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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2005. |
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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: 000-21291
Introgen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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74-2704230 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification Number) |
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301 Congress Avenue, Suite 1850
Austin, Texas
(Address of principal executive offices) |
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78701
(Zip Code) |
Registrants telephone number, including area code:
(512) 708-9310
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.001 par value per share
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer o |
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2 of the
Exchange
Act). Yes o No þ
The aggregate market value of the voting stock (common stock)
held by non-affiliates of the Registrant, as of the last day of
the Registrants second fiscal quarter, was approximately
$130.7 million based upon the last sale price reported on
the Nasdaq National Market for June 30, 2005. For purposes
of this disclosure, shares of common stock held by persons
holding more than 5% of the outstanding shares of the
Registrants common stock and shares held by executive
officers and directors of the Registrant have been excluded
because such persons may be deemed to be affiliates. This
determination is not necessarily conclusive.
As of March 13, 2005, the Registrant had
37,180,053 shares of common stock, $0.001 par value
per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Items 10, 11, 12, 13
and 14 of
Form 10-K is
incorporated by reference to the Registrants proxy
statement (2006 Proxy Statement) for the 2006 Annual
Stockholders Meeting, which will be filed with the
Securities and Exchange Commission within 120 days after
the close of the Registrants fiscal year ended
December 31, 2005.
INTROGEN THERAPEUTICS, INC.
ANNUAL REPORT ON
FORM 10-K
TABLE OF CONTENTS
PART I
This Annual Report on
Form 10-K contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended
(Securities Act) and Section 21E of the Securities Exchange
Act of 1934, as amended (Exchange Act). These statements
include, among others, statements concerning our future
operations, financial condition and prospects, and our business
strategies as well as the statements below under
Item 1A. Risk Factors. The words
believe, expect, anticipate
and other similar expressions generally identify forward-looking
statements. Investors in our common stock are cautioned not to
place undue reliance on these forward-looking statements. These
forward-looking statements are subject to substantial risks and
uncertainties that could cause our future business, financial
condition, or results of operations to differ materially from
historical results or currently anticipated results. Investors
should carefully review the information contained in
Item 1A. Risk Factors and elsewhere in, or
incorporated by reference into, this Annual Report on
Form 10-K.
Access to Company Information
Our Internet website address is www.introgen.com. Our Annual
Report on
Form 10-K,
Quarterly Reports on
Form 10-Q, Current
Reports on
Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act are available
free of charge through our website as soon as reasonably
practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission
(Commission). Our website and the information contained therein
or connected thereto is not intended to be incorporated into
this Annual Report on
Form 10-K.
Our Corporate Governance Standards, the charters of our Audit
Committee, our Compensation Committee and our Nominating and
Corporate Governance Committee, as well as our Corporate Code of
Ethics for All Employees and Directors and our Corporate Code of
Ethics for Financial Officers (which specifically applies to our
Chief Executive Officer, Chief Financial Officer and persons
performing similar functions) are available on our website under
Investor Relations Corporate Governance.
Overview
Introgen Therapeutics, Inc. was incorporated in Delaware in
1993. We are a biopharmaceutical company focused on the
discovery, development and commercialization of targeted
molecular therapies for the treatment of cancer and other
diseases. We are developing product candidates to treat a wide
range of cancers using tumor suppressors, cytokines and other
targeted molecular therapies. These agents are designed to
increase production of normal cancer-fighting proteins that act
to overpower cancerous cells, stimulate immune activity and
enhance conventional cancer therapies.
Our primary approach to the treatment of cancers is to deliver
targeted molecular therapies that increase production of normal
cancer-fighting proteins to induce apoptosis, cell cycle
control, cell growth control and gene regulation, including the
regulation of angiogenic and immune factors. Our products work
by acting as templates for the transient in vivo
production of proteins that have pharmacological properties.
The resultant proteins engage disease-related molecular targets
or receptors to produce specific therapeutic effects.
