Unassociated Document
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
One)
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þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended March 31, 2010
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
Commission
File Number: 0-50440
MICROMET,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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52-2243564
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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6707 Democracy Boulevard, Suite 505, Bethesda,
MD
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20817
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(Address
of principal executive offices)
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(Zip
Code)
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(240) 752-1420
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. þ Yes
¨ No
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 ¨ No ¨
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
definition of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
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Accelerated
filer þ
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Non-accelerated
filer ¨
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Smaller
reporting company ¨
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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 þ No
The
number of outstanding shares of the registrant’s common stock, par value
$0.00004 per share, as of the close of business on May 1, 2010 was
80,831,555.
MICROMET,
INC.
FORM
10-Q — QUARTERLY REPORT
FOR
THE QUARTERLY PERIOD ENDED MARCH 31,
2010
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Page
No.
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PART
I — FINANCIAL INFORMATION
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3
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Item 1.
Financial Statements
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3
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Condensed
Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and
December 31, 2009
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3
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Condensed
Consolidated Statements of Operations for the three-month period ended
March 31, 2010 and 2009 (Unaudited)
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4
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Condensed
Consolidated Statements of Cash Flows for the three-month periods ended
March 31, 2010 and 2009 (Unaudited)
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5
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Notes to Condensed Consolidated
Financial Statements (Unaudited)
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6
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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
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13
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Item 3.
Quantitative and Qualitative Disclosures about Market Risk
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20
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Item 4.
Controls and Procedures
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20
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PART
II — OTHER INFORMATION
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21
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Item 1.
Legal Proceedings
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21
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Item 1A.
Risk Factors
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21
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Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
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37
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Item 3.
Defaults Upon Senior Securities
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37
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Item 4.
Reserved
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37
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Item 5.
Other Information
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38
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Item 6.
Exhibits
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38
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SIGNATURES
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39
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Item 1.
Financial Statements
Micromet,
Inc.
Condensed
Consolidated Balance Sheets
(In
thousands, except par value)
(unaudited)
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March
31,
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December
31,
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2010
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2009
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$ |
136,631 |
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$ |
113,434 |
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Short-term
investments
|
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46,092 |
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4,169 |
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Accounts
receivable
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534 |
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464 |
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Prepaid
expenses and other current assets
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1,186 |
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2,156 |
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Total
current assets
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184,443 |
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120,223 |
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Property
and equipment, net
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3,846 |
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3,959 |
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Goodwill
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6,462 |
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6,462 |
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Patents,
net
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|
836 |
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1,016 |
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Other
long-term assets
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10 |
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- |
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Restricted
cash
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3,106 |
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3,153 |
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Total
assets
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$ |
198,703 |
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$ |
134,813 |
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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Current
liabilities:
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Accounts
payable
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$ |
5,657 |
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$ |
6,053 |
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Accrued
expenses
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12,648 |
|
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16,360 |
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Common
stock warrants liability
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25,851 |
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20,244 |
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Current
portion of deferred revenue
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10,238 |
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9,838 |
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Total
current liabilities
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54,394 |
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52,495 |
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Deferred
revenue, net of current portion
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16,999 |
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13,281 |
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Other
non-current liabilities
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2,023 |
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2,196 |
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Long-term
debt obligations
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- |
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- |
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Stockholders'
equity:
|
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|
|
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Preferred
stock, $0.00004 par value; 10,000 shares authorized; no shares issued and
outstanding
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- |
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- |
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Common
stock, $0.00004 par value; 150,000 shares authorized; 80,821 shares issued
and outstanding at March 31, 2010 and 69,178 shares issued and outstanding
at December 31, 2009
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3 |
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|
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3 |
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Additional
paid-in capital
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391,699 |
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314,627 |
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Accumulated
other comprehensive income
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5,689 |
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8,062 |
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Accumulated
deficit
|
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|
(272,104 |
) |
|
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(255,851 |
) |
Total
stockholders' equity
|
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|
125,287 |
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66,841 |
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Total
liabilities and stockholders' equity
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|
$ |
198,703 |
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$ |
134,813 |
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The
accompanying notes are an integral part of these financial
statements.
Condensed
Consolidated Statements of Operations
(In
thousands, except per share amounts)
(Unaudited)
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Three
months ended
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March
31,
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2010
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2009
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Revenues:
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Collaboration
agreements
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$ |
6,040 |
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$ |
7,306 |
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License
fees and other
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270 |
|
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157 |
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Total
revenues
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6,310 |
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7,463 |
|
Operating
expenses:
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|
|
|
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Research
and development
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12,203 |
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8,477 |
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General
and administrative
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|
5,220 |
|
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3,899 |
|
Total
operating expenses
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|
|
17,423 |
|
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|
12,376 |
|
Loss
from operations
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|
|
(11,113 |
) |
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|
(4,913 |
) |
Other
income (expense):
|
|
|
|
|
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Interest
expense
|
|
|
(87 |
) |
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|
(76 |
) |
Interest
income
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|
115 |
|
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|
139 |
|
Change
in fair value of warrants
|
|
|
(5,607 |
) |
|
|
4,432 |
|
Other
(expense) income, net
|
|
|
439 |
|
|
|
86 |
|
Net
loss
|
|
$ |
(16,253 |
) |
|
$ |
(332 |
) |
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|
|
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Basic
and diluted net loss per common share
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$ |
(0.23 |
) |
|
$ |
(0.01 |
) |
Weighted
average shares used to compute basic and diluted net loss per
share
|
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|
70,997 |
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|
50,913 |
|
The
accompanying notes are an integral part of these financial
statements.
Micromet,
Inc.
Condensed
Consolidated Statements of Cash Flows
(In
thousands)
(Unaudited)
|
|
Three
months ended March 31,
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2010
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|
2009
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|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(
16,253 |
) |
|
$ |
(332 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
517 |
|
|
|
801 |
|
Non-cash
interest on long-term debt obligations
|
|
|
103 |
|
|
|
127 |
|
Non-cash
change in fair value of common stock warrants liability
|
|
|
5,607 |
|
|
|
(4,432 |
) |
Stock-based
compensation expense
|
|
|
1,164 |
|
|
|
1,309 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(109 |
) |
|
|
(2,290 |
) |
Prepaid
expenses and other current assets
|
|
|
899 |
|
|
|
579 |
|
Accounts
payable, accrued expenses and other liabilities
|
|
|
(3,122 |
) |
|
|
1,389 |
|
Deferred
revenue
|
|
|
5,614 |
|
|
|
3,987 |
|
Net
cash (used in) provided by operating activities
|
|
|
(5,580 |
) |
|
|
1,138 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of investments
|
|
|
(45,243 |
) |
|
|
(21,248 |
) |
Proceeds
from the maturity of investments
|
|
|
2,032 |
|
|
|
— |
|
Purchases
of property and equipment
|
|
|
(496 |
) |
|
|
(109 |
) |
Net
cash used in investing activities
|
|
|
(43,707 |
) |
|
|
(21,357 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from the issuance of common stock, net
|
|
|
75,397 |
|
|
|
— |
|
Proceeds
from exercise of stock options
|
|
|
186 |
|
|
|
— |
|
Proceeds
from the exercise of warrants
|
|
|
327 |
|
|
|
— |
|
Principal
payments on capital lease obligations
|
|
|
(48 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
75,862 |
|
|
|
(36 |
) |
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(3,379 |
) |
|
|
(167 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
23,196 |
|
|
|
(20,422 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
113,435 |
|
|
|
46,168 |
|
Cash
and cash equivalents at end of period
|
|
|
136,631 |
|
|
$ |
25,746 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
104 |
|
|
|
90 |
|
Supplemental
disclosure of noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Acquisitions
of equipment purchased through capital leases
|
|
|
28 |
|
|
|
191 |
|
The
accompanying notes are an integral part of these financial
statements.
Note 1. Business
Overview
Note 2. Basis
of Presentation
The
accompanying unaudited consolidated financial statements of Micromet, Inc. have
been prepared in accordance with U.S. generally accepted accounting principles
for interim financial information. In the opinion of the Company’s management,
the consolidated financial statements reflect all adjustments necessary to
present fairly the results of operations for the three months ended
March 31, 2010 and 2009, the Company’s financial position at March 31,
2010, and the cash flows for the three months ended March 31, 2010 and
2009. These adjustments are of a normal recurring nature.
Certain
notes and other information have been condensed or omitted from the interim
consolidated financial statements presented in this Quarterly Report on Form
10-Q. Therefore, these financial statements should be read in conjunction with
the Company’s 2009 Annual Report on Form 10-K. The results of
operations for the three months ended March 31, 2010 are not necessarily
indicative of future financial results.
Unless
otherwise noted, all financial information is that of Micromet, Inc. and our
wholly owned subsidiaries: Micromet AG; Micromet Holdings, Inc.; and
Cell-Matrix, Inc. Substantially all of our operating activities are
conducted through Micromet AG, a wholly-owned subsidiary of Micromet Holdings,
Inc. and an indirect wholly-owned subsidiary of Micromet, Inc. The accompanying
condensed consolidated financial statements include the accounts of our wholly
owned subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation. Unless specifically noted otherwise, as used
throughout these notes to the condensed consolidated financial statements,
“Micromet,” “we,” “us,” and “our” refers to the business of Micromet, Inc. and
its subsidiaries as a whole.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. On an ongoing basis, we evaluate our estimates, including
those related to revenue recognition, the valuation of goodwill, intangibles and
other long-lived assets, lease exit liabilities, asset retirement obligations
and assumptions in the valuation of stock-based compensation. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. Actual results could differ
from those estimates.
The
accompanying financial statements have been prepared assuming we will continue
as a going concern. This basis of accounting contemplates the recovery of our
assets and the satisfaction of our liabilities in the normal course of business.
As of March 31, 2010, we had an accumulated deficit of $272.1 million. We expect
that operating losses and negative cash flows from operations will continue for
at least the next several years and we will need to generate additional funds to
achieve our strategic goals. If necessary, we may seek to raise substantial
funds through the sale of our common stock and common stock warrants, or through
debt financing or through establishing additional strategic collaboration
agreements. We do not know whether additional financing will be available when
needed, or whether it will be available on favorable terms, or at all. Based on
our capital resources as of the date of this report, we believe that we have
adequate resources to fund our operations into late 2012, without considering
any potential future milestone payments that we may receive under our current
collaborations or any new collaborations we may enter into in the future,
any future capital raising transactions or any draw downs from our committed
equity financing facility, or CEFF, with Kingsbridge Capital Limited (see Note
7).
Note 3. Summary
of Significant Accounting Policies
Cash
and Cash Equivalents
Cash and
cash equivalents on the balance sheets are comprised of cash at banks, money
market funds and short-term deposits with an original maturity from date of
purchase of three months or less.
Restricted
Cash
We have
issued irrevocable standby letters of credit in connection with property that we
currently sublease, as well as our current property leases in Munich, Germany
and Bethesda, Maryland. As of March 31, 2010 and December 31, 2009, we had a
total of $3.1 million and $3.2 million, respectively, in certificates of deposit
relating to these letters of credit that is classified as non-current restricted
cash on the accompanying balance sheets.
Short-Term
Investments
Short-term
investments are classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the unrealized gains and losses reported in
other comprehensive income (loss). The amortization of premiums and accretion of
discounts to maturity is included in investment income. Realized gains and
losses and declines in value judged to be other-than-temporary that are credit
related, if any, on available-for-sale securities are included in other income
or expense. In determining whether a decline in the value of an investment is
other-than-temporary, we evaluate available quantitative and qualitative
factors. These factors include, among others, general market conditions, the
duration and extent to which fair value has been less than the carrying value,
the investment issuer’s financial condition and business outlook and our
assessment as to whether it is more likely than not that we will be required to
sell a security prior to recovery of its amortized cost basis. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
investment income.
We
monitor our investment portfolio for impairment quarterly or more frequently if
circumstances warrant. In the event that the carrying value of an investment
exceeds its fair value and the decline in value is determined to be
other-than-temporary, we record an impairment charge within earnings
attributable to the estimated credit loss for debt securities. In determining
whether a decline in the value of an investment is other-than-temporary, we
evaluate available quantitative and qualitative factors. These factors include,
among others, general market conditions, the duration and extent to which fair
value has been less than the carrying value, the investment issuer’s financial
condition and business outlook and our assessment as to whether a decision to
sell has been made or whether it is more likely than not that we will be
required to sell a security prior to recovery of its carrying
value.
All of
our short-term investments have maturities less than one year. The
amortized cost, net unrealized gain or loss and estimated fair value of
short-term investments by security type were as follows at March 31, 2010 and
2009 (in thousands):
|
|
Amortized
Cost
|
|
|
Unrealized
Gain
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
Foreign
Government Bonds at March 31, 2010
|
|
$ |
42,313 |
|
|
$ |
8 |
|
|
$ |
(1 |
) |
|
$ |
42,320 |
|
U.S.
Corporate Bonds at March 31, 2010
|
|
|
3,774 |
|
|
|
— |
|
|
|
(2 |
) |
|
|
3,772 |
|
Total
|
|
$ |
46,087 |
|
|
$ |
8 |
|
|
$ |
(3 |
) |
|
$ |
46,092 |
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gain
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
Foreign
Government Bonds at December 31, 2009
|
|
$ |
4,174 |
|
|
$ |
— |
|
|
$ |
(5 |
) |
|
$ |
4,169 |
|
U.S.
Corporate Bonds at December 31, 2009
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
4,174 |
|
|
$ |
— |
|
|
$ |
(5 |
) |
|
$ |
4,169 |
|
Fair
Value Measurements
The fair
value of an asset or liability should represent the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. Such transactions to sell an asset or transfer a
liability are assumed to occur in the principal or most advantageous market for
the asset or liability. Accordingly, fair value is determined based on a
hypothetical transaction at the measurement date, considered from the
perspective of a market participant rather than from a reporting entity’s
perspective. New fair value measurements are not required if existing accounting
guidance in the Financial Accounting Standard Board (FASB) codification require
or permit fair value measurements.
Disclosure
of assets and liabilities subject to fair value disclosures are to be classified
according to a three level fair value hierarchy with respect to the inputs (or
assumptions) used in fair value measurements. Observable inputs such as
unadjusted quoted market prices for identical assets or liabilities are given
the highest priority within the hierarchy (Level 1). When observable inputs are
unavailable, the use of unobservable inputs, which are inputs that a reporting
entity believes market participants would use in pricing that are developed
based on the best information available, is permitted (Level 2). Unobservable
inputs are given the lowest priority within the hierarchy (Level 3). The level
within the hierarchy at which a fair value measurement lies is determined based
on the lowest level input that is significant to the fair value measurement in
its entirety. See Note 4 of these condensed consolidated financial statements
for additional information on fair value measurements.
Property
and Equipment
Property
and equipment are stated at cost, less accumulated depreciation and
amortization. Major replacements and improvements that extend the useful life of
assets are capitalized, while general repairs and maintenance are charged to
expense as incurred. Property and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets, ranging from
three to ten years. Leasehold improvements are amortized over the estimated
useful lives of the assets or the related lease term, whichever is
shorter.
Goodwill
We review
goodwill for impairment at least annually and more frequently if events or
changes in circumstances indicate a reduction in the fair value of the reporting
unit to which the goodwill has been assigned. A reporting unit is an operating
segment for which discrete financial information is available and segment
management regularly reviews the operating results of that component. We have
determined that we have only one reporting unit, the development of
biopharmaceutical products. Goodwill is determined to be impaired if the fair
value of the reporting unit is less than its carrying amount. We have selected
October 1 as our annual goodwill impairment testing date
Patents
Our
patent portfolio consists primarily of internally developed patents covering our
BiTE antibody platform and the composition of our BiTE antibody product
candidates and conventional antibodies. The costs of generating our internally
developed patent portfolio have been expensed as incurred.
We also
acquired patents in 2001 covering single-chain antibody technology. These
purchased patents were originally being amortized over their estimated useful
lives through 2011 using the straight-line method. These patents are utilized in
revenue-producing activities through license agreements.
Impairment
of Long-Lived and Identifiable Intangible Assets
We
evaluate the carrying value of long-lived assets and identifiable intangible
assets for potential impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.
Recoverability is determined by comparing projected undiscounted cash flows
associated with such assets to the related carrying value. An impairment loss
would be recognized when the estimated undiscounted future cash flow is less
than the carrying amount of the asset. An impairment loss would be measured as
the amount by which the carrying value of the asset exceeds the fair value of
the asset.
