant date fair value of $3.3
million, of which $2.2 million has been expensed. During 2008, the Company granted approximately
1.5 million options to employees and directors with a grant date fair value of $0.7 million, of
which $0.4 million has been expensed. During 2009, the Company granted approximately 0.2 million
options to employees and directors with a grant date fair value of $0.1 million, of which
approximately $28,000 has been expensed. As of December 31, 2009, the total remaining unrecognized
compensation cost related to the non-vested stock options amounted to approximately $1.8 million,
which will be amortized over the weighted-average remaining requisite service period of 3.25 years.
During 2008 and 2009, the Company did not settle any equity instruments with cash.
The Company received $7,000 from the exercise of 17,180 stock options during 2009. The total
intrinsic value of options exercised during 2009 was approximately $11,000. No options were
exercised in 2008. The weighted average grant-date fair value of options granted during 2008 and
2009 was $0.67 and $0.39, respectively.
Acceleration of Options
Prior to the Stock Purchase, Group operated a number of share option plans, which provided the
opportunity to all eligible individuals, including employees of Cyclacel, to participate in the
potential growth and success of Group. These were the 1997 Plan, the 2000 Plan, the SEIP, the
Discretionary Plan, the Cyclacel Group Plc Savings Related Share Option Plan and the Cyclacel Group
Plc Restricted Share and Co- Investment Plan, collectively referred to as the Cyclacel Plans.
Options had only been issued under the 1997 Plan, the 2000 Plan, the Discretionary Plan and the
SEIP.
Similarly, Xcyte operated a number of share option plans, the Amended and Restated 2003
Directors Stock Option Plan (2003 Directors Plan), the Amended and Restated 1996 Stock Option
Plan (1996 Plan) and the 2003 Stock Plan (2003 Plan), collectively referred to as the Xcyte
Plans.
The completion of the Stock Purchase and the members voluntary liquidation of Group variously
caused an acceleration of vesting of options according to the terms of each of the Plans as
described below.
Cyclacel Plans
The vesting of all options granted pursuant to the 1997 Plan, 2000 Plan and Discretionary Plan
were accelerated on the members voluntary liquidation of Cyclacel Group plc. As a result of this
acceleration, any holder of options granted pursuant to these Plans had the right to exercise 100%
of the options held by such holder pursuant to such plan. However, prior to the completion of the
Stock Purchase and liquidation of Cyclacel Group plc all Cyclacel employees waived their rights to
exercise any options held by them. The number of options of common stock that would have become
fully vested as a result of the accelerated vesting provisions of the Plans was 1,369,757. However,
as the liquidation of Cyclacel Group plc was probable at the time the options were waived and the
liquidation caused the acceleration of the vesting of the options, the previously unrecognized
compensation cost associated with these awards was charged as employee compensation immediately
prior to the
108
consummation of the Stock Purchase on March 27, 2006.
Options granted pursuant to the Senior Executive Incentive Plan only became vested on
occurrence of certain trigger events and the passage of time thereafter; moreover, there were no
provisions for an acceleration of vesting on liquidation. Directors benefiting from this plan
waived their rights to any options held by them and concurrently the directors were issued with
restricted stock as detailed below. Accordingly, as the options had never vested and were
improbable of vesting even absent the liquidation, no compensation charge associated with these
awards has been charged as employee expense in this period. There were no Cyclacel common stock
options outstanding on completion of the Stock Purchase or liquidation of Group. As of March 16,
2006, no options are granted under the 1997 Plan, 2000 Plan and Discretionary Plan.
In the first quarter of 2006 prior to the completion of the Stock Purchase, 1,750,000 shares
of Group preferred stock were granted to certain directors, officers and a former director. These
shares converted to 648,412 shares of restricted common stock of the Company on completion of the
Stock Purchase. Because the shares granted were not subject to additional future vesting or
service requirements, the stock-based compensation expense of $5.2 million recorded during 2006
constituted the entire grant-date fair value of this award, and no subsequent period charges have
been recorded. The stock was restricted only in that it could not be sold for a specified period of
time. There were no vesting requirements. The fair value of the stock granted was $7.99 per share
based on the market price of the Companys common stock on the date of grant. There were no
discounts applied for the effects of the restriction, since the value of the restriction is
considered to be de minimis. Certain of the restricted stock was issued as a replacement for the
previously held stock-based compensation awards and the incremental fair value of the restricted
stock over the original award at the date of replacement was charged to expense during the year
ended December 31, 2006. Of the $5.2 million charge, $3.2 million was reported as a component of
research and development expense and $2.0 million was reported as a component of general and
administrative expense.
Xcyte Plans
Upon closing of the Stock Purchase, the vesting of 43,491 options of common stock granted
pursuant to the 2003 Directors Plan, the 1996 Plan and the 2003 Plan were immediately accelerated
and became fully vested.
Since March 16, 2006, no further options have been issued under the former Xcyte Plans, those
being, 1996 Stock Option Plan, 2003 Stock Plan, 2003 Directors Stock Option Plan and 2003 Employee
Stock Purchase Plan.
In connection with the approval of the equity incentive plan the holders of Xcyte common stock
approved the partial termination of Xcytes 2003 Employee Stock Purchase Plan, Amended and Restated
1996 Stock Option Plan, Amended and Restated 2003 Directors Stock Option Plan and 2003 Stock
Option Plan. As a result of such partial termination, no options have been issued under such plans.
However, such partial termination has not affected the rights of holders of stock options
outstanding under such stock option plans.
A summary of the share option activity and related information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
average |
|
|
|
|
|
|
Number of |
|
|
average |
|
|
remaining |
|
|
Aggregate |
|
|
|
options |
|
|
exercise |
|
|
contractual |
|
|
intrinsic |
|
Cyclacel Pharmaceuticals, Inc. |
|
outstanding |
|
|
price |
|
|
term (years) |
|
|
value |
|
Balance as of December 31, 2007 |
|
|
2,592,346 |
|
|
$ |
6.39 |
|
|
|
9.14 |
|
|
|
|
|
Granted |
|
|
1,469,575 |
|
|
$ |
1.18 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited |
|
|
(387,022 |
) |
|
$ |
5.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2008 |
|
|
3,674,899 |
|
|
$ |
4.36 |
|
|
|
8.74 |
|
|
|
2 |
|
Granted |
|
|
221,000 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(17,180 |
) |
|
$ |
0.43 |
|
|
|
|
|
|
|
7 |
|
Cancelled/forfeited |
|
|
(528,843 |
) |
|
$ |
3.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009 |
|
|
3,349,876 |
|
|
$ |
4.21 |
|
|
|
7.76 |
|
|
|
698 |
|
Unvested at December 31, 2009 |
|
|
1,381,616 |
|
|
$ |
2.62 |
|
|
|
8.43 |
|
|
|
484 |
|
Vested and exercisable at December 31,
2009 |
|
|
1,968,260 |
|
|
$ |
5.34 |
|
|
|
7.79 |
|
|
|
|
|
109
The following table summarizes information about options outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
Exercise |
|
Number |
|
|
remaining |
|
|
Number |
|
price |
|
outstanding |
|
|
contractual life |
|
|
exercisable |
|
$ |
|
|
|
|
|
|
|
|
|
|