We believe the use of molecular therapies that are cleared from
the body after administration in order to induce the production
of biopharmaceutical proteins is an emerging field presenting a
new approach for treating many cancers without the toxic side
effects common to traditional therapies. We have developed
significant expertise in developing targeted therapies that may
be used to treat disease and in using what we believe are safe
and effective delivery systems to transport these agents to the
cancer cells. We believe we are able to treat a number of
cancers in a way that kills cancer cells without harming normal
cells.
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Key product candidates we are developing, which are further
described below under Item 1. Business
Product Development Programs, include:
ADVEXIN®
therapy, our lead product candidate, combines the p53 tumor
suppressor with a non-replicating, non-integrating adenoviral
delivery system. Key accomplishments and items of note with
respect to our ADVEXIN therapy product development include the
following:
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We have received Fast Track designation for ADVEXIN therapy from
the FDA under its protocol assessment program. |
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We have submitted a Submission of a Partial Application (SOPA)
Request to the FDA Division of Cell and Gene Therapy proposing a
rolling Biologics License Application (BLA) for ADVEXIN
therapy for the treatment of recurrent head and neck cancer. We
have proposed to the FDA that the rolling BLA could be evaluated
under the provisions of Subpart H for Accelerated Approval. |
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We have reviewed historically successful FDA registration
strategies for numerous cancer drugs, noting that during the
past seven years, approximately 14 cancer drugs were initially
approved based upon submissions of Phase 2 clinical data. A
number of the Phase 2 trials supporting these approvals
employed single-arm studies involving relatively small patient
populations. Virtually all of those drugs relied on surrogate
endpoints for approval and a substantial number of the products
were for orphan drug indications. |
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Our two ongoing Phase 3 clinical trials of ADVEXIN therapy
in patients with recurrent squamous cell cancer of the head and
neck are multi-national, multi-site trials. In connection with
these trials, the FDA has suggested we consider interim
Phase 3 efficacy analyses. We are discussing with the FDA a
plan to conduct these analyses in support of the ADVEXIN
registration process. In addition, we have requested that the
FDA allow us to accelerate the initiation of a previously
approved interim safety analysis for one of our ongoing
Phase 3 trials. |
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ADVEXIN therapy for head and neck cancer has been designated an
Orphan Drug under the Orphan Drug Act. This designation may give
us up to seven years of marketing exclusivity for ADVEXIN
therapy for this indication if approved by the FDA. |
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We have enrolled over 500 patients in ADVEXIN therapy
clinical trials, establishing a large safety database that
indicates an absence of treatment-limiting side effects
frequently associated with many other cancer therapies. |
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We have tested ADVEXIN therapy used alone and in combination
with radiation therapy, chemotherapy, and surgery in various
clinical trials. |
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We have observed that the anti-cancer effects of ADVEXIN therapy
are a result of multiple mechanisms of action including
induction of tumor cell death, suppression of tumor growth and
the inhibition of tumor blood vessels, known as
anti-angiogenesis. |
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Based upon defining prognostic, medical and biological
characteristics that represent refined targeting of ADVEXIN
therapy, we have identified subpopulations of patients
participating in certain of our Phase 2 clinical trials for
recurrent squamous cell cancer of the head and neck who may
particularly benefit from ADVEXIN therapy. Analysis of the data
from these patient subpopulations showed that up to 29% of the
patients experienced objective responses with either complete
tumor regression or a reduction of tumor size greater than or
equal to 50% of the pre-treatment size. We are in the process of
filing for patent protection covering certain of these
characteristics. |
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In the combined analysis of the three multi-national, multi-site
Phase 2 clinical trials involving 217 patients with
recurrent squamous cell carcinoma of the head and neck, the
overall tumor growth control rate was 59%. Tumor growth control
rate represents the percentage of treated tumors where there was
disappearance of the tumor, shrinkage of the tumor or the
absence of additional tumor |
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growth beyond 25% of pre-treatment measurements. In 10% of the
treated lesions, there was either complete tumor regression or a