Common
Stock Warrants Liability
In June
2007, we completed a private placement of 9,216,709 shares of common stock and
issued warrants to purchase an additional 4,608,356 shares of common
stock. As of March 31, 2010, 263,397 warrants have been
exercised and 4,344,959 remain outstanding. Due to certain provisions
in the common stock warrant agreement, these warrants are required to be
classified as a liability. Management believes that the circumstances requiring
cash settlement of the award are remote. The common stock warrants liability is
recorded at fair value, which is adjusted at the end of each reporting period
using the Black-Scholes option-pricing model, with changes in value included in
the consolidated statements of operations.
Other
Income
Other
income consists primarily of realized foreign currency gains and
losses. Transactions in foreign currencies are initially recorded at
the functional currency rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are re-measured into
the functional currency at the exchange rate in effect at the balance sheet
date. Transaction gains (losses) amounted to $454,000 and $(69,000) for the
three months ended March 31, 2010 and 2009, respectively.
The
accompanying consolidated financial statements are presented in U.S. dollars.
The translation of assets and liabilities to U.S. dollars is made at the
exchange rate in effect at the balance sheet date, while equity accounts are
translated at historical rates. The translation of statement of operations data
is made at the average exchange rate in effect for the period. The translation
of operating cash flow data is made at the average exchange rate in effect for
the period, and investing and financing cash flow data is translated at the
exchange rate in effect at the date of the underlying transaction. Translation
gains and losses are recognized as a component of accumulated other
comprehensive income in the accompanying consolidated balance
sheets.
Revenue
Recognition
Our
revenues consist of licensing fees, milestone payments, and fees for research
services earned from license agreements or from research and development
collaboration agreements. We recognize revenue in accordance with the Securities
and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104,
Revenue Recognition,
upon the satisfaction of the following four criteria: persuasive evidence of an
arrangement exists, delivery has occurred, the price is fixed or determinable,
and collectibility is reasonably assured.
Revenues
under collaborative research agreements are recognized as the services specified
in the related agreement are performed, or as expenses that are passed through
to the collaborator are incurred. Milestone payments are derived from the
achievement of predetermined goals under the collaboration agreements. For
milestones that are deemed substantive, the related contingent revenue is not
recognized until the milestone has been reached and customer acceptance has been
obtained, as necessary. Milestones are considered substantive if all the
following criteria are met: 1) milestone payment is non-refundable and relates
solely to past performance; 2) achievement of the milestone was not reasonably
assured at the inception of the arrangements; 3) substantive effort is involved
to achieve the milestone; and 4) the amount of the milestone payment appears
reasonable in relation to the effort expended, other milestones in the
arrangement and the related risk of achieving the milestone. Fees for research
and development services performed under the agreements are generally stated at
a yearly fixed fee per research scientist. We recognize revenue as the research
and development services are performed. Amounts received in advance of services
performed are recorded as deferred revenue and recognized when earned. We have
received upfront initial license fees and annual renewal fees under certain
license agreements. Revenue is recognized when the above noted criteria are
satisfied, unless we have further obligations associated with the license
granted. We recognize revenue from up front payments on a straight-line basis
over the term of our obligations as specified in the respective
agreement.
We are
entitled to receive royalty payments on the sale of products under license and
collaboration agreements. Royalties are based upon the volume of products sold
and are recognized as revenue upon notification of sales from the collaborator
or licensee that is commercializing the product. Through March 31, 2010, we have
not received or recognized any royalty payments.
For
arrangements that include multiple deliverables, we identify separate units of
accounting based on the consensus reached on ASC Topic 605, Revenue Arrangements with Multiple
Deliverables. ASC Topic 605 provides that revenue arrangements with
multiple deliverables should be divided into separate units of accounting if
certain criteria are met. The consideration for the arrangement is allocated to
the separated units of accounting based on their relative fair values.
Applicable revenue recognition criteria are considered separately for each unit
of accounting. We recognize revenue on development and collaboration agreements,
including upfront payments, where they are considered combined units of
accounting, over the period specified in the related agreement or as the
services are performed.
Research
and Development
Except
for payments made in advance of services rendered, research and development
expenditures, including direct and allocated expenses, are charged to operations
as incurred.
Comprehensive
Income (Loss)
Comprehensive
income (loss) is comprised of net income (loss) and other comprehensive income
(loss). Other comprehensive income (loss) is primarily the result of foreign
currency exchange translation adjustments. The following table sets forth the
components of comprehensive income (loss) (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Net
loss
|
|
$ |
(16,253 |
) |
|
$ |
(332 |
) |
Foreign
currency translation adjustments
|
|
|
(2,383
|
) |
|
|
534 |
|
Unrealized
gain on investments available for sale
|
|
|
10 |
|
|
|
(1
|
) |
Comprehensive
loss
|
|
$ |
(18,626 |
) |
|
$ |
201 |
|
Stock-Based
Compensation
We
account for the expense related to stock option grants to employees by
estimating the fair value of the grant and recognizing the resulting value
ratably over the requisite service period. The estimated fair value is
determined by utilizing the Black-Scholes option pricing model. The
determination of the estimated fair value of our stock-based payment awards on
the date of grant using an option-pricing model is affected by our stock price
as well as assumptions regarding expected volatility, risk-free interest rate,
and expected term.
We
recognize stock-based compensation expense for options granted with graded
vesting over the requisite service period of the individual stock option grants,
which typically equals the vesting period, using the straight-line attribution
method. For stock-based awards that contain a performance condition, expense is
recognized using the accelerated attribution method. Compensation expense
related to stock-based compensation is allocated to research and development or
general and administrative based upon the department to which the associated
employee reports.
Options
or stock awards issued to non-employees are measured at their estimated fair
value. Expense is recognized when service is rendered; however, the expense may
fluctuate with changes in the fair value of the underlying common stock, until
the award is vested.
Income
Taxes
We
account for income taxes using the liability method. Deferred income taxes are
recognized at the enacted tax rates for temporary differences between the
financial statement and income tax bases of assets and liabilities. Deferred tax
assets are reduced by a valuation allowance if, based upon the weight of
available evidence, it is more likely than not that some portion or all of the
related tax asset will not be recovered.
We
account for uncertain tax positions pursuant to ASC Topic 740 (formerly FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109). ASC Topic 740 was
adopted on January 1, 2007 with no material impact on our consolidated financial
statements. Financial statement recognition of a tax position taken or expected
to be taken in a tax return is determined based on a more-likely-than-not
threshold of that position being sustained. If the tax position meets this
threshold, the benefit to be recognized is measured at the largest amount that
is more than 50 percent likely to be realized upon ultimate settlement. In
making such determination, we consider all available positive and negative
evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax planning strategies and recent financial
operations. It is our policy to record interest and penalties related to
uncertain tax positions as a component of income tax expense.
Net
Loss Per Share
Basic net
loss per share is calculated by dividing the net loss by the weighted average
number of common shares outstanding for the period, without consideration for
common stock equivalents. Diluted net loss per share is computed by dividing the
net loss by the weighted average number of common stock equivalents outstanding
for the period determined using the treasury-stock method. For purposes of this
calculation, convertible preferred stock, stock options, and warrants are
considered to be common stock equivalents and are only included in the
calculation of diluted net loss per share when their effect is dilutive. The
following options and warrants to purchase additional shares were excluded from
the net loss calculation as their effect would be anti-dilutive:
|
|
Three months ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Options
outstanding
|
|
|
9,412,000 |
|
|
|
7,495,000 |
|
Warrants
outstanding
|
|
|
8,070,000 |
|
|
|
8,222,000 |
|
Total
shares excluded from calculation
|
|
|
17,482,000 |
|
|
|
15,717,000 |
|
Recent
Accounting Standards and Pronouncements
In
February 2010, the Financial Accounting Standards Board (FASB) issued
accounting standards update (ASU) No. 2010-09, Subsequent Events (Topic
855)—Amendments to Certain Recognition and Disclosure Requirements (ASU
No. 2010-09). Among other amendments to Topic 855, ASU No. 2010-09
reiterates that SEC filers are required to evaluate subsequent events through
the date the financial statements have been issued and eliminates the
requirement that SEC filers disclose the date through which subsequent events
have been evaluated. ASU No. 2010-09 became effective upon issuance.
Adoption of ASU No. 2010-09 had no impact on our consolidated financial
statements.
In
January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820)—Improving Disclosures about Fair Value
Measurements (ASU No. 2010-06). ASU No. 2010-06 requires:
(1) fair value disclosures of assets and liabilities by class;
(2) disclosures about significant transfers in and out of Levels 1 and
2 on the fair value hierarchy, in addition to Level 3; (3) purchases,
sales, issuances and settlements be disclosed on gross basis on the
reconciliation of beginning and ending balances of Level 3 assets and
liabilities; and (4) disclosures about valuation methods and inputs used to
measure the fair value of Level 2 assets and liabilities. ASU
No. 2010-06 becomes effective for the first financial reporting period
beginning after December 15, 2009, except for disclosures about purchases,
sales, issuances and settlements of Level 3 assets and liabilities, which
will be effective for fiscal years beginning after December 15, 2010.
Adoption of the ASU No. 2010-06 had no impact on our consolidated financial
statements.
In
October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition
(Topic 605)—Multiple-Deliverable Revenue Arrangements: a consensus of the
FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13
establishes a selling-price hierarchy for determining the selling price of each
element within a multiple-deliverable arrangement. Specifically, the selling
price assigned to each deliverable is to be based on vendor-specific objective
evidence (VSOE), if available, third-party evidence, if VSOE is unavailable, and
estimated selling prices if neither VSOE or third-party evidence is available.
In addition, ASU 2009-13 eliminates the residual method of allocating
arrangement consideration and instead requires allocation using the relative
selling price method. ASU 2009-13 will be effective prospectively for
multiple-deliverable revenue arrangements entered into, or materially modified,
in fiscal years beginning on or after June 15, 2010. Presently, we are
assessing what impact, if any, the adoption of ASU 2009-13 may have on our
consolidated financial statements.
In April
2010, the FASB issued ASU No. 2010-17 Milestone Method of Revenue
Recognition, (ASU No. 2010-17), to (1) limit the scope of this ASU to
research or development arrangements and (2) require that guidance in this ASU
be met for an entity to apply the milestone method (record the milestone payment
in its entirety in the period received). However, the FASB clarified that, even
if the requirements in this ASU are met, entities would not be precluded from
making an accounting policy election to apply another appropriate accounting
policy that results in the deferral of some portion of the arrangement
consideration. The ASU will be effective for periods beginning on or after June
15, 2010. Early application is permitted. Entities can apply this guidance
prospectively to milestones achieved after adoption. However, retrospective
application to all prior periods is also permitted. The Company is still
assessing the potential impact of adoption, if any.
Note 4. Fair
Value Measurements
We
include disclosures about fair value measurements pursuant to ASC Topic 820. ASC
Topic 820 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants. Such transactions to sell an asset or transfer a liability are
assumed to occur in the principal or most advantageous market for the asset or
liability. Accordingly, fair value as described by ASC Topic 820 is determined
based on a hypothetical transaction at the measurement date, considered from the
perspective of a market participant.
ASC Topic
820 establishes a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined as
inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to develop its
own assumptions. The following table presents information about our assets and
liabilities that are measured at fair value on a recurring basis as of March 31,
2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Quoted
Prices in
|
|
|
Significant
Other
|
|
|
Unobservable
|
|
|
|
March
31,
|
|
|
Active
Markets
|
|
|
Observable
Inputs
|
|
|
Inputs
|
|
Description
|
|
2010
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
136,631 |
|
|
$ |
136,631 |
|
|
$ |
— |
|
|
$ |
— |
|
Restricted
cash
|
|
|
3,106 |
|
|
|
3,106 |
|
|
|
— |
|
|
|
— |
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
government bonds
|
|
|
42,320 |
|
|
|
— |
|
|
|
42,320 |
|
|
|
— |
|
U.S.
Corporate Bonds
|
|
|
3,772 |
|
|
|
— |
|
|
|
3,772 |
|
|
|
— |
|
Total
assets
|
|
$ |
185,829 |
|
|
$ |
139,737 |
|
|
$ |
46,092 |
|
|
$ |
— |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock warrant liability
|
|
$ |
(25,851 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(25,851 |
) |
The
following table presents information about our common stock warrant liability,
which was our only financial asset or liability measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) as defined in
ASC 820 at March 31:
|
|
2010
|
|
|
2009
|
|
Balance
beginning of year
|
|
$ |
(20,244 |
) |
|
$ |
(12,294 |
) |
Transfers
to (from) Level 3
|
|
|
— |
|
|
|
— |
|
Total
gains/(losses) realized/ unrealized included in
earnings
|
|
|
(5,607
|
) |
|
|
4,432 |
|
Purchases/
issuances/ settlements, net
|
|
|
— |
|
|
|
— |
|
Balance
March 31,
|
|
$ |
(25,851 |
) |
|
$ |
(7,862 |
) |
The
carrying value of the common stock warrant liability is calculated using the
Black-Scholes option pricing model, which requires the input of highly
subjective assumptions. These assumptions include the risk-free rate
of interest, expected dividend yield, expected volatility, and the remaining
contractual term of the award. The risk-free rate of interest is
based on the U.S. Treasury rates appropriate for the expected term of the
award. Expected dividend yield is projected at 0%, as we have not
paid any dividends on our common stock since our inception and we do not
anticipate paying dividends on our common stock in the foreseeable
future. Expected volatility is based on our historical volatility and
the historical volatilities of the common stock of comparable publicly traded
companies.
We also
adopted ASC 820 for non-financial assets and liabilities in the first quarter of
2009. We had no required fair value measurements for non-financial assets and
liabilities during the three months ended March 31, 2010 and no required
additional disclosures upon adoption.
Note 5. Deferred
Revenue
Deferred
revenues were derived from research and development agreements with Nycomed,
Bayer Schering, sanofi-aventis, TRACON Pharmaceuticals, Inc. and Merck Serono as
follows (in thousands):
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
Nycomed
|
|
$
|
6,386
|
|
$
|
6,493
|
|
Sanofi-aventis
|
|
|
9,184
|
|
|
11,042
|
|
Bayer
Schering Pharma
|
|
|
7,647
|
|
|
608
|
|
TRACON
|
|
|
1,196
|
|
|
1,221
|
|
Merck
Serono
|
|
|
2,437
|
|
|
3,331
|
|
Other
|
|
|
387
|
|
|
424
|
|
Subtotal
|
|
|
27,237
|
|
|
23,119
|
|
Current
portion
|
|
|
(10,238
|
) |
|
(9,838
|
)
|
Long-term
portion
|
|
$
|
16,999
|
|
$
|
13,281
|
|
The
deferred revenue for Nycomed, sanofi-aventis, Bayer Schering and TRACON consists
mainly of the upfront license fees that are being recognized over the period
that we are required to participate on joint steering committees of 20 years, 6
years, 4.5 years and 15 years, respectively.
The
upfront license fees and research and development service reimbursements in the
collaboration agreement with Merck Serono are considered to be a combined unit
of accounting and, accordingly, the related amounts are recognized ratably over
the expected period of the research and development program, which continues
through 2011.
Note 6. Other
Liabilities
Other
liabilities consist of the following (in thousands):
|
|
March
31,
|
|
December
31,
|
|
|
|
2010
|
|
2009
|
|
Facility
lease exit liability
|
|
$ |
1,228 |
|
$ |
1,276 |
|
GEK
subsidy
|
|
|
117 |
|
|
137 |
|
Asset
retirement obligation
|
|
|
555 |
|
|
567 |
|
Capital
lease obligations
|
|
|
691 |
|
|
757 |
|
Other
|
|
|
17 |
|
|
18 |
|
Subtotal
|
|
|
2,608 |
|
|
2,755 |
|
Less
current portion included in accrued expenses
|
|
|
(585 |
) |
|
(559 |
) |
Other
non-current liabilities
|
|
$ |
2,023 |
|
$ |
2,196 |
|
Facility
Lease Exit Liability and Restructuring Provision
We
acquired a facility lease exit liability as of May 2006, the date of our merger
with CancerVax Corporation. As of April 2007, we fully subleased our
former corporate headquarters in Carlsbad, California. We review the
adequacy of our estimated exit accruals on an ongoing basis.
The
following table summarizes the facility lease activity for these obligations for
the three months ended March 31, 2010 and 2009 (in thousands):
|
|
2010
|
|
|
2009
|
|
Balance
January 1,
|
|
$ |
1,276 |
|
|
$ |
1,432 |
|
Amounts
paid in period
|
|
|
(104
|
) |
|
|
(97
|
) |
Accretion
expense
|
|
|
56 |
|
|
|
64 |
|
Balance
March 31,
|
|
$ |
1,228 |
|
|
$ |
1,399 |
|
Of the
$1,228,000 lease exit liability as of March 31, 2010, $313,000 is current and
$915,000 is non-current.