reduction of tumor size greater than or equal to 50% of the
pre-treatment size. |
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We performed a Phase 2 clinical trial of ADVEXIN therapy
combined with neoadjuvant chemotherapy and surgery in women with
locally advanced breast cancer. Data from this clinical trial
indicated that objective clinical responses were seen following
the combined therapy in all of the patients. Complete tumor
removal by subsequent surgery was achieved in 100% of the
patients. After at least 35 months of follow-up, 92% of the
treated patients were alive and 83% had survived without
evidence of disease recurrence. |
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We performed a Phase 2 clinical trial of ADVEXIN therapy
administered as a complement to radiation therapy in non-small
cell lung cancer. In the 19 patients who participated in
the trial, combined ADVEXIN and radiation treatment resulted in
63% biopsy-proven complete responses at three months, which is
approximately four times the expected rate using radiotherapy
alone. |
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We performed a Phase 1/early Phase 2 clinical trial of
ADVEXIN therapy for the treatment of advanced, unresectable,
squamous cell esophageal cancer. Results of this trial in
patients with esophageal cancer refractory to chemotherapy and
radiation indicate three of the ten patients treated, or 30%,
had negative biopsies after receiving ADVEXIN therapy. The
median survival of the patients treated with ADVEXIN therapy was
approximately twelve months, which compared favorably to
historical controls in which a median survival of less than ten
months was observed for patients who did not respond to standard
treatments. Six patients, or 60%, were still alive one year
after beginning ADVEXIN therapy. |
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Our clinical trials indicate ADVEXIN therapy is well tolerated
as a monotherapy and well tolerated when combined with
conventional cancer therapies. We have observed that the
addition of ADVEXIN therapy to standard chemotherapy, surgery or
radiation can increase the activity of these conventional
therapies without increasing the severity of side effects
normally associated with these standard treatment regimens. |
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We hold the worldwide rights for the development, manufacturing,
marketing and commercialization of ADVEXIN therapy. |
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We hold or control over 80 issued methods or composition patents
related to ADVEXIN therapy and its production. |
INGN 241 combines the mda-7 tumor suppressor, also known as
interleukin 24 (IL-24), with our adenoviral vector system to
kill tumor cells through multiple mechanisms. Our pre-clinical
trials have shown the protein produced by INGN 241 suppresses
the growth of many cancer cells, including those of the breast,
lung, ovary, colon, prostate and central nervous system, while
not affecting the growth of normal cells. A Phase 1/early
Phase 2 clinical trial indicated that in patients with
various solid tumors, INGN 241 is well tolerated, displays
minimal toxicity and is biologically active. We are conducting
later stage clinical trials using INGN 241 in patients with
metastatic melanoma and other cancers.
INGN 225 is an immunotherapy using the p53 tumor suppressor as
the basis for a highly specific cancer molecular immunotherapy
that stimulates a particular type of immune system cell known as
a dendritic cell. Findings during pre-clinical testing suggest a
molecular immunotherapy consisting of dendritic cells stimulated
by ADVEXIN therapy could have broad utility as a treatment for
progression of solid tumors. Introgen academic collaborators are
conducting Phase 1 and early stage Phase 2 clinical
trials to study INGN 225 in the indications of small cell lung
cancer and breast cancer. Interim results from these clinical
trials in patients with small cell lung cancer who were
previously treated with chemotherapy indicate that greater than
60% of the evaluable patients in the study treated with INGN 225
had objective responses to subsequent chemother-
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apy. Historically, the expected objective response rate in these
patients to further chemotherapy is between 5% and 25%.
We are developing INGN 234 for the prevention of oral cancers
and the treatment of oral leukoplakia, a pre-malignant
condition. We are conducting a Phase 1/early Phase 2
clinical trial in which p53 is being administered in an oral
mouthwash formulation to prevent precancerous oral lesions from
developing into cancerous lesions. We are conducting
pre-clinical work on other topical administrations of tumor
suppressors to control or prevent oral or dermal cancers. We are
investigating multiple delivery platforms, including both viral
and non-viral approaches. We are also investigating delivery
with rinses, patches, ointments and enhancing polymers. We
believe the opportunity exists to develop safe treatments for
pre-malignant and malignant cells that can be effectively
exposed to natural biological tumor suppressor and DNA repairing
molecules.