Note 7. Committed
Equity Financing Facility
In
December 2008, we entered into a Committed Equity Financing Facility (“CEFF”)
with Kingsbridge Capital Limited (“Kingsbridge”) which entitles us to sell and
obligates Kingsbridge to purchase, from time to time through December 2011, up
to 10,104,919 shares of our common stock for cash consideration of up to $75.0
million, subject to certain conditions and restrictions. The
remaining commitment of Kingsbridge under the CEFF for the potential purchase of
our common stock is equal to the lesser of $69.7 million in cash
consideration or 8,684,351 shares (which shares would be priced at a discount
ranging from 6% to 14% of the average market price during any future draw down),
subject to certain conditions and restrictions. In conjunction with
the underwriting agreement with Goldman Sachs & Co., as representative of
the several underwriters named therein, we are prohibited from accessing the
CEFF for a period of up to 108 days after the pricing of the March 11, 2010
public offering.
Note 8. Stockholders’
Equity
On March
11, 2010, we entered into an underwriting agreement with Goldman, Sachs &
Co., as representative of the several underwriters named therein, pursuant to
which we issued an aggregate of 11,500,000 shares of common stock, including the
exercise of an over-allotment option for 1,500,000 shares, for gross proceeds of
$80.5 million. After underwriting discount and estimated
expenses payable by us of approximately $0.3 million, net proceeds from the
public offering were approximately $75.4 million.
The
offering was made pursuant to a registration statement on Form S-3 (File No.
333-162541) filed with the Securities and Exchange Commission on October 16,
2009, in the form in which it became effective on November 2, 2009, the
prospectus included in such registration statement and a final prospectus
supplement relating to the shares filed pursuant to Rule 424(b)(5) of the
Securities Act on March 12, 2010.
Note 9. Subsequent
Event
In May,
we entered into a global collaboration and license agreement with Boehringer
Ingelheim for the research, development and commercialization of a new BiTE
antibody for the treatment of multiple myeloma. Under the terms of
the agreement, we will receive an upfront cash payment of €5 million and we are
eligible to receive development and regulatory milestone payments totaling €50
million. The agreement provides us with royalties on U.S. product sales
approximately equivalent to a profit split and escalating low double-digit
royalties on product sales outside the U.S.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion contains forward-looking statements, which involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth in Part II — Item 1A below under
the caption “Risk Factors.”
The
interim financial statements and this Management’s Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the financial statements and notes thereto for the year ended December 31, 2009,
and the related Management’s Discussion and Analysis of Financial Condition and
Results of Operations, both of which are contained in our Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 5,
2010.
Ongoing
Business Activities
We are a
biopharmaceutical company focused on the discovery, development and
commercialization of innovative antibody-based therapies for the treatment of
cancer. Our product development pipeline includes novel antibodies generated
with our proprietary BiTE® antibody platform, as well as conventional monoclonal
antibodies. BiTE antibodies represent a new class of antibodies that
activate the T cells of a patient’s immune system to eliminate cancer
cells. T cells are considered the most powerful “killer cells” of the
human immune system. Five of our antibodies are currently in clinical
trials, while the remainder of our product pipeline is in preclinical
development.
Our lead
product candidate is the BiTE antibody blinatumomab, also known as
MT103. Blinatumomab targets the human protein molecule CD19, which is
expressed on the surface of tumor cells of certain
cancers. Blinatumomab has achieved the primary endpoint in a phase 2
clinical trial in patients with acute lymphoblastic leukemia, or
ALL. Based on the results of this trial, we intend to initiate a
European pivotal clinical trial of blinatumomab in ALL patients in
mid-2010. We are also evaluating blinatumomab in an ongoing phase 1
clinical trial for the treatment of patients with non-Hodgkin’s lymphoma, or
NHL. Blinatumomab was developed under a collaboration and license
agreement with MedImmune, LLC entered into in 2003, which we refer to in this
report as the 2003 Agreement. In November, 2009, we entered into a
termination and license agreement with MedImmune, LLC, which we refer to as the
2009 Agreement and which terminated the 2003 Agreement in its entirety, under
which we acquired MedImmune’s remaining rights to commercialize blinatumomab in
North America. As a result of the 2009 Agreement, we now fully own
the rights to develop and commercialize blinatumomab in all
territories. Under the terms of the 2009 Agreement, MedImmune has
sold to us the remaining stock of blinatumomab clinical trial material and is in
the process of transferring the manufacturing process for this
product candidate to us and our contract manufacturer.
A second
BiTE antibody, MT110, is being tested in a phase 1 clinical trial for the
treatment of patients with solid tumors. MT110 binds to the
epithelial cell adhesion molecule, or EpCAM, which is overexpressed in many
solid tumors. Several additional BiTE antibodies are at different
stages of lead candidate selection and preclinical development. For
three of these BiTE antibodies, we have entered into strategic collaborations
with pharmaceutical companies. We are developing a BiTE antibody,
MT111, targeting carcinoembryonic antigen, or CEA, for the treatment of solid
tumors in collaboration with MedImmune. We have also entered into collaboration
and license agreements with Bayer Schering Pharma and sanofi-aventis for the
development of BiTE antibodies that we refer to in this report as MTR112 and
MTR118, respectively, targeting other solid tumor targets.
Our most
advanced conventional monoclonal antibody is adecatumumab, also known as MT201,
which binds to EpCAM and is being developed under a collaboration with Merck
Serono. We are currently evaluating this antibody in a randomized phase 2
clinical trial in colorectal carcinoma patients after complete resection of
liver metastases. MT203, a human antibody neutralizing the activity
of granulocyte/macrophage colony stimulating factor, or GM-CSF, which has
potential applications in the treatment of various inflammatory and autoimmune
diseases, such as rheumatoid arthritis, psoriasis, or multiple sclerosis, is
under development in a phase 1 clinical trial being conducted by our
collaboration partner Nycomed. Our monoclonal antibody MT293, also known as
TRC093, is licensed to TRACON Pharmaceuticals, Inc. and is being developed in a
phase 1 clinical trial for the treatment of patients with cancer.
To date,
we have incurred significant research and development expenses and have not
achieved any revenues from sales of our product candidates. Each of our programs
will require a number of years and significant costs to advance through
development. Typically, it takes many years from the initial identification of a
lead compound to the completion of preclinical and clinical trials, before
applying for marketing approval from the U.S. Food and Drug Administration, or
FDA, or the European Medicines Agency, or EMA, or equivalent regulatory agencies
in other countries and regions. The risk that a program has to be terminated, in
part or in full, for safety reasons or lack of adequate efficacy is very high.
In particular, we cannot predict which, if any, product candidates can be
successfully developed and for which marketing approval may be obtained, or the
time and cost to complete development and receive marketing
approvals.
As we
obtain results from preclinical studies or clinical trials, we may elect to
discontinue the development of one or more product candidates for safety,
efficacy or commercial reasons. We may also elect to discontinue or delay
development of one or more product candidates in order to focus our resources on
more promising product candidates. Our business strategy includes entering into
collaborative agreements with third parties for the development and
commercialization of certain of our product candidates. Depending on the
structure of such collaborative agreements, a third party may be granted control
over the clinical trial process, manufacturing process or other key development
process for one of our product candidates. In such a situation, the third party,
rather than us, may in fact control development and commercialization decisions
for the respective product candidate. Consistent with our business model, we may
enter into additional collaboration agreements in the future. We cannot predict
the terms of such agreements or their potential impact on our capital
requirements. Our inability to complete our research and development projects in
a timely manner, or our failure to enter into new collaborative agreements, when
appropriate, could significantly increase our capital requirements and affect
our liquidity
Since our
inception, we have financed our operations through private placements of
preferred stock, common stock and associated warrants, government grants for
research, research-contribution revenues from our collaborations with
pharmaceutical companies, debt financing, licensing revenues and milestone
achievements and, more recently, a committed equity financing facility. In addition,
as described in this report, in March 2010 we issued shares of common stock in a
public offering for net proceeds of approximately $75.4 million. We
may seek funding through public or private financings in the future. If we raise
additional funds through the issuance of equity securities, stockholders may
experience substantial dilution, or the equity securities may have rights,
preferences or privileges senior to existing stockholders. If we raise
additional funds through debt financings, these financings may involve
significant cash payment obligations and covenants that restrict our ability to
operate our business. There can be no assurance that we can raise additional
capital on acceptable terms, or at all.
Research
and Development
Through
March 31, 2010, our research and development expenses consisted of costs
associated with the clinical development of adecatumumab, blinatumomab and
MT110, as well as development costs incurred for MT111 (also known as MEDI-565)
and MT203, and research conducted with respect to our preclinical BiTE
antibodies and the BiTE antibody platform. The costs incurred include costs
associated with clinical trials and manufacturing processes, quality systems and
analytical development, including compensation and other personnel expenses,
supplies and materials, costs for consultants and related contract research,
facility costs, license fees and depreciation. We charge all research and
development expenses to operations as incurred.
We expect
to incur substantial additional research and development expenses that may
increase from historical levels as we further develop our product candidates
into more advanced stages of clinical development and increase our preclinical
development for certain of our human antibodies and BiTE antibodies in cancer,
anti-inflammatory and autoimmune diseases.
Our
strategic collaborations and license agreements generally provide for our
research, development and commercialization programs to be partly or wholly
funded by our collaborators and provide us with the opportunity to receive
additional payments if specified development or commercialization milestones are
achieved, as well as royalty payments upon the successful commercialization of
any products based upon our collaborations. We also may retain
co-promotion rights in certain of our agreements.
We intend
to pursue additional collaborations to provide resources for further development
of our product candidates and may grant technology access licenses. However, we
cannot forecast with any degree of certainty whether we will be able to enter
into collaborative agreements, and if we do, on what terms we might do
so.
We are
unable to estimate with any certainty the costs we will incur in the continued
development of our product candidates. However, we expect our research and
development costs associated with these product candidates to increase as we
continue to develop new indications and advance these product candidates through
preclinical and clinical trials.
Clinical
development timelines, the likelihood of success and total costs vary widely. We
anticipate that we will make determinations as to which research and development
projects to pursue and how much funding to direct to each project on an ongoing
basis in response to the scientific and clinical success of each product
candidate as well as relevant commercial factors.
The costs
and timing for developing and obtaining regulatory approvals of our product
candidates vary significantly for each product candidate and are difficult to
estimate. The expenditure of substantial resources will be required for the
lengthy process of clinical development and obtaining regulatory approvals as
well as to comply with applicable regulations. Any failure by us to obtain, or
any delay in obtaining, regulatory approvals could cause our research and
development expenditures to increase and, in turn, could have a material adverse
effect on our results of operations.
Results
of Operations
Comparison
of Three Months Ended March 31, 2010 and 2009
Revenues. The
following table summarizes our primary sources of revenue for the periods
presented (in millions):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Research
and development revenue by collaborator:
|
|
|
|
|
|
|
Bayer
Schering
|
|
$ |
2.1 |
|
|
$ |
1.5 |
|
Nycomed
|
|
|
1.8 |
|
|
|
4.2 |
|
Sanofi-aventis
|
|
|
1.2 |
|
|
|
— |
|
Merck
Serono
|
|
|
0.7 |
|
|
|
0.7 |
|
MedImmune
|
|
|
0.2 |
|
|
|
0.9 |
|
Total
collaborative R&D revenue
|
|
|
6.0 |
|
|
|
7.3 |
|
License
and other revenue
|
|
|
0.3 |
|
|
|
0.2 |
|
Total
revenues
|
|
$ |
6.3 |
|
|
$ |
7.5 |
|
Collaborative R&D
Revenue. Collaborative R&D revenue consists of
reimbursements for full-time equivalents and pass-through expenses we incur
under each collaborative agreement.
Bayer
Schering. Revenues from Bayer Schering represent Bayer
Schering’s full cost responsibility for the MTR112 product development program.
The Bayer Schering revenue represents the reimbursement of our preclinical
development activities, including reimbursement for full-time equivalents as
well as the portion of the up-front payment of approximately $7.0 million from
Bayer Schering that is being recognized over a 54-month period ending in
2014. Revenue under this agreement in 2009 represents a portion of
the upfront option fee of approximately $6.0 million received in January 2009
under an option, collaboration and license agreement. The option fee
was recognized over the option period of one year. We expect
2010 revenues to be higher than those reported in 2009 under this
agreement.
Nycomed. Collaborative
research and development revenues from Nycomed reflect Nycomed’s full cost
responsibility for the MT203 product development program. The Nycomed revenue
represents the reimbursement of our preclinical development activities,
including reimbursement for full-time equivalents as well as the portion of the
up-front payment from Nycomed that is being recognized over a 20-year period
ending in 2027. The decrease in revenue of $2.4 million for the three
months ended March 31, 2010 compared to the same period in 2009 was due
primarily to lower levels of activity performed by us as Nycomed assumed primary
responsibility for the development of MT203. We expect 2010
revenues under this agreement to be lower than those of 2009 due to the shift to
Nycomed of the later-stage development work.
Sanofi-aventis. Revenues
from sanofi-aventis represent their responsibility for the full cost of the
MTR118 product development program. The sanofi-aventis revenue represents the
reimbursement of our preclinical development activities, including reimbursement
for full-time equivalents as well as the portion of the up-front payment of
approximately $7.3 million from sanofi-aventis that is being recognized over a
74-month period ending in 2015.
Merck
Serono. Collaborative research and development revenues from
Merck Serono reflect Merck Serono’s full responsibility for the costs for the
development of the adecatumumab program up to a predetermined cap as defined in
the 2007 amended agreement. We expect 2010 revenues to be lower than
those of 2009.
MedImmune. Collaborative
research and development revenues from MedImmune represent reimbursements
received from MedImmune for the costs incurred by us in the development of MT111
(MEDI-565). The decrease in MedImmune revenue for the three months ended March
31, 2010 as compared to the same period of the prior year was due to lower
activity under this MT111 agreement of $0.4 million, in addition to the
termination of MedImmune’s participation in the costs of the development of
blinatumomab during the first quarter of 2009. We recognized $0.3
million in blinatumomab revenue under this terminated collaboration during the
first quarter of 2009.
License and Other
Revenue. License and other revenue consists primarily of
revenues from licenses of patents relating to single-chain antibody technology,
for which we serve as the exclusive marketing partner under a marketing
agreement with Enzon Pharmaceuticals, Inc.
Research and Development
Expenses. Research and development expense consists of costs
incurred to discover and develop product candidates. These expenses consist
primarily of salaries and related expenses for personnel, outside service costs
including production of clinical material, fees for services in the context of
clinical trials, medicinal chemistry, consulting and sponsored research
collaborations, and occupancy and depreciation charges. Process development
expenses were mainly incurred for production of GMP-grade clinical trial
material, as well as fermentation, purification and formulation development.
Preclinical development expenses cover pharmacological in vitro and in vivo experiments as well
as development of analytical testing procedures. Except for payments made in
advance of services rendered, we expense research and development costs as
incurred. Payments made in advance of services are recognized as research and
development expense as the related services are incurred.
Research
and development expenses were $12.2 million and $8.5 million for the three
months ended March 31, 2010 and 2009, respectively. There were
increases in the blinatumomab program for manufacturing of $0.7 million and
clinical related expenses of $0.6 million which reflect the continued
progression of this program. There were also increases in
manufacturing activities in the MT110 program of $0.9 million and in the MT203
program of $0.9 million. Personnel related expenses increased by $0.9
million due to new hires and annual salary increases. Partially
offsetting these were decreases in MT203 clinical related expenses of
$0.2 million as a result of Nycomed assuming primary responsibility for the
development of MT203.
Since
2007, we have tracked our external research and development expenses by major
project candidate development program, such as for blinatumomab, MT203,
adecatumumab and MT110, or we allocate the expenses to our BiTE antibody
platform generally. We do not allocate salary and overhead costs or
stock-based compensation expense to specific research and development projects
or product candidates. Our research and development expenses for the
three months ended March 31, 2010 and 2009 and cumulatively since 2007 are
summarized in the table below (in thousands):
|
|
Three months ending March 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cumulative
|
|
Blinatumomab
|
|
$ |
2,701 |
|
|
$ |
1,006 |
|
|
$ |
21,870 |
|
MT203
|
|
|
1,307 |
|
|
|
589 |
|
|
|
14,469 |
|
Adecatumumab
|
|
|
285 |
|
|
|
373 |
|
|
|
6,009 |
|
MT110
|
|
|
1,342 |
|
|
|
339 |
|
|
|
6,098 |
|
BiTE
antibody platform and other
|
|
|
828 |
|
|
|
474 |
|
|
|
7,883 |
|
Unallocated
salary and overhead
|
|
|
5,227 |
|
|
|
5,184 |
|
|
|
69,099 |
|
Share-based
compensation
|
|
|
513 |
|
|
|
512 |
|
|
|
6,451 |
|
Total
|
|
$ |
12,203 |
|
|
$ |
8,477 |
|
|
$ |
131,879 |
|
We expect
significant increases in research and development expenses going forward as we
initiate later-stage trials of blinatumomab.