INGN 401 is our systemically-delivered nanoparticle therapy that
provides the normal
FUS-1 tumor suppressor
that is frequently altered or missing in the development of many
solid tumors. Pre-clinical studies have shown delivery of
FUS-1 significantly
inhibits the growth of tumors and greatly reduces metastatic
spread of lung cancer in animals when delivered to tumor cells
using either an adenoviral or non-viral delivery system. INGN
401 is being studied in a Phase 1/2 clinical trial for
end-stage, metastatic non-small cell lung cancer patients.
INGN 402 is our systemic, nanoparticle formulation containing
the p53 tumor suppressor currently in pre-clinical development.
Early studies with INGN 402 have demonstrated a good safety
profile and promising anti-cancer activity in murine lung tumor
models.
INGN 403 is our systemic, nanoparticle formulation containing
the mda-7 tumor suppressor, also known as interleukin 24
(IL-24). Early studies with INGN 403 have demonstrated a good
safety profile and promising anti-cancer activity in murine lung
tumor models. Data from the INGN 403 pre-clinical mda-7
nanoparticle studies were recently published in DNA and Cell
Biology.
INGN 007 is a replication-competent viral therapy that
over-expresses an adenoviral protein causing rapid disruption of
tumor cells in which the adenovirus replicates. Pre-clinical
testing indicates this treatment can eradicate human tumors in
animal models.
We have an alliance agreement with Colgate-Palmolive Company
(Colgate-Palmolive) to develop and potentially market oral
healthcare products. See Item 1. Business
Business and Collaborative Arrangements Alliance
with Colgate-Palmolive Company below for further
discussion of this alliance agreement.
Our principal executive offices are located at 301 Congress
Avenue, Suite 1850, Austin, Texas 78701. Our telephone
number is (512) 708-9310. Our Internet website address is
www.introgen.com.
Background
A typical living cell in the body contains thousands of
different proteins essential to cellular structure, growth and
function. The cell produces proteins according to a set of
genetic instructions encoded by DNA molecules, which contains
all the information necessary to control the cells
biological processes. DNA is
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organized into segments called genes, with each gene molecule
containing the information required to produce one or more
specific proteins. The production of a protein by a particular
gene molecule is known as gene expression or activity. Many of
the proteins inside a cell participate in a series of receptor
interactions and chemical reactions to form what are known as
molecular pathways that enable a cell to perform its
various metabolic functions. The improper expression of proteins
by one or more genes can alter these pathways and affect a
cells normal function, frequently resulting in disease.
The interaction of therapeutic agents with proteins in these
pathways is known as targeted therapy. Targeted
therapies are believed to provide precision in their action that
results in less potential for undesirable side effects.
In recent years, scientists have made significant progress
toward understanding the nature of the complete set of human
genes, referred to as the human genome, and in evaluating the
role that genes and the proteins they express play in both
normal and disease states. Academic and governmental initiatives
have sequenced a large number of the genes that comprise the
human genome. As new genes are discovered and decoded within
this sequence, scientists are identifying and understanding
their functions and interactions within these pathways. These
discoveries provide opportunities to develop targeted
therapeutic applications for individual genes and the proteins
they express, including treatment and prevention of disease.
Targeted molecular therapies are often combined with a delivery
system, referred to as a vector, which enables the therapeutic
molecule to enter the target cell. The vector must be able to
deliver a sufficient dose of the therapeutic molecule to cause a
beneficial effect. Among the delivery systems currently in use
are modified versions of viruses such as adenoviruses.
Scientists often use viruses as delivery systems because viruses
have the ability to efficiently infect cells and carry
therapeutic molecules into the cells. Scientists can modify
these viruses by deleting pieces of the viral genome that are
necessary for viral reproduction and replacing the deleted
pieces with a therapeutic molecule. The resulting viral
vector retains the ability of the virus to efficiently
deliver the therapeutic molecule into cells, while losing the
ability to reproduce itself and spread to other cells.
While viruses are an efficient means of introducing therapeutic
molecules into cells, scientists have also developed synthetic
substances such as nanoparticles, which are nanoscale structures
that have no viral components. These synthetic or nanoparticle
systems can also deliver therapeutic molecules to host cells
through systemic administration. Scientists have developed these
systems to mimic the characteristics of viral vector systems in
order to expand the disease targets that can be treated. We are
using both viral and synthetic nanoparticle systems in our
clinical trials to deliver therapeutic molecules.
Cancer is a leading cause of death in the United States. In the
United States, approximately 1.4 million people are newly
diagnosed with cancer and over 565,000 people die from the
disease each year. Although the prevalence of specific cancers
varies among different populations, we believe that the overall
incidence of cancer worldwide is similar to that experienced in
the United States. The National Institutes of Health
(NIH) estimate the annual direct cost of treating cancer
patients in the United States is approximately
$74.0 billion.
Cancer is a group of diseases in which the bodys normal
self-regulatory mechanisms no longer control the growth of some
kinds of cells. Cells are frequently exposed to a variety of
agents, from both external and internal sources, which damage
DNA. Even minor DNA damage can have profound effects, causing
certain genes to become overactive, to undergo partial or
complete inactivation, or to function abnormally. Genes control
a number of protective pathways in cells that prevent cells from
becoming cancerous. For example, pathways that transmit signals
for a cell to divide have on-off switches that control cell
division. Cells also have mechanisms that allow them to
determine if their DNA has been damaged, and they have pathways
to repair that damage or eliminate the cell.
The failure of any of these protective pathways can lead to the
development of cancer. Cancer is one of the more suitable
initial applications for targeted therapies because molecular
targets that will lead to the
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destruction of the cancer cell are understood. The introduction
of normal tumor suppressors, such as p53 and mda-7, into cancer
cells leads to the destruction of those cancer cells and is a
promising approach to treating cancer.
Tumor suppressors are one class of molecules that play a crucial
role in preventing cancer and its spread. This class includes
the p53, mda-7, BAK and
FUS-1 tumor
suppressors, among others.
The best known and most studied of the tumor suppressors is the
p53 molecule. The p53 molecule is one of the most potent members
of a group of naturally occurring tumor suppressors, which act
to kill cancer cells, arrest cancer cell growth and protect
cells from becoming cancerous. The p53 tumor suppressor is
involved in multiple cellular processes, including control of
cell division, DNA repair, cell differentiation, genome
integrity, apoptosis, and inhibition of blood vessel growth, or
anti-angiogenesis. Angiogenesis refers to the process by which
new blood vessels are formed, such as those that supply blood
and nutrients to tumors to feed their growth. The p53 tumor
suppressor is capable of such wide-ranging effects because it
orchestrates the activity of a host of genes and proteins. If a
cell suffers DNA damage, p53 responds to the damage by
initiating a cascade of protective processes to either repair
the DNA damage or to destroy the damaged cell through apoptosis.
These p53-mediated processes prevent damaged cells from
multiplying and progressing towards cancer.
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Current Treatment of Cancer |
Conventional therapeutic approaches, including surgery,
chemotherapy and radiation therapy, are ineffective or only
partially effective in treating many types of cancer. Surgery is
inadequate for many patients because the cancer is inaccessible
or impossible to remove completely. Surgery, although applicable
to over half of all cancer cases, is also inadequate where the
cancer has spread, or metastasized. For certain cancers such as
head and neck cancer, surgery can be an effective treatment of
the cancer, but may result in severe disfigurement and
disability for the patient. Radiation therapy and chemotherapy
are, by their nature, toxic procedures that damage both normal
and cancerous tissue. Physicians must carefully control
administration of these therapies to avoid life-threatening side
effects, and many patients are unable to withstand the most
effective doses due to toxicity. These conventional therapies
typically cause debilitating side effects such as bone marrow
suppression, nausea, vomiting and hair loss, often requiring
additional and costly medications to ameliorate such side
effects. Further, the usefulness of certain chemotherapies may
be limited in tumors that have developed mechanisms to evade the
action of the drugs, a phenomenon known as multi-drug resistance.