General and Administrative
Expenses. General and administrative expense consists
primarily of salaries and related costs for personnel in executive, finance,
accounting, legal, information technology, corporate communications and human
resource functions. Other costs include facility costs not otherwise included in
research and development expense, insurance, and professional fees for legal and
audit services. General and administrative expenses were $5.2 million and $3.9
million for the three months ended March 31, 2010 and 2009,
respectively. The increase is primarily related to an increase in
legal fees of $0.7 million, market research expenses of $0.2 million, recruiting
expenses of $0.1 million and higher director retainer and meeting fees of $0.2
million.
Interest Expense.
Interest expense for the three months ended March 31, 2010 and 2009
was $87,000 and $76,000, respectively. The increase was due to the amortization
of premiums on our investments, although this increase was partially offset by
less interest expense on outstanding indebtedness. We had long-term
debt of $2.0 million outstanding during the first quarter of 2009 that was
repaid in full later in 2009.
Interest Income.
Interest income for the three months ended March 31, 2010 and 2009
was $115,000 and $139,000, respectively. The decrease is due to lower interest
rates during 2010 as compared to 2009.
Change in Fair Value of Common Stock
Warrants Liability. On June 22, 2007, we issued warrants to
purchase our common stock that provide that if we are merged or
consolidated with or into another company, we sell all or substantially all of
our assets in one or a series of related transactions, any tender offer or
exchange offer is completed pursuant to which holders of our common stock are
permitted to tender or exchange their shares for other securities, cash or
property, or we effect any reclassification of our common stock or any
compulsory share exchange pursuant to which the common stock is effectively
converted into or exchanged for other securities, cash or property, then we or
any successor entity are obligated to purchase each unexercised warrant for a
cash amount equal to its fair value computed using the Black-Scholes
option-pricing model with prescribed guidelines. As a consequence of these
provisions, the warrants are classified as a liability on our balance sheet, and
changes in our stock price cause the fair value of the warrants to change each
reporting period, with these changes being reflected in the statement of
operations. Our stock price is one of the key inputs to our fair value
model. Increases in our stock price cause the warrant liability to
increase, and this increase is charged to expense, while decreases in our stock
price cause the liability to decrease, which is recorded as a reduction to other
income.
Our
stock price increased from $6.66 per share on December 31, 2009 to $8.08 per
share on March 31, 2010, resulting in other expense of $5.6 million for the
quarter ended March 31, 2010. Our stock price decreased from $4.36
per share on December 31, 2008 to $3.16 per share on March 31, 2009, resulting
in other income of $4.4 million for the quarter ended March 31,
2009.
Liquidity
and Capital Resources
We had
unrestricted cash and cash equivalents and available for sale investments of
$182.7 million and $117.6 million as of March 31, 2010 and December 31, 2009,
respectively. We are also parties to irrevocable standby letters of
credit in connection with prior building leases for properties that are
currently subleased, as well as our current building leases in Munich, Germany
and Bethesda, Maryland. As of March 31, 2010, we had $3.1 million of cash and
certificates of deposit relating to these letters of credit that are considered
restricted cash, all of which is recorded as a non-current asset.
Summary of Cash
Flows. Net cash used in operating activities was $5.6 million
for the three months ended March 31, 2010, compared to $1.1 million provided by
operating activities for the three months ended March 31, 2009. The majority of
our cash is used to fund our ongoing research and development efforts, which
resulted in a net loss from operations of $11.1 million for the three months
ended March 31, 2010. Operating loss was adjusted by $7.4 million for non-cash
expenses, including $1.1 million for stock-based compensation, $5.6 million for
the change in the common stock warrant liability and $0.5 million for
depreciation and amortization. Changes in working capital during the
three months ended March 31, 2010 included lower cash balances of $3.1 million
from net decreases in accounts payable and higher cash balances of $5.6 million
due to increases in deferred revenue, which includes the $6.7 million option
exercise fee received from Bayer Schering in January 2010.
Net cash
used in investing activities was $43.7 million for the three months ended March
31, 2010, compared to $21.4 used in investing activities for the three months
ended March 31, 2009. In both periods we purchased short-term
investments denominated in Euros to maintain liquid assets in the currency in
which the majority of our expenses are denominated. Some of these investments
matured and were reinvested.
Net cash
provided by financing activities was $75.9 million for the three months ended
March 31, 2010, compared to $36,000 used in financing activities for the three
months ended March 31, 2009. Proceeds of $75.4 million, net of financing costs,
were received from the sale of common stock in a public offering in March
2010. We also received $0.2 million from the exercise of stock
options and $0.3 million from the exercise of warrants during the three months
ended March 31, 2010. During the same period in 2009 we paid $36,000
on debt obligations.
Sources and Uses of
Cash. To date, we have funded our operations through proceeds
from public offerings and private placements of preferred stock, common stock
and associated warrants, government grants for research, research-contribution
revenues from our collaborations with pharmaceutical companies, licensing and
milestone payments related to our product candidate partnering activities, debt
financing and equity draws under the CEFF with Kingsbridge. We expect
that operating losses and negative cash flows from operations will continue for
at least the next several years and we will need to generate additional funds to
achieve our strategic goals. If necessary, we may raise substantial funds
through the sale of our common stock, or through debt financing or through
establishing additional strategic collaboration agreements. We do not know
whether additional financing will be available when needed, or whether it will
be available on favorable terms, or at all. Based on our capital resources as of
the date of this report, we believe that we have adequate resources to fund our
operations into late 2012, without considering any potential future milestone
payments that we may receive under our current or any new collaborations we may
enter into in the future, any future capital raising transactions or any
additional draw downs from our CEFF with Kingsbridge.
If we are
unable to raise additional funds when needed, we may not be able to continue
development of our product candidates or we could be required to delay, scale
back or eliminate some or all of our development programs and other operations.
If we were to raise additional funds through the issuance of common stock,
substantial dilution to our existing stockholders would likely result. If we
were to raise additional funds through additional debt financing, the terms of
the debt may involve significant cash payment obligations as well as covenants
and specific financial ratios that may restrict our ability to operate our
business. Having insufficient funds may require us to delay, scale back or
eliminate some or all of our research or development programs or to relinquish
greater or all rights to product candidates at an earlier stage of development
or on less favorable terms than we would otherwise choose. If we raise funds
through corporate collaborations or licensing arrangements, we may be required
to relinquish, on terms that are not favorable to us, rights to some of our
technologies or product candidates that we would otherwise seek to develop or
commercialize ourselves. Failure to obtain adequate financing may adversely
affect our operating results or our ability to operate as a going
concern.
Our
future capital uses and requirements depend on numerous forward-looking factors
and involves risks and uncertainties. Actual results could vary as a result of a
number of factors, including the factors discussed in “Risk Factors” in this
report. In light of the numerous risks and uncertainties associated with the
development and commercialization of our product candidates, we are unable to
estimate the amounts of increased capital outlays and operating expenditures
associated with our current and anticipated clinical trials. Our future funding
requirements will depend on many factors, including:
|
•
|
the
number, scope, rate of progress, results and costs of our preclinical
studies, clinical trials and other research and development
activities;
|
|
•
|
the
terms and timing of any corporate collaborations that we may establish,
and the success of these
collaborations;
|
|
•
|
the
cost, timing and outcomes of regulatory
approvals;
|
|
•
|
the
number and characteristics of product candidates that we
pursue;
|
|
•
|
the
cost and timing of establishing manufacturing, marketing and sales, and
distribution capabilities;
|
|
•
|
the
cost of establishing clinical and commercial supplies of our product
candidates;
|
|
•
|
the
cost of preparing, filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights;
and
|
|
•
|
the
extent to which we acquire or invest in businesses, products or
technologies, although we currently have no commitments or agreements
relating to any of these types of
transactions.
|
Committed Equity Financing
Facility. On December 1, 2008, we entered into a committed
equity financing facility, or CEFF, with Kingsbridge Capital Limited, or
Kingsbridge, pursuant to which Kingsbridge committed to purchase, subject to
certain conditions, up to $75.0 million of our common stock through December
2011, subject to early termination in certain circumstances. In connection with
this CEFF, we issued a warrant to Kingsbridge to purchase up to 135,000 shares
of our common stock with an exercise price of $4.44 per share. The warrant
is exercisable until June 2014. Under the CEFF, the maximum number of
shares that we may sell to Kingsbridge is 10,104,109 shares (exclusive of the
shares underlying the warrant issued to Kingsbridge). Subject to
certain conditions and limitations, from time to time under the CEFF, we may
require Kingsbridge to purchase shares of our common stock at a price that is
between 86% and 94% of the volume weighted average price on each trading day
during an eight-day pricing period, provided that if the average market price on
any day during the pricing period is less than the greater of $2.00 or 85% of
the closing price of the day preceding the first day of the pricing period, then
such day would not be used in determining the number of shares that would be
issued in the draw down and the aggregate amount of such draw down would be
decreased by one-eighth.
The
maximum dollar amount of shares that we may require Kingsbridge to purchase in
any pricing period is equal to the greater of (a) a percentage of our market
capitalization as determined at the time of the draw down (which percentage
ranges from 1.0% to 1.5% depending upon our market capitalization at the time of
the draw down) or (b) four times the average trading volume of our common stock
for a specified period prior to the draw down notice, multiplied by the closing
price of the common stock on the trading day prior to the draw down notice, in
each case subject to certain conditions. If either of the foregoing calculations
yields a draw down amount in excess of $10 million, then the individual draw
down amount is limited to $10 million.
We filed
a registration statement which became effective in December 2008 with respect to
the resale of shares issuable pursuant to the CEFF and underlying the warrant
issued to Kingsbridge, and the registration rights agreement requires us to
maintain the effectiveness of the registration statement. If we fail to maintain
the effectiveness of the registration statement or if we suspend the use of the
registration statement, under certain circumstances we may be required to pay
certain amounts to Kingsbridge (or issue to Kingsbridge additional shares of
common stock in lieu of cash payment) as liquidated damages. We are not
obligated to sell any of the $75.0 million of common stock available under the
CEFF and there are no minimum commitments or minimum use penalties. The CEFF
does not contain any restrictions on our operating activities, automatic pricing
resets or minimum market volume restrictions.
During
2009 we made draw downs under the CEFF under which we issued a total of
1,420,568 shares of common stock to Kingsbridge for aggregate gross proceeds of
$5.3 million. Accordingly, the remaining amount available under the CEFF
decreased to the lesser of $69.7 million or 8,684,351 shares of common
stock.
Public Offering of Common Stock.
On March 17, 2010, we completed an underwritten public offering of
11,500,000 shares of common stock at a public offering price of $7.00 per share
for net proceeds of approximately $75.4 million after deducting the
underwriters' discount and other estimated offering expenses payable by
us.
Any
statements in this report about our expectations, beliefs, plans, objectives,
assumptions or future events or performance are not historical facts and are
forward-looking statements. Such forward-looking statements include statements
regarding our available cash resources, our expectations regarding future
revenue and expense levels, the efficacy, safety and intended utilization of our
product candidates, the development of our clinical stage product candidates and
our BiTE antibody technology, the future development of blinatumomab by us, the
conduct, timing and results of future clinical trials, plans regarding
regulatory filings, our ability to draw down under the CEFF and the availability
of financing, and our plans regarding partnering activities. You can identify
these forward-looking statements by the use of words or phrases such as
“believe,” “may,” “could,” “will,” “possible,” “can,” “estimate,” “continue,”
“ongoing,” “consider,” “anticipate,” “intend,” “seek,” “plan,” “project,”
“expect,” “should,” “would,” or “assume” or the negative of these terms, or
other comparable terminology, although not all forward-looking statements
contain these words. Among the factors that could cause actual results to differ
materially from those indicated in the forward-looking statements are risks and
uncertainties inherent in our business including, without limitation, the
progress, timing or success of our clinical trials; difficulties or delays in
development, testing, obtaining regulatory approval for producing and marketing
our product candidates; regulatory developments in the United States or in
foreign countries; the risks associated with our reliance on collaborations for
the development and commercialization of our product candidates; unexpected
adverse side effects or inadequate therapeutic efficacy of our product
candidates that could delay or prevent product development or commercialization,
or that could result in recalls or product liability claims; our ability to
attract and retain key scientific, management or commercial personnel; the loss
of key scientific, management or commercial personnel; the size and growth
potential of the potential markets for our product candidates and our ability to
serve those markets; the scope and validity of patent protection for our product
candidates; competition from other pharmaceutical or biotechnology companies;
our ability to establish and maintain strategic collaborations or to otherwise
obtain additional financing to support our operations on commercially reasonable
terms; successful administration of our business and financial reporting
capabilities; and other risks detailed in this report, including those below in
Part II, Item 1A, “Risk Factors.”
Although
we believe that the expectations reflected in our forward-looking statements are
reasonable, we cannot guarantee future results, events, levels of activity,
performance or achievement. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise, unless required by law.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Interest
Rates
Our
financial instruments consist primarily of cash and cash equivalents. These
financial instruments, principally comprised of corporate obligations and U.S.
and foreign government obligations, are subject to interest rate risk and will
decline in value if interest rates increase. Because of the relatively short
maturities of our investments, we do not expect interest rate fluctuations to
materially affect the aggregate value of our financial instruments. We do not
have derivative financial instruments in our investment portfolio.
Our
financial results and capital resources are affected by changes in the U.S.
dollar/Euro exchange rate. As of March 31, 2010, we had U.S. dollar-denominated
cash and investments of approximately $124.2 million and Euro-denominated cash
and investments of approximately €43.5 million, or approximately $58.5 million
using the exchange rate as of that date. As of March 31, 2010, we had
Euro-denominated liabilities of approximately €19.2 million, or approximately
$25.8 million, using the exchange rate as of that date. The following table
shows the hypothetical impact of a change to the Euro/U.S. Dollar exchange
rate:
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10%
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15%
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20%
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Increase
in reported net operating loss for the three months ended March 31, 2010
(in thousands)
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$
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761
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$
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1,141
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$
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1,521
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Item 4.
Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and that such information is accumulated and communicated
to our management, including our Chief Executive Officer (our principal
executive officer) and our Chief Financial Officer (our principal financial
officer), as appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
we recognize that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and we apply judgment in evaluating the cost-benefit relationship of
possible controls and procedures. In addition, the design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with policies or procedures may deteriorate. Because of the
inherent limitations in a control system, misstatements due to error or fraud
may occur and not be detected.
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as such term is defined under Rules 13a-15(e) and
15d-15(e) promulgated under the Exchange Act, as of March 31, 2010, the end of
the period covered by this report. Based on the evaluation of our disclosure
controls and procedures as of March 31, 2010, our chief executive officer and
chief financial officer concluded that, as of such date, our disclosure controls
and procedures were effective at the reasonable assurance level.
Changes
in Internal Control over Financial Reporting
Our
principal executive officer and principal financial officer also evaluated
whether any change in our internal control over financial reporting, as such
term is defined under Rules 13a-15(f) and 15d-15(f) promulgated under the
Exchange Act, occurred during our most recent fiscal quarter covered by this
report that has materially affected, or is likely to materially affect, our
internal control over financial reporting.
PART
II — OTHER INFORMATION
Item 1.
Legal Proceedings
In
February 2010, we entered into a Settlement, Mutual Release and Termination
Agreement, which we refer to as the Settlement Agreement, with Curis, Inc. to
resolve a claim filed by Curis with the American Arbitration Association
relating to a June 2001 Agreement for the Purchase and Sale of Single-Chain
Polypeptide Business, or SCA Agreement, between Curis and our wholly owned
subsidiary Micromet AG under which Micromet AG acquired from Curis certain
intellectual property assets relating to single chain antibodies, including
patents and license agreements. Under the SCA Agreement, Micromet AG made an
upfront payment in cash and issued equity and a debt instrument to Curis. In
addition, under the terms of the SCA Agreement, Micromet AG had agreed to pay
royalties on net sales of products covered by the assigned patents and on
revenues received from licensing the assigned patents. Pursuant to the
Settlement Agreement, we have made a final payment of $4.0 million to Curis
during the first quarter of 2010 in order to settle the dispute and discharge
and terminate all future payment obligations that could have arisen under the
SCA Agreement.
Item
1A. Risk Factors
Investing
in our common stock involves a high degree of risk. The following information
sets forth factors that could cause our actual results to differ materially from
those contained in forward-looking statements we have made in this report and
those we may make from time to time. If any of the following risks actually
occur, the market price of our common stock could decline, and you could lose
all or part of your investment. Additional risks not presently known to us or
that we currently believe are immaterial may also significantly impair our
business operations and could result in a complete loss of your investment.