Due to the various limitations of most cancer therapies
currently utilized, the treatment of cancer remains complex.
Physicians refer to the first treatment regimen for a
newly-diagnosed cancer, usually surgery if possible, or
radiation therapy, as primary treatment. If the primary
treatment is not successful, the cancer will re-grow or continue
to grow, which is referred to as recurrent disease. In most
cases, recurrent cancer is not curable, with secondary treatment
regimens, usually chemotherapy, only providing marginal benefits
for a limited period of time. Physicians consider recurrent
cancer that has proven resistant to a secondary treatment to be
refractory. Most new cancer treatments are tested initially in
patients with either recurrent or refractory disease because
there are no standard therapies likely to provide them with
clinical benefit.
Given that established cancer therapies often prove to be
incomplete, ineffective or toxic to the patient, there is a need
for additional new treatment modalities that either complement
established therapies or replace them by offering better
therapeutic outcomes. For example, in a limited number of
cancers, immunotherapy, which seeks to stimulate a
patients own immune system to kill cancer cells, has
rapidly become widely accepted by improving on the shortcomings
of existing therapy. However, for a broad range of cancers,
additional approaches, especially more specific ones that target
specific dysfunctional pathways in the cancer cell, are needed
to reduce the toxicity and improve upon marginal benefits common
to current cancer treatments. Targeted molecular therapy
applications are designed to address the cellular dysfunction
that causes cancer, compared with small molecule drugs or
immunotherapeutic agents, which may act indirectly.
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The Introgen Approach
Our primary approach for the treatment of cancers is to deliver
targeted molecular therapies that increase production of normal
cancer-fighting proteins. The resultant proteins engage
disease-related molecular targets or receptors to produce
specific therapeutic effects. We believe we are able to treat a
number of cancers in a way that kills cancer cells without
harming normal cells.
Because most cancers are amenable to local treatment and because
local cancer treatments are administered far more often than
systemic cancer treatments, our locally delivered product
candidates, such as ADVEXIN therapy, deposit therapeutic
molecules directly into a patients cancerous tumor by
hypodermic syringe. In those cases for which a systemic therapy
may be indicated, we use a systemically administered
nanoparticle formulation system to deliver tumor suppressors.
We initially focused on advanced cancers lacking effective
treatments and in which local tumor growth control, where the
tumor stops growing or shrinks, is likely to lead to measurable
benefit. We have expanded our focus to include earlier stage
cancers and pre-malignancies. We believe our clinical trials
have shown that our therapies can be used alone and in
combination with conventional treatments such as surgery,
radiation therapy and chemotherapy.
The Introgen Strategy
Our objective is to be a leader in the development of targeted
molecular tumor suppressor therapies and other products for the
treatment of cancer and other diseases that, like cancer, result
from cellular dysfunction and uncontrolled cell growth. To
accomplish this objective, we are pursuing the following
strategies:
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Develop and Commercialize ADVEXIN therapy, INGN 225 and INGN
241 for Multiple Cancer Indications. We plan to continue our
development programs to commercialize our ADVEXIN therapy using
the p53 tumor suppressor and our INGN 241 product using the
mda-7 tumor suppressor, also know as interleukin 24 (IL-24), in
multiple cancer indications. |
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Develop Our Portfolio of Targeted Molecular Therapies and
Other Drug Products. Utilizing our significant research,
clinical, regulatory and manufacturing expertise, we are
evaluating development of additional molecular therapies for
various cancers, such as INGN 225, a highly specific cancer
immunotherapy, INGN 234, an oral rinse or mouthwash formulation
containing the p53 tumor suppressor, INGN 401, using the
FUS-1 tumor suppressor,
and INGN 007, a replication-competent viral therapy. We have
established an efficient process for evaluating new drug
candidates and advancing them from pre-clinical to clinical
development. We have identified and licensed multiple
technologies, which we intend to combine with our adenoviral and
non-viral vector systems and which we believe are attractive
development targets for the treatment of various cancers. We are
also evaluating the development of mebendazole (INGN 601), our
first small molecule product candidate. We intend to evaluate
additional opportunities to in-license or acquire new
technologies. |
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Develop a Nanoparticle Systemic Administration Platform.
Early pre-clinical and clinical studies with these new
nanoparticle drugs have demonstrated a good safety profile and
promising anti-cancer activity. In addition to
FUS-1, we incorporate
the p53 tumor suppressor and the mda-7 tumor suppressor in these
nanoparticle formulations. |
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Develop the Topical Use of Tumor Suppressors. We plan to
continue developing topical product candidates for the treatment
or prevention of oral and dermal cancers. We believe these
treatments are a logical extension of our loco-regional delivery
of cancer therapies and represent attractive product candidates
since pre-malignant and malignant cells can be exposed to
natural, biological tumor suppressors and DNA repairing agents. |
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Establish Targeted Sales and Marketing Capabilities. The
oncology market can be effectively addressed by a small, focused
sales force because it is characterized by a concentration of
specialists in relatively few major cancer centers. We believe
we can address this market by a combination of building a direct
sales force as part of the ADVEXIN therapy commercialization
process and pursuing |
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marketing and distribution agreements with corporate partners
for ADVEXIN therapy as well as additional products. |
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Expand Our Market Focus to Non-Cancer Indications. We
plan to leverage our scientific, research and process
competencies in molecular therapy and vector development to
pursue targeted molecular therapies for a variety of other
diseases and conditions. We believe these therapies could hold
promise for diseases such as cardiovascular disease and
rheumatoid arthritis, which, like cancer, result from cellular
dysfunction or uncontrolled cell growth. |
Product Development Programs
The following table summarizes the status of our product
development programs.
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Product** |
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Cancer Indication |
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Development Status | |
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ADVEXIN Therapy (p53)
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Head and Neck (both monotherapy and combined with chemotherapy) |
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Phase 3 |
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Non-Small Cell Lung(combined with radiation therapy) |
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Phase 2 |
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Breast (combined with chemotherapy) |
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Phase 1-2 |
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Perioperative (and surgery) |
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Phase 1-2 |
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Esophageal |
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Phase 1-2 |
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Prostate |
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Phase 1* |
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Intravenous Administration |
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Phase 1* |
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Ovarian |
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Phase 1* |
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Bladder |
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Phase 1* |
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Bronchoalveolar |
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Phase 1* |
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Brain (glioblastoma) |
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Phase 1* |
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INGN 225 (p53 molecular immunotherapy)
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Small Cell Lung |
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Phase 1-2 |
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Breast |
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Phase 1-2 |
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INGN 234 (p53 topical)
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Oral Cancer Prevention (mouthwash) |
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Phase 1-2* |
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INGN 241 (mda-7)
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Head and Neck (combined with radiation therapy) |
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Phase 3 |
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Melanoma |
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Phase 1-2 |
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Other solid tumors |
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Phase 1-2 |
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Pancreatic |
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Pre-clinical |
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Breast |
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Pre-clinical |
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INGN 401 (FUS-1 program)
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Lung |
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Phase 1 |
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INGN 402 nanoparticle formulation (p53)
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Various cancers |
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Pre-clinical |
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INGN 403 nanoparticle formulation (mda-7)
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Various cancers |
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Pre-clinical |
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INGN 007 (replication-competent viral therapy)
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Various (solid tumors) |
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Pre-clinical |
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* |
Conducted in conjunction with the National Cancer Institute. |
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** |
We hold the worldwide commercial rights to the product
candidates related to each of these programs. |
8
Our lead product candidate,
ADVEXIN®
therapy, combines the p53 tumor suppressor with a
non-replicating, non-integrating adenoviral delivery system we
have developed and extensively tested. The p53 molecule is one
of the most potent members of a group of naturally-occurring
tumor suppressors, which act to kill cancer cells, arrest cancer
cell growth and protect cells from becoming cancerous.
ADVEXIN therapy for head and neck cancer has been designated an
Orphan Drug under the Orphan Drug Act. This designation may give
us up to seven years of marketing exclusivity for ADVEXIN
therapy for this indication if approved by the FDA.