Certain factors individually or in combination with others may have a material
adverse effect on our business, financial condition and results of operations
and you should carefully consider them.
Risks
Relating to Our Financial Results, Financial Reporting and Need for
Financing
We
have a history of losses, we expect to incur substantial losses and negative
operating cash flows for the foreseeable future and we may never achieve or
maintain profitability.
We have
incurred losses from our inception through March 31, 2010, and we expect to
incur substantial losses for the foreseeable future. We have no current sources
of material ongoing revenue, other than the reimbursement of development
expenses and potential future milestone payments from our current collaborators
or licensees, including Bayer Schering Pharma, sanofi-aventis, Nycomed, Merck
Serono, MedImmune and TRACON. We have not commercialized any products to date,
either alone or with a third party collaborator. If we are not able to
commercialize any products, whether alone or with a collaborator, we may not
achieve profitability.
Even if
our collaboration agreements provide funding for a portion of our research and
development expenses for some of our programs, we expect to spend significant
capital to fund our internal research and development programs for the
foreseeable future. As a result, we will need to generate significant revenues
in order to achieve profitability. We cannot be certain whether or when this
will occur because of the significant uncertainties that affect our business.
Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis. Our failure to become and remain
profitable may depress the market value of our common stock and could impair our
ability to raise capital, expand our business, diversify our product offerings
or continue our operations and, as a result, you could lose part or all of your
investment.
We
will require additional financing, which may be difficult to obtain and may
dilute your ownership interest in us. If we fail to obtain the capital necessary
to fund our operations, we will be unable to develop or commercialize our
product candidates and our ability to operate as a going concern may be
adversely affected.
We will
require substantial funds to continue our research and development programs and
our future capital requirements may vary from what we expect. There are factors,
many of which are outside our control, that may affect our future capital
requirements and accelerate our need for additional financing. Among the factors
that may affect our future capital requirements and accelerate our need for
additional financing are:
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continued
progress in our research and development programs, as well as the scope of
these programs;
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our
ability to establish and maintain collaborative arrangements for the
discovery, research or development of our product
candidates;
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the
timing, receipt and amount of research funding and milestone, license,
royalty and other payments, if any, from
collaborators;
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the
timing, receipt and amount of sales revenues and associated royalties to
us, if any, from our product candidates in the
market;
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our
ability to sell shares of our common stock under our committed equity
financing facility, or CEFF, with Kingsbridge Capital Limited, or
Kingsbridge;
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the
costs of preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims and other patent-related costs, including
litigation costs and technology license fees;
and
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competing
technological and market
developments.
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We expect
to seek funding through public or private financings or from existing or new
collaborators with whom we enter into research or development collaborations
with respect to programs that are not currently licensed. However, the market
for stock of companies in the biotechnology sector in general, and the market
for our common stock in particular, is highly volatile. Due to market conditions
and the status of our product development pipeline, additional funding may not
be available to us on acceptable terms, or at all. Having insufficient funds may
require us to delay, scale back or eliminate some or all of our research or
development programs or to relinquish greater or all rights to product
candidates at an earlier stage of development or on less favorable terms than we
would otherwise choose. Failure to obtain adequate financing also may adversely
affect our ability to operate as a going concern.
If we
raise additional funds through the issuance of equity securities, our
stockholders may experience substantial dilution, including as a result of the
issuance of warrants in connection with the financing, or the equity securities
may have rights, preferences or privileges senior to those of existing
stockholders. If we raise additional funds through debt financings, these
financings may involve significant cash payment obligations and covenants that
restrict our ability to operate our business and make distributions to our
stockholders. We also could elect to seek funds through arrangements with
collaborators or others that may require us to relinquish rights to certain
technologies, product candidates or products.
Our
committed equity financing facility with Kingsbridge may not be available to us
if we elect to make a draw down, may require us to make additional “blackout” or
other payments to Kingsbridge and may result in dilution to our
stockholders.
In
December 2008, we entered into a CEFF with Kingsbridge, which entitles us to
sell and obligates Kingsbridge to purchase, from time to time over a period of
three years, up to 10,104,919 shares of our common stock for cash consideration
of up to $75.0 million, subject to certain conditions and restrictions. To date,
we have sold 1,420,568 shares of common stock for gross proceeds of $5.3 million
under this agreement. Kingsbridge will not be obligated to purchase
additional shares under the CEFF unless certain conditions are met, which
include:
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a
minimum price for our common stock that is not less than 85% of the
closing price of the day immediately preceding the applicable eight-day
pricing period, but in no event less than $2.00 per
share;
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the
accuracy of representations and warranties made to
Kingsbridge;
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our
compliance with all applicable laws which, if we failed to so comply,
would have a Material Adverse Effect (as that term is defined in the
purchase agreement with Kingsbridge);
and
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the
effectiveness of a registration statement registering for resale the
shares of common stock to be issued in connection with the
CEFF.
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Kingsbridge
is permitted to terminate the CEFF by providing written notice to us upon the
occurrence of certain events. For example, we are only eligible to
draw down funds under the CEFF at such times as our stock price is above $2.00
per share. Kingsbridge is also able to terminate the CEFF at any time that we
have not drawn down at least $1.25 million in funds over a consecutive 12-month
period. We have not drawn down any funds from the CEFF since June 15, 2009, and
in compliance with our March 2010 public offering, we agreed not to issue
additional equity, including pursuant to the CEFF, through June 9,
2010, Therefore Kingsbridge will have the right to terminate the CEFF
in its discretion beginning June 15, 2010 unless we draw down at least $1.25
million from the facility by that date. If we are unable to access funds through
the CEFF, or if Kingsbridge terminates the CEFF or it otherwise expires, we may
be unable to access capital from other sources on favorable terms, or at
all.
We are
entitled, in certain circumstances, to deliver a blackout notice to Kingsbridge
to suspend the use of the resale registration statement and prohibit Kingsbridge
from selling shares under the resale registration statement for a certain period
of time. If we deliver a blackout notice during the fifteen trading days
following our delivery of shares to Kingsbridge in connection with any draw
down, then we may be required to make a payment to Kingsbridge, or issue to
Kingsbridge additional shares in lieu of this payment, calculated on the basis
of the number of shares purchased by Kingsbridge in the most recent draw down
and held by
Kingsbridge
immediately prior to the blackout period and the decline in the market price, if
any, of our common stock during the blackout period. If the trading price of our
common stock declines during a blackout period, this blackout payment could be
significant.
In
addition, if we fail to maintain the effectiveness of the resale registration
statement or related prospectus in circumstances not permitted by our agreement
with Kingsbridge, we may be required to make a payment to Kingsbridge,
calculated on the basis of the number of shares held by Kingsbridge during the
period that the registration statement or prospectus is not effective,
multiplied by the decline in market price, if any, of our common stock during
the ineffective period. If the trading price of our common stock declines during
a period in which the resale registration statement or related prospectus is not
effective, this payment could be significant.
Should we
sell shares to Kingsbridge under the CEFF or issue shares in lieu of a blackout
payment, it will have a dilutive effect 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 6% to 14% 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. Moreover, the number of
shares that we will be able to issue to Kingsbridge in a particular draw down
may be materially reduced if our stock price declines significantly during the
applicable eight-day pricing period.
Our
quarterly operating results and stock price may fluctuate
significantly.
We expect
our results of operations to be subject to quarterly fluctuations. The level of
our revenues, if any, and results of operations for any given period, will be
based primarily on the following factors:
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the
status of development of our product
candidates;
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the
time at which we enter into research and license agreements with strategic
collaborators that provide for payments to us, the timing and accounting
treatment of payments to us, if any, under those agreements, and the
progress made by our strategic collaborators in moving forward the
development of our product
candidates;
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whether
or not we achieve specified research, development or commercialization
milestones under any agreement that we enter into with strategic
collaborators and the timely payment by these collaborators of any amounts
payable to us;
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the
addition or termination of research programs or funding support under
collaboration agreements;
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the
timing of milestone payments under license agreements, repayments of
outstanding amounts under loan agreements, and other payments that we may
be required to make to others;
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variations
in the level of research and development expenses related to our clinical
or preclinical product candidates during any given
period;
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the
change in fair value of the common stock warrants issued to investors in
connection with our 2007 private placement financing, remeasured at each
balance sheet date using a Black-Scholes option-pricing model, with the
change in value recorded as other income or expense;
and
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general
market conditions affecting companies with our risk profile and market
capitalization.
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These
factors may cause the price of our stock to fluctuate substantially. We believe
that quarterly comparisons of our financial results are not necessarily
meaningful and should not be relied upon as an indication of our future
performance.
If
the estimates we make and the assumptions on which we rely in preparing our
financial statements prove inaccurate, our actual results may vary
significantly.
Our
financial statements have been prepared in accordance with generally accepted
accounting principles in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of our assets, liabilities, revenues and expenses, the amounts of
charges taken by us and related disclosure. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. We cannot assure you that our estimates, or the
assumptions underlying them, will be correct. Accordingly, our actual financial
results may vary significantly from the estimates contained in our financial
statements.
Changes
in, or interpretations of, accounting rules and regulations could result in
unfavorable accounting charges or require us to change our compensation
policies.
Accounting
methods and policies for biopharmaceutical companies, including policies
governing revenue recognition, research and development and related expenses,
accounting for stock options and in-process research and development costs are
subject periodically to further review, interpretation and guidance from
relevant accounting authorities, including the SEC. Changes to, or
interpretations of, accounting methods or policies in the future may require us
to reclassify, restate or otherwise change or revise our financial statements,
including those contained in this filing.
Risks
Relating to Our Common Stock
Substantial
sales of shares may adversely impact the market price of our common stock and
our ability to issue and sell shares in the future.
Substantially
all of the outstanding shares of our common stock are eligible for resale in the
public market. A significant portion of these shares is held by a small number
of stockholders. We have also registered shares of our common stock that we may
issue under our equity incentive compensation plans and our employee stock
purchase plan. In addition, any shares issued under our CEFF with Kingsbridge
will be eligible for resale in the public market. These shares generally can be
freely sold in the public market upon issuance. In compliance with our recently
completed public offering in March 2010, our offices and directors and certain
of their affiliated stockholders agreed not to dispose of or pledge any of their
common stock or securities convertible into or exchanged for common stock
through June 9, 2010, except with the prior written consent of the underwriters
for the offering.
If our
stockholders sell substantial amounts of our common stock, or if our officers,
directors or their affiliated stockholders sell substantial amounts of stock
beginning on June 10, 1020 or earlier if released from such restrictions by the
underwriters, the market price of our common stock may decline, which might make
it more difficult for us to sell equity or equity-related securities in the
future at a time and price that we deem appropriate. We are unable to predict
the effect that sales of our common stock may have on the prevailing market
price of our common stock.
Our
stock price may be volatile, and you may lose all or a substantial part of your
investment.
The
market price for our common stock is volatile and may fluctuate significantly in
response to a number of factors, many of which we cannot control. Among the
factors that could cause material fluctuations in the market price for our
common stock are:
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our
ability to successfully raise capital to fund our continued
operations;
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our
ability to successfully develop our product candidates within acceptable
timeframes;
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changes
in the regulatory status of our product
candidates;
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changes
in significant contracts, strategic collaborations, new technologies,
acquisitions, commercial relationships, joint ventures or capital
commitments;
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the
execution of new collaboration agreements or termination of existing
collaborations related to our clinical or preclinical product candidates
or our BiTE antibody technology
platform;
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announcements
of the invalidity of, or litigation relating to, our key intellectual
property;
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announcements
of the achievement of milestones in our agreements with collaborators or
the receipt of payments under those
agreements;
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announcements
of the results of clinical trials by us or by companies with commercial
products or product candidates in the same therapeutic category as our
product candidates;
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events
affecting our collaborators;
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fluctuations
in stock market prices and trading volumes of similar
companies;
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announcements
of new products or technologies, clinical trial results, commercial
relationships or other events by us, our collaborators or our
competitors;
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our
ability to successfully complete strategic collaboration arrangements with
respect to our product candidates, BiTE antibodies or our BiTE antibody
platform;
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variations
in our quarterly operating results;
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changes
in securities analysts’ estimates of our financial performance or product
development timelines;
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changes
in accounting principles;
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sales
of large blocks of our common stock, including sales by our executive
officers, directors and significant
stockholders;
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additions
or departures of key personnel; and
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discussions
of Micromet or our stock price by the financial and scientific press and
online investor communities such as chat
rooms.
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Our
stockholder rights plan, anti-takeover provisions in our organizational
documents and Delaware law may discourage or prevent a change in control, even
if an acquisition would be beneficial to our stockholders, which could affect
our stock price adversely and prevent attempts by our stockholders to replace or
remove our current management.
Our
stockholder rights plan and provisions contained in our amended and restated
certificate of incorporation and amended and restated bylaws may delay or
prevent a change in control, discourage bids at a premium over the market price
of our common stock and adversely affect the market price of our common stock
and the voting and other rights of the holders of our common stock. The
provisions in our amended and restated certificate of incorporation and amended
and restated bylaws include:
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dividing
our board of directors into three classes serving staggered three-year
terms;
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prohibiting
our stockholders from calling a special meeting of
stockholders;
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permitting
the issuance of additional shares of our common stock or preferred stock
without stockholder approval;
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prohibiting
our stockholders from making certain changes to our amended and restated
certificate of incorporation or amended and restated bylaws except with
66 2/3% stockholder approval;
and
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requiring
advance notice for raising matters of business or making nominations at
stockholders’ meetings.
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We are
also subject to provisions of the Delaware corporation law that, in general,
prohibit any business combination with a beneficial owner of 15% or more of our
common stock for five years unless the holder’s acquisition of our stock was
approved in advance by our board of directors.
We
may become involved in securities class action litigation that could divert
management’s attention and harm our business and our insurance coverage may not
be sufficient to cover all costs and damages.
The stock
market has from time to time experienced significant price and volume
fluctuations that have affected the market prices for the common stock of
pharmaceutical and biotechnology companies. These broad market fluctuations may
cause the market price of our common stock to decline. In the past, following
periods of volatility in the market price of a particular company’s securities,
securities class action litigation has often been brought against that company.
We may become involved in this type of litigation in the future. Litigation
often is expensive and diverts management’s attention and resources, which could
adversely affect our business.
Risks
Relating to Our Collaborations and Clinical Programs
We
are dependent on collaborators for the development and commercialization of many
of our product candidates. If we lose any of these collaborators, or if they
fail or incur delays in the development or commercialization of our current and
future product candidates, our operating results would suffer.
The
success of our strategy for development and commercialization of our product
candidates depends upon our ability to form and maintain productive strategic
collaborations and license arrangements. We currently have strategic
collaborations or license arrangements with Bayer Schering Pharma,
sanofi-aventis, Nycomed, Merck Serono, MedImmune and TRACON. We expect to enter
into additional collaborations and license arrangements in the future. Our
existing and any future collaborations and licensed programs may not be
scientifically or commercially successful. The risks that we face in connection
with these collaborations and licensed programs include the
following:
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Each
of our collaborators has significant discretion in determining the efforts
and resources that it will apply to the collaboration. The timing and
amount of any future royalty and milestone revenue that we may receive
under collaborative and licensing arrangements will depend on, among other
things, each collaborator’s efforts and allocation of
resources.
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All
of our strategic collaboration and license agreements are for fixed terms
and are subject to termination under various circumstances, including, in
some cases, on short notice without cause. If any of our collaborative
partners were to terminate its agreement with us, we may attempt to
identify and enter into an agreement with a new collaborator with respect
to the product candidate covered by the terminated agreement. If we are
not able to do so, we may not have the funds or capability to undertake
the development, manufacturing and commercialization of that product
candidate, which could result in a discontinuation or delay of the
development of that product
candidate.
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Our
collaborators may develop and commercialize, either alone or with others,
products and services that are similar to or competitive with the product
candidates and services that are the subject of their collaborations with
us or programs licensed from us.
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Our
collaborators may discontinue the development of our product candidates in
specific indications, for example as a result of their assessment of the
results obtained in clinical trials, or fail to initiate the development
in indications that have a significant commercial
potential.
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Pharmaceutical
and biotechnology companies from time to time re-evaluate their research
and development priorities, including in connection with mergers and
consolidations, which have been common in recent years. The ability of our
product candidates involved in strategic collaborations to reach their
potential could be limited if, as a result of changes in priorities, our
collaborators decrease or fail to increase spending related to our product
candidates, or decide to discontinue the development of our product
candidates and terminate their collaboration or license agreement with us.
In the event of such a termination, we may not be able to identify and
enter into a collaboration agreement for our product candidates with
another pharmaceutical or biotechnology company on terms favorable to us
or at all, and we may not have sufficient financial resources to continue
the development program for these product candidates on our own. As a
result, we may incur delays in the development for these product
candidates following any termination of the collaboration agreement, or we
may need to reallocate financial resources that could cause delays in
other development programs for our other product
candidates.
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We
may not be successful in establishing additional strategic collaborations, which
could adversely affect our ability to develop and commercialize product
candidates.
As an
integral part of our ongoing research and development efforts, we periodically
review opportunities to establish new collaborations for development and
commercialization of new BiTE antibodies or existing product candidates in our
development pipeline. We face significant competition in seeking appropriate
collaborators and the negotiation process is time-consuming and complex. We may
not be successful in our efforts to establish additional collaborations or other
alternative arrangements. Even if we are successful in our efforts to establish
a collaboration, the terms of the agreement may not be favorable to us. Finally,
such collaborations or other arrangements may not result in successful products
and associated revenue from milestone payments, royalties or profit share
payments.
If
we cannot successfully establish clinical and regulatory operations in the
United States, or if we do not obtain the necessary regulatory approvals from
the FDA, the development and commercialization of blinatumomab in the United
States may be delayed or may not occur at all.
In
November 2009, we and MedImmune entered into a termination and license agreement
pursuant to which we terminated our collaboration and license agreement with
MedImmune relating to blinatumomab in North America. As a result of this
agreement, we now control the rights to develop and commercialize blinatumomab
in the United States. However, we will need to hire personnel in order to
prepare and execute the clinical development plan and obtain the necessary
regulatory approvals from the FDA or other regulatory authorities for the
development and marketing of blinatumomab. Although MedImmune planned to
initiate clinical trials of blinatumomab in the United States prior to
termination of the agreement, no patients were enrolled in blinatumomab trials
in the United States. We intend to discuss with the FDA our plans for
conducting clinical trials of blinatumomab in the United States. If we are
not able to hire the appropriate personnel, or if the FDA does not grant the
necessary approvals, the development of blinatumomab in the United States could
be delayed or may never occur. There can be no assurances that we will be able
to successfully develop blinatumomab following the termination of our
collaboration and license agreement with MedImmune, or that such development
will not be delayed as a result of financial constraints or if the FDA does not
agree with our clinical development plans. There can also be no assurance that
we will be able to enter into a new collaboration agreement with respect to
blinatumomab with another industry partner for the development of blinatumomab
in North America or in any other territories if we desire to do so or that we
will ever be successful, alone or with a collaborator, in commercializing
blinatumomab in the United States or in any other territories.
Our
planned pivotal clinical trial of blinatumomab may not be sufficient to obtain
marketing approval in the United States or Europe for the treatment of
ALL.
We
currently intend to conduct a single-arm, non-blinded pivotal clinical trial of
blinatumomab in MRD-positive adult ALL patients. Depending on the results of
this trial, we intend to seek marketing approval of blinatumomab in Europe for
the treatment of ALL. The FDA, EMA and other regulatory authorities generally
require two randomized, blinded clinical trials in order to grant marketing
approval for pharmaceutical products. Based on our discussions with the EMA, we
believe we will be required to demonstrate more robust efficacy results from our
planned single-arm, non-blinded pivotal trial than if we conducted multiple
well-controlled trials. Furthermore, our planned pivotal trial will have both
primary and secondary endpoints, each of which will likely be required to be
achieved with robust results in order to sufficiently demonstrate efficacy. In
addition, we have not yet discussed our trial design with the FDA as it relates
to approval of blinatumomab for marketing in the United States. Consequently,
the EMA and FDA could conclude that our trial design or the data from our
planned pivotal clinical trial are not sufficient to approve blinatumomab for
marketing in Europe or the United States, as applicable, and may require us to
conduct expanded or additional clinical trials. This could significantly
increase the cost required to develop blinatumomab and would substantially
delay, or could prevent, marketing approval for blinatumomab.
Our
clinical stage product candidates adecatumumab and blinatumomab have not yet
been proven to be safe or to be effective in confirmatory studies. If we
discontinue the development of any of our clinical stage product candidates due
to adverse events, lack of efficacy, or any other reason, our business could
suffer and the value of our company may be adversely affected.
We
previously reported that two phase 2 clinical trials of adecatumumab did not
reach their respective primary endpoint in patients with metastatic breast
cancer and in patients with prostate cancer. We have also reported that we
terminated clinical trials and permanently discontinued the treatment of
individual patients with blinatumomab due to adverse events that included
infections, neurological events, and liver enzyme increases. There can be no
assurance that we will not encounter unacceptable adverse events that any
preliminary suggestion of anti-tumor activity of these product candidates will
be confirmed in the ongoing or future clinical trials, or that ongoing clinical
trials may be suspended or ended for any other reason.
A
recommended dose has not yet been defined for our product candidate MT110. If we
discontinue the development of MT110 due to adverse events or lack of efficacy,
our business could suffer and the value of our company may be adversely
affected.
MT110 is
in a phase 1 dose-escalation clinical trial, and we may reach the maximum
tolerated dose without reaching a dose level at which MT110 shows a clinically
meaningful anti-tumor effect. We are continuing the clinical development of this
product candidate in phase 1, but there can be no assurance that we will not
encounter unacceptable adverse events before any anti-tumor activity has been
noted in the ongoing or any future clinical trials.
Many
of the product candidates in our pipeline are in early stages of development and
our efforts to develop and commercialize these product candidates are subject to
a high risk of delay and failure. If we fail to successfully develop our product
candidates, our ability to generate revenues will be substantially
impaired.
Many of
our product candidates are in early stages of clinical and preclinical
development, so we will require substantial additional financial resources, as
well as research, product development and clinical development capabilities, to
pursue the development of these product candidates, and we may never develop an
approvable or commercially viable product. The process of successfully
developing product candidates for the treatment of human diseases is very
time-consuming, expensive and unpredictable and there is a high rate of failure
for product candidates in preclinical development and in clinical trials. The
preclinical studies and clinical trials may produce negative, inconsistent or
inconclusive results, and the results from early clinical trials may not be
statistically significant or predictive of results that will be obtained from
expanded, advanced clinical trials. Further, we or our collaborators may decide,
or the FDA, EMA or other regulatory authorities may require us, to conduct
preclinical studies or clinical trials or other development activities in
addition to those performed or planned by us or our collaborators, which may be
expensive or could delay the time to market for our product candidates. In
addition, we do not know whether the clinical trials will result in marketable
products.
We do not
know whether our planned preclinical development or clinical trials for our
product candidates will begin on time or be completed on schedule, if at all.
The timing and completion of clinical trials of our product candidates depend
on, among other factors, the number of patients that will be required to enroll
in the clinical trials, the inclusion and exclusion criteria used for selecting
patients for a particular clinical trial, and the rate at which those patients
are enrolled. Any increase in the required number of patients, tightening of
selection criteria, or decrease in recruitment rates or difficulties retaining
study participants may result in increased costs, delays in the development of
the product candidate, or both.
Our
product candidates may not be effective in treating any of our targeted diseases
or may prove to have undesirable or unintended side effects, toxicities or other
characteristics that may prevent or limit their commercial use. Institutional
review boards or regulators, including the FDA and EMA, may hold, suspend or
terminate our clinical research or the clinical trials of our product candidates
for various reasons, including non-compliance with regulatory requirements or
if, in their opinion, the participating subjects are being exposed to
unacceptable health risks, or if additional information may be required for the
regulatory authority to assess the proposed development activities. Further,
regulators may not approve study protocols at all or in a timeframe anticipated
by us if they believe that the study design or the mechanism of action of our
product candidates poses an unacceptable health risk to study
participants.
We have
limited financial and managerial resources. These limitations require us to
focus on a select group of product candidates in specific therapeutic areas and
to forego the exploration of other product opportunities. While our technologies
may permit us to work in multiple areas, resource commitments may require
trade-offs resulting in delays in the development of certain programs or
research areas, which may place us at a competitive disadvantage. Our decisions
as to resource allocation may not lead to the development of viable commercial
products and may divert resources away from other market opportunities, which
would otherwise have ultimately proved to be more profitable.
In
addition, our product candidates may have different efficacy profiles in certain
clinical indications, sub-indications or patient profiles, and an election by us
or our collaborators to focus on a particular indication, sub-indication or
patient profile may result in a failure to capitalize on other potentially
profitable applications of our product candidates.
We
rely heavily on third parties for the conduct of preclinical studies and
clinical trials of our product candidates, and we may not be able to control the
proper performance of the studies or trials.
In order
to obtain regulatory approval for the commercial sale of our product candidates,
we and our collaborators are required to complete extensive preclinical studies
as well as clinical trials in humans to demonstrate to the FDA, EMA and other
regulatory authorities that our product candidates are safe and effective. We
have limited experience and internal resources for conducting certain
preclinical studies and clinical trials and rely primarily on collaborators and
contract research organizations for the performance and management of
preclinical studies and clinical trials of our product candidates.
We are
responsible for confirming that our preclinical studies are conducted in
accordance with applicable regulations and that each of our clinical trials is
conducted in accordance with its general investigational plan and protocol. Our
reliance on third parties does not relieve us of responsibility for ensuring
compliance with appropriate regulations and standards for conducting,
monitoring, recording and reporting of preclinical and clinical trials. If our
collaborators or contractors fail to properly perform their contractual or
regulatory obligations with respect to conducting or overseeing the performance
of our preclinical studies or clinical trials, do not meet expected deadlines,
fail to comply with the good laboratory practice guidelines or good clinical
practice regulations, do not adhere to our preclinical and clinical trial
protocols, suffer an unforeseen business interruption unrelated to our agreement
with them that delays the clinical trial, or otherwise fail to generate reliable
clinical data, then the completion of these studies or trials may be delayed,
the results may not be useable and the studies or trials may have to be
repeated, and we may need to enter into new arrangements with alternative third
parties. Any of these events could cause our clinical trials to be extended,
delayed, or terminated or create the need for them to be repeated, or otherwise
create additional costs in the development of our product candidates and could
adversely affect our and our collaborators’ ability to market a product after
marketing approvals have been obtained.
Even
if we complete the lengthy, complex and expensive development process, there is
no assurance that we or our collaborators will obtain the regulatory approvals
necessary for the launch and commercialization of our product
candidates.
To the
extent that we or our collaborators are able to successfully complete the
clinical development of a product candidate, we or our collaborators will be
required to obtain approval by the FDA, EMA or other regulatory authorities
prior to marketing and selling such product candidate in the United States, the
European Union or other countries. The process of preparing and filing
applications for regulatory approvals with the FDA, EMA and other regulatory
authorities, and of obtaining the required regulatory approvals from these
regulatory authorities, is lengthy and expensive, and may require two years or
more. This process is further complicated because some of our product candidates
use non-traditional or novel materials in non-traditional or novel ways, and the
regulatory officials have little precedent to follow.
Any
marketing approval by the FDA, EMA or other regulatory authorities may be
subject to limitations on the indicated uses for which we or our collaborators
may market the product candidate. These limitations could restrict the size of
the market for the product and affect reimbursement levels by third-party
payers.
As a
result of these factors, we or our collaborators may not successfully begin or
complete clinical trials and launch and commercialize any product candidates in
the time periods estimated, if at all. Moreover, if we or our collaborators
incur costs and delays in development programs or fail to successfully develop
and commercialize products based upon our technologies, we may not become
profitable and our stock price could decline.
Risks
Relating to Our Operations, Business Strategy, and the Life Sciences
Industry
We
face substantial competition, which may result in our competitors discovering,
developing or commercializing products before or more successfully than we
do.
Our
product candidates face competition with existing and new products being
developed by biotechnology and pharmaceutical companies, as well as universities
and other research institutions. For example, research in the fields of
antibody-based therapeutics for the treatment of cancer, and autoimmune and
inflammatory diseases, is highly competitive. A number of entities are seeking
to identify and patent antibodies, potentially active proteins and other
potentially active compounds without specific knowledge of their therapeutic
functions. Our competitors may discover, characterize and develop important
inducing molecules or genes in advance of us.
Many of
our competitors have substantially greater capital resources, research and
development staffs and facilities than we have. Efforts by other biotechnology
and pharmaceutical companies could render our programs or product candidates
uneconomical or result in therapies that are superior to those that we are
developing alone or with a collaborator. We and our collaborators face
competition from companies that may be more experienced in product development
and commercialization, obtaining regulatory approvals and product manufacturing.
As a result, they may develop competing products more rapidly that are safer,
more effective, or have fewer side effects, or are less expensive, or they may
discover, develop and commercialize products, which render our product
candidates non-competitive or obsolete. We expect competition to intensify in
antibody research as technical advances in the field are made and become more
widely known.
We
may not be successful in our efforts to expand our portfolio of product
candidates.
A key
element of our strategy is to discover, develop and commercialize a portfolio of
new BiTE antibody therapeutics. We are seeking to do so through our internal
research programs, which could place a strain on our human and capital
resources. A significant portion of the research that we are conducting involves
new and unproven technologies. Research programs to identify new disease targets
and product candidates require substantial technical, financial and human
resources regardless of whether or not any suitable candidates are ultimately
identified. Our research programs may initially show promise in identifying
potential product candidates, yet fail to yield product candidates suitable for
clinical development. If we are unable to discover suitable potential product
candidates, develop additional delivery technologies through internal research
programs or in-license suitable product candidates or delivery technologies on
acceptable business terms, our business prospects will suffer.
We
and our collaborators are subject to governmental regulations in addition to
those imposed by the FDA and EMA, and we or our collaborators may not be able to
comply with these regulations. Any non-compliance could subject us or our
collaborators to penalties and otherwise result in the limitation of our
operations.
In
addition to regulations imposed by the FDA, EMA and other health regulatory
authorities, we and our collaborators are subject to regulation under the
Occupational Safety and Health Act, the Environmental Protection Act, the Toxic
Substances Control Act, the Research Conservation and Recovery Act, as well as
regulations administered by the Nuclear Regulatory Commission, national
restrictions on technology transfer, import, export and customs regulations and
certain other local, state or federal regulations, or their counterparts in
Europe and other countries. From time to time, other governmental agencies and
legislative or international governmental bodies have indicated an interest in
implementing further regulation of biotechnology applications. We are not able
to predict whether any such regulations will be adopted or whether, if adopted,
such regulations will apply to our or our collaborators’ business, or whether we
or our collaborators would be able to comply, without incurring unreasonable
expense, or at all, with any applicable regulations.
Our
growth could be limited if we are unable to attract and retain key personnel and
consultants.
We have
limited experience in filing and prosecuting regulatory applications to obtain
marketing approval from the FDA, EMA or other regulatory authorities. Our
success depends on the ability to attract, train and retain qualified scientific
and technical personnel, including consultants, to further our research and
development efforts. The loss of services of one or more of our key employees or
consultants could have a negative impact on our business and operating results.
Competition for skilled personnel is intense and the turnover rate can be high.
Competition for experienced management and clinical, scientific and engineering
personnel from numerous companies and academic and other research institutions
may limit our ability to attract and retain qualified personnel on acceptable
terms. As a result, locating candidates with the appropriate qualifications can
be difficult, and we may not be able to attract and retain sufficient numbers of
highly skilled employees.
Any
growth and expansion into areas and activities that may require additional
personnel or expertise, such as in regulatory affairs, quality assurance, and
control and compliance, would require us to either hire new key personnel or
obtain such services from a third party. The pool of personnel with the skills
that we require is limited, and we may not be able to hire or contract such
additional personnel. Failure to attract and retain personnel would prevent us
from developing and commercializing our product candidates.
Even
if regulatory authorities approve our product candidates, we may fail to comply
with ongoing regulatory requirements or experience unanticipated problems with
our product candidates, and these product candidates could be subject to
restrictions or withdrawal from the market following approval.
Any
product candidates for which we obtain marketing approval, along with the
manufacturing processes, post-approval clinical trials and promotional
activities for such product candidates, will be subject to continual review and
periodic inspections by the FDA, EMA and other regulatory authorities. Even if
regulatory approval of a product candidate is granted, the approval may be
subject to limitations on the indicated uses for which the product may be
marketed or contain requirements for costly post-marketing testing and
surveillance to monitor the safety or efficacy of the product. Post-approval
discovery of previously unknown problems with any approved products, including
unanticipated adverse events or adverse events of unanticipated severity or
frequency, difficulties with a manufacturer or manufacturing processes, or
failure to comply with regulatory requirements, may result in restrictions on
such approved products or manufacturing processes, limitations in the scope of
our approved labeling, withdrawal of the approved products from the market,
voluntary or mandatory recall and associated publicity requirements, fines,
suspension or withdrawal of regulatory approvals, product seizures, injunctions
or the imposition of civil or criminal penalties.
The
procedures and requirements for granting marketing approvals vary among
countries, which may cause us to incur additional costs or delays or may prevent
us from obtaining marketing approvals in different countries and regulatory
jurisdictions.
We intend
to market our product candidates in many countries and regulatory jurisdictions.
In order to market our product candidates in the United States, the European
Union and many other jurisdictions, we must obtain separate regulatory approvals
in each of these countries and territories. The procedures and requirements for
obtaining marketing approval vary among countries and regulatory jurisdictions,
and can involve additional clinical trials or other tests. Also, the time
required to obtain approval may differ from that required to obtain FDA and EMA
approval. The various regulatory approval processes may include all of the risks
associated with obtaining FDA and EMA approval. We may not obtain all of the
desirable or necessary regulatory approvals on a timely basis, if at all.
Approval by a regulatory authority in a particular country or regulatory
jurisdiction, such as the FDA in the United States and the EMA in the European
Union, generally does not ensure approval by a regulatory authority in another
country. We may not be able to file for regulatory approvals and may not receive
necessary approvals to commercialize our product candidates in any or all of the
countries or regulatory jurisdictions in which we desire to market our product
candidates.
If
we fail to obtain an adequate level of reimbursement for any approved products
by third-party payers, there may be no commercially viable markets for these
products or the markets may be much smaller than expected. The continuing
efforts of the government, insurance companies, managed care organizations and
other payers of health care costs to contain or reduce costs of healthcare may
adversely affect our ability to generate revenues and achieve profitability, the
future revenues and profitability of our potential customers, suppliers and
collaborators, and the availability of capital.
Our
ability to commercialize our product candidates successfully will depend in part
on the extent to which governmental authorities, private health insurers and
other organizations establish appropriate reimbursement levels for the price
charged for our product candidates and related treatments. The efficacy, safety
and cost-effectiveness of our product candidates as well as the efficacy, safety
and cost-effectiveness of any competing products will determine in part the
availability and level of reimbursement. These third-party payers continually
attempt to contain or reduce the costs of healthcare by challenging the prices
charged for healthcare products and services. Given recent federal and state
government initiatives directed at lowering the total cost of healthcare in the
United States, the U.S. Congress and state legislatures will likely continue to
focus on healthcare reform, the cost of prescription pharmaceuticals and on the
reform of the Medicare and Medicaid systems. In certain countries, particularly
the countries of the European Union, the pricing of prescription pharmaceuticals
is subject to governmental control. In these countries, pricing negotiations
with governmental authorities can take six to twelve months or longer after the
receipt of regulatory marketing approval for a product. To obtain reimbursement
or pricing approval in some countries, we may be required to conduct clinical
trials that compare the cost-effectiveness of our product candidates to other
available therapies. If reimbursement for our product candidates were
unavailable or limited in scope or amount or if reimbursement levels or prices
are set at unsatisfactory levels, our projected and actual revenues and our
prospects for profitability would be negatively affected.
Another
development that may affect the pricing of drugs in the United States is
regulatory action regarding drug reimportation into the United States. The
Medicare Prescription Drug, Improvement and Modernization Act requires the
Secretary of the U.S. Department of Health and Human Services to promulgate
regulations allowing drug reimportation from Canada into the United States under
certain circumstances. These provisions will become effective only if the
Secretary certifies that such imports will pose no additional risk to the
public’s health and safety and result in significant cost savings to consumers.
Proponents of drug reimportation may also attempt to pass legislation that would
remove the requirement for the Secretary’s certification or allow reimportation
under circumstances beyond those anticipated under current law. If legislation
is enacted, or regulations issued, allowing the reimportation of drugs, it could
decrease the reimbursement we would receive for any product candidates that we
may commercialize, or require us to lower the price of our product candidates
then on the market that face competition from lower-priced supplies of that
product from other countries. These factors would negatively affect our
projected and actual revenues and our prospects for profitability.
We are
unable to predict what additional legislation or regulation, if any, relating to
the healthcare industry or third-party coverage and reimbursement may be enacted
in the future or what effect such legislation or regulation would have on our
business. Any cost containment measures or other healthcare system reforms that
are adopted could have a material adverse effect on our ability to commercialize
successfully any future products or could limit or eliminate our spending on
development projects and affect our ultimate profitability.
If
physicians and patients do not accept the product candidates that we may
develop, our ability to generate product revenue in the future will be adversely
affected.
Our
product candidates, if successfully developed and approved by the regulatory
authorities, may not gain market acceptance among physicians, healthcare payers,
patients and the medical community. Market acceptance of and demand for any
product candidate that we may develop will depend on many factors,
including:
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our
ability to provide acceptable evidence of safety and
efficacy;
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convenience
and ease of administration;
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prevalence
and severity of adverse side
effects;
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the
timing of market entry relative to competitive
treatments;
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effectiveness
of our marketing and pricing strategy for any product candidates that we
may develop;
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publicity
concerning our product candidates or competitive
products;
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the
strength of marketing and sales support;
and
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our
ability to obtain third-party coverage or
reimbursement.
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If any
product candidates for which we may receive marketing approval fail to gain
market acceptance, our ability to generate product revenue in the future will be
adversely affected.
We
face the risk of product liability claims and may not be able to obtain
insurance.
Our
business exposes us to the risk of product liability claims that is inherent in
the testing, manufacturing, and marketing of drugs and related devices. Although
we have product liability and clinical trial liability insurance that we believe
is appropriate, this insurance is subject to deductibles and coverage
limitations. We may not be able to obtain or maintain adequate protection
against potential liabilities. If any of our product candidates is approved for
marketing, we may seek additional insurance coverage. If we are unable to obtain
insurance at acceptable cost or on acceptable terms with adequate coverage or
otherwise protect ourselves against potential product liability claims, we will
be exposed to significant liabilities, which may cause a loss of revenue or
otherwise harm our business. These liabilities could prevent or interfere with
our product commercialization efforts. Defending a suit, regardless of merit,
could be costly, could divert management attention and might result in adverse
publicity, injury to our reputation, or reduced acceptance of our product
candidates in the market. If we are sued for any injury caused by any future
products, our liability could exceed our total assets.
Our
operations involve hazardous materials and we must comply with environmental
laws and regulations, which can be expensive.
Our
research and development activities involve the controlled use of hazardous
materials, including chemicals and radioactive and biological materials. Our
operations also produce hazardous waste products. We are subject in the United
States to a variety of federal, state and local regulations, and in Europe to
European, national, state and local regulations, relating to the use, handling,
storage and disposal of these materials. We generally contract with third
parties for the disposal of such substances and store certain low-level
radioactive waste at our facility until the materials are no longer considered
radioactive. We cannot eliminate the risk of accidental contamination or injury
from these materials. We may be required to incur substantial costs to comply
with current or future environmental and safety regulations which could impose
greater compliance costs and increased risks and penalties associated with
violations. If an accident or contamination occurred, we would likely incur
significant costs associated with civil penalties or criminal fines, substantial
investigation and remediation costs, and costs associated with complying with
environmental laws and regulations. There can be no assurance that violations of
environmental laws or regulations will not occur in the future as a result of
the inability to obtain permits, human error, accident, equipment failure or
other causes. We do not have any insurance for liabilities arising from
hazardous materials. Compliance with environmental and safety laws and
regulations is expensive, and current or future environmental regulation may
impair our research, development or production efforts.
Risks
Relating to Our Intellectual Property and Litigation
We
may not be able to obtain or maintain adequate patents and other intellectual
property rights to protect our business and product candidates against
competitors.
Our value
will be significantly enhanced if we are able to obtain adequate patents and
other intellectual property rights to protect our business and product
candidates against competitors. For that reason, we allocate significant
financial and personnel resources to the filing, prosecution, maintenance and
defense of patent applications, patents and trademarks claiming or covering our
product candidates and key technology relating to these product
candidates.
To date,
we have sought to protect our proprietary positions related to our important
technology, inventions and improvements by filing patent applications in the
U.S., Europe and other jurisdictions. Because the patent position of
pharmaceutical and biopharmaceutical companies involves complex legal and
factual questions, the issuance, scope and enforceability of patents cannot be
predicted with certainty, and we cannot be certain that patents will be issued
on pending or future patent applications that cover our product candidates and
technologies. Claims could be restricted in prosecution that might lead to a
scope of protection which is of minor value for a particular product candidate.
Patents, if issued, may be challenged and sought to be invalidated by third
parties in litigation. In addition, U.S. patents and patent applications may
also be subject to interference proceedings, and U.S. patents may be subject to
reexamination proceedings in the U.S. Patent and Trademark Office. European
patents may be subject to opposition proceedings in the European Patent Office.
Patents might be invalidated in national jurisdictions. Similar proceedings may
be available in countries outside of Europe or the U.S.
These
proceedings could result in either a loss of the patent or a denial of the
patent application or loss or reduction in the scope of one or more of the
claims of the patent or patent application. Thus, any patents that we own or
license from others may not provide any protection against competitors.
Furthermore, an adverse decision in an interference proceeding could result in a
third party receiving the patent rights sought by us, which in turn could affect
our ability to market a potential product or product candidate to which that
patent filing was directed. Our pending patent applications, those that we may
file in the future, or those that we may license from third parties may not
result in patents being issued. If issued, they may not provide us with
proprietary protection or competitive advantages against competitors with
similar technology. Furthermore, others may independently develop similar
technologies or duplicate any technology that we have developed, which fall
outside the scope of our patents. Products or technology could also be copied by
competitors after expiration of the patent life. Furthermore, claims of
employees or former employees of Micromet related to their inventorship or
compensation pursuant to the German Act on Employees’ Inventions may lead to
legal disputes.
We rely
on third-party payment services and external law firms for the payment of
foreign patent annuities and other fees. Non-payment or delay in payment of such
fees, whether intentional or unintentional, may result in loss of patents or
patent rights important to our business.
We
may incur substantial costs enforcing our patents against third parties. If we
are unable to protect our intellectual property rights, our competitors may
develop and market products with similar features that may reduce demand for our
potential products.
We own or
control a substantial portfolio of issued patents. From time to time, we may
become aware of third parties that undertake activities that infringe on our
patents. We may decide to grant those third parties a license under our patents,
or to enforce the patents against those third parties by pursuing an
infringement claim in litigation. If we initiate patent infringement litigation,
it could consume significant financial and management resources, regardless of
the merit of the claims or the outcome of the litigation. The outcome of patent
litigation is subject to uncertainties that cannot be adequately quantified in
advance, including the demeanor and credibility of witnesses and the identity of
the adverse party, especially in biotechnology-related patent cases that may
turn on the testimony of experts as to technical facts upon which experts may
reasonably disagree. Some of our competitors may be able to sustain the costs of
such litigation or proceedings more effectively than we can because of their
substantially greater financial resources. Uncertainties resulting from the
initiation and continuation of patent litigation or other proceedings could harm
our ability to compete in the marketplace.
Our
ability to enforce our patents may be restricted under applicable law. Many
countries, including certain countries in Europe, have compulsory licensing laws
under which a patent owner may be compelled to grant licenses to third parties.
For example, compulsory licenses may be required in cases where the patent owner
has failed to “work” the invention in that country, or the third-party has
patented improvements. In addition, many countries limit the enforceability of
patents against government agencies or government contractors. In these
countries, the patent owner may have limited remedies, which could materially
diminish the value of the patent. Moreover, the legal systems of certain
countries, particularly certain developing countries, do not favor the
aggressive enforcement of patent and other intellectual property rights, which
makes it difficult to stop infringement. In addition, our ability to enforce our
patent rights depends on our ability to detect infringement. It is difficult to
detect infringers who do not advertise the compounds that are used in their
products or the methods they use in the research and development of their
products. If we are unable to enforce our patents against infringers, it could
have a material adverse effect on our competitive position, results of
operations and financial condition.
If
we are not able to protect and control our unpatented trade secrets, know-how
and other technological innovation, we may suffer competitive harm.
We rely
on proprietary trade secrets and unpatented know-how to protect our research,
development and manufacturing activities and maintain our competitive position,
particularly when we do not believe that patent protection is appropriate or
available. However, trade secrets are difficult to protect. We attempt to
protect our trade secrets and unpatented know-how by requiring our employees,
consultants and advisors to execute confidentiality and non-use agreements. We
cannot guarantee that these agreements will provide meaningful protection, that
these agreements will not be breached, that we will have an adequate remedy for
any such breach, or that our trade secrets or proprietary know-how will not
otherwise become known or independently developed by a third party. Our trade
secrets, and those of our present or future collaborators that we utilize by
agreement, may become known or may be independently discovered by others, which
could adversely affect the competitive position of our product candidates. If
any trade secret, know-how or other technology not protected by a patent or
intellectual property right were disclosed to, or independently developed by a
competitor, our business, financial condition and results of operations could be
materially adversely affected.
If
third parties claim that our product candidates or technologies infringe their
intellectual property rights, we may become involved in expensive patent
litigation, which could result in liability for damages or require us to stop
our development and commercialization of our product candidates after they have
been approved and launched in the market, or we could be forced to obtain a
license and pay royalties under unfavorable terms.
Our
commercial success will depend in part on not infringing the patents or
violating the proprietary rights of third parties. Competitors or third parties
may obtain patents that may claim the composition, manufacture or use of our
product candidates, or the technology required to perform research and
development activities relating to our product candidates.
From time
to time we receive correspondence inviting us to license patents from third
parties. While we believe that our pre-commercialization activities fall within
the scope of an available exemption against patent infringement provided in the
United States by 35 U.S.C. § 271(e) and by similar research exemptions in
Europe, claims may be brought against us in the future based on patents held by
others. Also, we are aware of patents and other intellectual property rights of
third parties relating to our areas of practice, and we know that others have
filed patent applications in various countries that relate to several areas in
which we are developing product candidates. Some of these patent applications
have already resulted in patents and some are still pending. The pending patent
applications may also result in patents being issued. In addition, the
publication of patent applications occurs with a certain delay after the date of
filing, so we may not be aware of all relevant patent applications of third
parties at a given point in time. Further, publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, so we may
not be able to determine whether inventions claimed in patent applications of
third parties have been made before or after the date on which inventions
claimed in our patent applications and patents have been made. All issued
patents are entitled to a presumption of validity in many countries, including
the United States and many European countries. Issued patents held by others may
therefore limit our freedom to operate unless and until these patents expire or
are declared invalid or unenforceable in a court of applicable
jurisdiction.
For
example, we are aware that GlaxoSmithKline holds United States and European
patents claiming the administration of anti-EpCAM antibodies with certain
chemotherapeutic agents. We conducted a phase 1b clinical trial evaluating
adecatumumab in combination with docetaxel under our collaboration agreement
with Merck Serono. While we have no current plans to continue the development of
this combination, if we and Merck Serono were to pursue such development and
obtain marketing approval for this combination at a time when this patent
remains in effect, GlaxoSmithKline could seek to enjoin our collaboration
partner Merck Serono from commercializing the combination of adecatumumab and
docetaxel or require Merck Serono to take a license under its patent, which
Merck Serono may not be able to obtain on commercially reasonable terms, if at
all. If Merck Serono is required to make royalty payments to GlaxoSmithKline or
other third parties that hold patents that would be infringed by the
manufacture, use or sale of adecatumumab, and if these royalty payments to third
parties were to exceed a threshold percentage specified in our collaboration
agreement, Merck Serono would have the right to credit a portion of these
royalty payments against royalty payments due to us.
We and
our collaborators may not have rights under some patents that may cover the
composition of matter, manufacture or use of product candidates that we seek to
develop and commercialize, drug targets to which our product candidates bind, or
technologies that we use in our research and development activities. As a
result, our ability to develop and commercialize our product candidates may
depend on our ability to obtain licenses or other rights under these patents.
The third parties who own or control such patents may be unwilling to grant
those licenses or other rights to us or our collaborators under terms that are
commercially viable or at all. Third parties who own or control these patents
could bring claims based on patent infringement against us or our collaborators
and seek monetary damages and to enjoin further clinical testing, manufacturing
and marketing of the affected product candidates or products. There has been,
and we believe that there will continue to be, significant litigation in the
pharmaceutical industry regarding patent and other intellectual property rights.
If a third party sues us for patent infringement, it could consume significant
financial and management resources, regardless of the merit of the claims or the
outcome of the litigation.
If a
third party brings a patent infringement suit against us and we do not settle
the patent infringement suit and are not successful in defending against the
patent infringement claims, we could be required to pay substantial damages or
we or our collaborators could be forced to stop or delay research, development,
manufacturing or sales of the product or product candidate that is claimed by
the third party’s patent. We or our collaborators may choose to seek, or be
required to seek, a license from the third party and would most likely be
required to pay license fees or royalties or both. However, there can be no
assurance that any such license would be available on acceptable terms or at
all. Even if we or our collaborators were able to obtain a license, the rights
may be nonexclusive, which would give our competitors access to the same
intellectual property. Ultimately, we could be prevented from
commercializing a product candidate, or forced to cease some aspect of our
business operations as a result of patent infringement claims, which could harm
our business.
Our
success depends on our ability to maintain and enforce our licensing
arrangements with various third party licensors.
We are
party to intellectual property licenses and agreements that are important to our
business, and we expect to enter into similar licenses and agreements in the
future. These licenses and agreements impose various research, development,
commercialization, sublicensing, milestone payments, indemnification, insurance
and other obligations on us. Moreover, certain of our license agreements contain
an obligation for us to make payments to our licensors based upon revenues
received in connection with such licenses. If we or our collaborators fail to
perform under these agreements or otherwise breach obligations thereunder, our
licensors may terminate these agreements, we could lose licenses to intellectual
property rights that are important to our business and we could be required to
pay damages to our licensors. Any such termination could materially harm our
ability to develop and commercialize the product candidate that is the subject
of the agreement, which could have a material adverse impact on our results of
operations.
If
licensees or assignees of our intellectual property rights breach any of the
agreements under which we have licensed or assigned our intellectual property to
them, we could be deprived of important intellectual property rights and future
revenue.
We are a
party to intellectual property out-licenses, collaborations and agreements that
are important to our business, and we expect to enter into similar agreements
with third parties in the future. Under these agreements, we license or transfer
intellectual property to third parties and impose various research, development,
commercialization, sublicensing, royalty, indemnification, insurance, and other
obligations on them. If a third party fails to comply with these requirements,
we generally retain the right to terminate the agreement and to bring a legal
action in court or in arbitration. In the event of breach, we may need to
enforce our rights under these agreements by resorting to arbitration or
litigation. During the period of arbitration or litigation, we may be unable to
effectively use, assign or license the relevant intellectual property rights and
may be deprived of current or future revenues that are associated with such
intellectual property, which could have a material adverse effect on our results
of operations and financial condition.
We
may be subject to damages resulting from claims that we or our employees have
wrongfully used or disclosed alleged trade secrets of their former
employers.
Many of
our employees were previously employed at 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. Even if we are successful in defending
against these claims, litigation could result in substantial costs and be a
distraction to management. If we fail in defending such claims, in addition to
paying money claims, we may lose valuable intellectual property rights or
personnel. A loss of key personnel or their work product could hamper or prevent
our ability to commercialize certain product candidates.
Risks
Relating to Manufacturing and Sales of Products
We
depend on our collaborators and third-party manufacturers to produce most, if
not all, of our product candidates and if these third parties do not
successfully manufacture these product candidates, or do not follow current good
manufacturing practices or do not maintain their facilities in accordance with
these practices, our product development and commercialization efforts may be
harmed.
We have
no manufacturing experience or manufacturing capabilities for the production of
our product candidates for clinical trials or commercial sale. In order to
continue to develop product candidates, apply for regulatory approvals, and
commercialize our product candidates following approval, we or our collaborators
must be able to manufacture or contract with third parties to manufacture our
product candidates in clinical and commercial quantities, in compliance with
regulatory requirements, at acceptable costs and in a timely manner. The
manufacture of our product candidates may be complex, difficult to accomplish
and difficult to scale-up when large-scale production is required. Manufacture
may be subject to delays, inefficiencies and poor or low yields of quality
products. The cost of manufacturing our product candidates may make them
prohibitively expensive. If supplies of any of our product candidates or related
materials become unavailable on a timely basis or at all or are contaminated or
otherwise lost, clinical trials by us and our collaborators could be seriously
delayed. This is due to the fact that such materials are time-consuming to
manufacture and cannot be readily obtained from third-party
sources.
Product
candidates used in clinical trials or sold after marketing approval has been
obtained must be manufactured in accordance with current good manufacturing
practices regulations. There are a limited number of manufacturers that operate
under these regulations, including the FDA’s and EMA’s good manufacturing
practices regulations, and that are capable of manufacturing our product
candidates. Third-party manufacturers may encounter difficulties in achieving
quality control and quality assurance and may experience shortages of qualified
personnel. Also, manufacturing facilities are subject to ongoing periodic,
unannounced inspection by the FDA, the EMA, and other regulatory agencies or
authorities, to ensure strict compliance with current good manufacturing
practices and other governmental regulations and standards.
A failure
of third-party manufacturers to follow current good manufacturing practices or
other regulatory requirements and to document their adherence to such practices
may lead to significant delays in the availability of product candidates for use
in a clinical trial or for commercial sale, the termination of, or hold on, a
clinical trial, or may delay or prevent filing or approval of marketing
applications for our product candidates. In addition, as a result of such a
failure, we could be subject to sanctions, including fines, injunctions and
civil penalties, refusal or delays by regulatory authorities to grant marketing
approval of our product candidates, suspension or withdrawal of marketing
approvals, seizures or recalls of product candidates, operating restrictions and
criminal prosecutions, any of which could significantly and adversely affect our
business.
To the
extent that we or our collaborators seek to enter into manufacturing
arrangements with third parties such as our agreement with Lonza, we and such
collaborators will depend upon these third parties to perform their obligations
in a timely and effective manner and in accordance with government regulations.
Lonza or other contract manufacturers may breach their manufacturing agreements
because of factors beyond our control or may terminate or fail to renew a
manufacturing agreement based on their own business priorities at a time that is
costly or inconvenient for us. If Lonza or any other third-party manufacturer
were to fail to perform their obligations, our competitive position and ability
to generate revenue may be adversely affected in a number of ways,
including:
|
•
|
we
and our collaborators may not be able to initiate or continue clinical
trials of product candidates that are under
development;
|
|
•
|
we
and our collaborators may be delayed in submitting applications for
regulatory approvals for our product candidates;
and
|
|
•
|
we
and our collaborators may not be able to meet commercial demands for any
approved products.
|
If we
were required to change manufacturers, it may require additional clinical trials
and the revalidation of the manufacturing process and procedures in accordance
with applicable current good manufacturing practices and may require FDA or EMA
approval. This revalidation may be costly and time-consuming. If we are unable
to arrange for third-party manufacturing of our product candidates, or to do so
on commercially reasonable terms, we may not be able to complete development or
marketing of our product candidates.
The
transfer of the manufacturing process for blinatumomab from MedImmune to us or
our contract manufacturer may not be successful, which may result in a shortage
of clinical trial materials and a delay in the development of
blinatumomab.
As a
result of the termination of the collaboration and license agreement with
MedImmune relating to blinatumomab, we have assumed the responsibility for the
manufacture of blinatumomab for clinical trials and have recently engaged Lonza
AG as our contract manufacturer. We do not expect Lonza to manufacture supplies
of blinatumomab that can be used in clinical trials until the end of 2010 at the
earliest. Until then we will utilize the supplies of blinatumomab produced by
MedImmune prior to the termination of our agreement with them. We believe that
the existing supply of blinatumomab will be sufficient to supply our ongoing and
planned clinical trials of blinatumomab until Lonza-supplied blinatumomab
becomes available.
If
there is a delay in Lonza providing us with blinatumomab, we may have to delay
clinical trials which could have a material adverse effect on our business. As
part of the termination, MedImmune is responsible for the continued performance
of the studies intended to establish that the stock of blinatumomab supplied by
MedImmune to us is stable and within the required specifications of our IMPD and
IND under which we are performing clinical trials with blinatumomab. If
MedImmune ceases to perform the stability studies or to deliver the data from
the stability studies as required under the agreement, or if the data provided
by MedImmune indicate that the stock of blinatumomab has degraded to an extent
that it no longer meets the required specifications, we may not have sufficient
quantities of the product candidate required to perform the planned clinical
trials with blinatumomab. There can be no assurance that the transferred
materials will be sufficient for use in our clinical trials, or that we or Lonza
will be able to implement the manufacturing process transferred from MedImmune
in a manner that results in clinical trial materials with specifications
comparable to the clinical trial materials produced by MedImmune. Any of these
or similar or other events could cause delays in the development and potential
regulatory approval of blinatumomab, which would have an adverse effect on its
commercial potential.
If
our third-party manufacturers do not follow current good manufacturing practices
or do not maintain their facilities in accordance with these practices, our
product development and commercialization efforts may be harmed.
We have
no manufacturing experience or manufacturing capabilities for the production of
our product candidates for clinical trials or commercial sale and must rely on
third parties to provide manufacturing services for us. Product candidates used
in clinical trials or sold after marketing approval has been obtained must be
manufactured in accordance with current good manufacturing practices
regulations. There are a limited number of manufacturers that operate under
these regulations, including the FDA’s and EMA’s good manufacturing practices
regulations, and that are capable of manufacturing our product candidates.
Third-party manufacturers may encounter difficulties in achieving quality
control and quality assurance and may experience shortages of qualified
personnel. Also, manufacturing facilities are subject to ongoing periodic,
unannounced inspection by the FDA, the EMA, and other regulatory agencies or
authorities, to ensure strict compliance with current good manufacturing
practices and other governmental regulations and standards.
A failure
of third-party manufacturers to follow current good manufacturing practices or
other regulatory requirements or to document their adherence to such practices
may lead to significant delays in the availability of product candidates for use
in a clinical trial or for commercial sale, the termination of, or hold on a
clinical trial, or may delay or prevent filing or approval of marketing
applications for our product candidates. In addition, as a result of such a
failure, we could be subject to sanctions, including fines, injunctions and
civil penalties, refusal or delays by regulatory authorities to grant marketing
approval of our product candidates, suspension or withdrawal of marketing
approvals, seizures or recalls of product candidates, operating restrictions and
criminal prosecutions, any of which could significantly and adversely affect our
business. If we were required to change manufacturers, it may require additional
clinical trials and the revalidation of the manufacturing process and procedures
in accordance with applicable current good manufacturing practices and may
require FDA or EMA approval. This revalidation may be costly and time-consuming.
If we are unable to arrange for third-party manufacturing of our product
candidates, or to do so on commercially reasonable terms, we may not be able to
complete development or marketing of our product candidates.
We
have no sales, marketing or distribution experience and will depend
significantly on third parties who may not successfully sell our product
candidates following approval.
We have
no sales, marketing or product distribution experience. If we receive required
regulatory approvals to market any of our product candidates, we plan to rely
primarily on sales, marketing and distribution arrangements with third parties,
including our collaborators. For example, as part of our agreements with Bayer
Schering Pharma, sanofi-aventis, Nycomed, Merck Serono, MedImmune and TRACON, we
have granted these companies the right to market and distribute products
resulting from such collaborations, if any are ever successfully developed. We
may have to enter into additional marketing arrangements in the future and we
may not be able to enter into these additional arrangements on terms that are
favorable to us, if at all. In addition, we may have limited or no control over
the sales, marketing and distribution activities of these third parties, and
sales through these third parties could be less profitable to us than direct
sales. These third parties could sell competing products and may devote
insufficient sales efforts to our product candidates following approval. As a
result, our future revenues from sales of our product candidates, if any, will
be materially dependent upon the success of the efforts of these third
parties.
We may
seek to co-promote products with our collaborators, or to independently market
products that are not already subject to marketing agreements with other
parties. If we determine to perform sales, marketing and distribution functions
ourselves, then we could face a number of additional risks,
including:
|
•
|
we
may not be able to attract and build an experienced marketing staff or
sales force;
|
|
•
|
the
cost of establishing a marketing staff or sales force may not be
justifiable in light of the revenues generated by any particular
product;
|
|
•
|
our
direct sales and marketing efforts may not be successful;
and
|
|
•
|
we
may face competition from other products or sales forces with greater
resources than our own sales force.
|
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Reserved
Item 5.
Other Information
On April
30, 2010 the Company and Kingsbridge entered into an amendment to the CEFF.
Pursuant to the amendment, Kingsbridge no longer has the right to terminate the
CEFF as a result of the Company’s failure to draw down at least $1.25 million in
funds over a consecutive 12-month period. All other terms and
provisions of the CEFF remain in effect and are unaffected by this
amendment.
On May 5,
2010 the Company announced that it had entered into a global collaboration and
license agreement with Boehringer Ingelheim for the research, development and
commercialization of a new BiTE antibody for the treatment of multiple myeloma.
Under the terms of the agreement Micromet will receive an upfront cash payment
of €5 million (approximately $6.6 million) and is eligible to receive
development and regulatory milestone payments totaling €50 million
(approximately $66 million). The agreement provides Micromet with royalties on
U.S. product sales equivalent to a profit split and escalating low double-digit
royalties on product sales outside the U.S.
Item 6.
Exhibits
Exhibit
Number
|
|
Description
|
|
|
|
3.1(1)
|
|
Amended
and Restated Certificate of Incorporation of the
Registrant
|
|
|
|
3.2(2)
|
|
Certificate
of Amendment of the Amended and Restated Certificate of Incorporation of
the Registrant
|
|
|
|
3.3(3)
|
|
Certificate
of Designations for Series A Junior Participating Preferred Stock of the
Registrant
|
|
|
|
3.4(4)
|
|
Amended
and Restated Bylaws effective October 3, 2007
|
|
|
|
10.1(#)
|
|
Non-Employee
Director Compensation Policy, as amended
|
|
|
|
10.2(#)
|
|
2010
Management Incentive Compensation Plan
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14
promulgated under the Securities Exchange Act of 1934
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14
promulgated under the Securities Exchange Act of 1934
|
|
|
|
32(*)
|
|
Certifications
of Principal Executive Officer and Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
(1)
|
Incorporated
by reference from the Registrant’s Quarterly Report on Form 10-Q
filed with the SEC on December 11,
2003
|
|
(2)
|
Incorporated
by reference from the Registrant’s Quarterly Report on Form 10-Q
filed with the SEC on May 10,
2006
|
|
(3)
|
Incorporated
by reference from the Registrant’s Current Report on Form 8-K filed
with the SEC on November 8,
2004
|
|
(4)
|
Incorporated
by reference from the Registrant’s Current Report on Form 8-K filed
with the SEC on October 9,
2007
|
|
#
|
Indicates
management contract or compensatory
plan.
|
|
*
|
These
certifications are being furnished solely to accompany this annual report
pursuant to 18 U.S.C. Section 1350, and are not being filed for
purposes of Section 18 of the Securities Exchange Act of 1934 and are
not to be incorporated by reference into any filing of the Registrant,
whether made before or after the date hereof, regardless of any general
incorporation language in such
filing
|
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated:
May 5, 2010
|
Micromet,
Inc.
|
|
|
|
|
|
|
By:
|
/s/ Barclay A. Phillips
|
|
|
|
Barclay
A. Phillips
|
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
(Duly
authorized officer and Principal Financial Officer)
|
|
Exhibit List
Exhibit
Number
|
|
Description
|
|
|
|
3.1(1)
|
|
Amended
and Restated Certificate of Incorporation of the
Registrant
|
|
|
|
3.2(2)
|
|
Certificate
of Amendment of the Amended and Restated Certificate of Incorporation of
the Registrant
|
|
|
|
3.3(3)
|
|
Certificate
of Designations for Series A Junior Participating Preferred Stock of the
Registrant
|
|
|
|
3.4(4)
|
|
Amended
and Restated Bylaws effective October 3, 2007
|
|
|
|
10.1(#)
|
|
Non-Employee
Director Compensation Policy, as amended
|
|
|
|
10.2(#)
|
|
2010
Management Incentive Compensation Plan
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14
promulgated under the Securities Exchange Act of 1934
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14
promulgated under the Securities Exchange Act of 1934
|
|
|
|
32(*)
|
|
Certifications
of Principal Executive Officer and Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
(1)
|
Incorporated
by reference from the Registrant’s Quarterly Report on Form 10-Q
filed with the SEC on December 11,
2003
|
|
(2)
|
Incorporated
by reference from the Registrant’s Quarterly Report on Form 10-Q
filed with the SEC on May 10,
2006
|
|
(3)
|
Incorporated
by reference from the Registrant’s Current Report on Form 8-K filed
with the SEC on November 8,
2004
|
|
(4)
|
Incorporated
by reference from the Registrant’s Current Report on Form 8-K filed
with the SEC on October 9,
2007
|
|
#
|
Indicates
management contract or compensatory
plan.
|
|
*
|
These
certifications are being furnished solely to accompany this annual report
pursuant to 18 U.S.C. Section 1350, and are not being filed for
purposes of Section 18 of the Securities Exchange Act of 1934 and are
not to be incorporated by reference into any filing of the Registrant,
whether made before or after the date hereof, regardless of any general
incorporation language in such
filing
|