We have two ongoing Phase 3 clinical trials of ADVEXIN
therapy in patients with recurrent squamous cell cancer of the
head and neck. These trials involve administration of ADVEXIN
therapy, both independently and in combination with
chemotherapy, in recurrent squamous cell cancer of the head and
neck.
We have received Fast Track designation for ADVEXIN therapy from
the FDA under its protocol assessment program as a result of the
FDAs agreement with the design of our two ongoing
Phase 3 clinical trials of ADVEXIN therapy. Under this Fast
Track designation, the FDA will take actions to expedite the
evaluation and review of the BLA for ADVEXIN therapy. We plan to
pursue with the FDA an Accelerated Approval of ADVEXIN therapy,
which is one alternative provided under a Fast Track designation.
We have reviewed historically successful FDA registration
strategies for numerous cancer drugs, noting that during the
past seven years, approximately 14 cancer drugs were initially
approved based upon submissions of Phase 2 clinical data. A
number of the Phase 2 trials supporting these approvals
employed single-arm studies involving relatively small patient
populations. Virtually all of those drugs relied on surrogate
endpoints for approval and a substantial number of the products
were for orphan drug indications. Further, the approval in 2006
of
Erbitux®
for the treatment of head and neck cancer was based on a
Phase 2, uncontrolled study in which 13% of the study
patients met an endpoint of partial response.
We have conducted a series of meetings with the FDA to develop
and implement the filing strategy for the BLA for ADVEXIN
therapy, which is the application for approval to market and
sell ADVEXIN therapy in the United States. As a result of these
meetings, we are developing and pursuing an initial rolling BLA
filing strategy based primarily on data from our Phase 2
clinical trials of ADVEXIN therapy for treatment of recurrent
squamous cell cancer of the head and neck. The FDA has concurred
that preliminary evaluation of this data suggests a level of
efficacy consistent with the standard for the initiation of a
rolling BLA (a submission process also known as Submission Of a
Partial Application or SOPA). The FDA has also concluded that
ADVEXIN therapy continues to show promise with respect to an
unmet medical need since there are no approved biological
therapies in the United States for recurrent head and neck
cancer. The FDA has also concluded that the clinical development
program for ADVEXIN therapy for recurrent head and neck cancer
continues to meet the criteria for Fast Track designation. In
conjunction with the new data, the new analyses, and other newly
employed biological techniques, we are hopeful of more
specifically targeting recurrent head and neck cancer in
patients resulting in even better efficacy than has already been
demonstrated.
Accordingly, we have submitted a SOPA Request to the FDA
Division of Cell and Gene Therapy proposing a rolling BLA for
ADVEXIN therapy for the treatment of recurrent head and neck
cancer, based primarily on data from our Phase 2 clinical
trials. We have further proposed to the FDA that, since the
basis of the proposed rolling BLA is Phase 2 clinical data
utilizing surrogate endpoints, the rolling BLA could be
evaluated under the provisions of Subpart H for Accelerated
Approval. In order to fully explore all of the review and
approval possibilities for ADVEXIN therapy, the FDA has
requested we submit existing new data and analyses from the
Phase 2 ADVEXIN therapy clinical trials for recurrent head
and neck cancer and consider conducting interim efficacy
analyses on one or both of our ongoing Phase 3 trials.
Given that we have two ongoing Phase 3 clinical trials in
head and neck cancer as discussed further below, we and the FDA
are evaluating the most effective use of the data from these
Phase 2 and 3 clinical trials in the review and approval of
ADVEXIN therapy. Regulatory approval approaches may allow
Accelerated Approval on the basis of Phase 2 clinical data
with subsequent confirmatory data being provided by the
Phase 3 clinical studies or,
9
alternatively, a full approval based on data from Phase 2
and certain Phase 3 clinical trials. We will also be
exploring with the FDA whether its recently announced Critical
Path Initiative, which permits new product evaluation on the
basis of specifically targeted (i.e., by prognostic or biologic
parameters) clinical trials and/or patient populations, can be
used in the ADVEXIN therapy approval process.
We have proposed to the FDA an acceleration of the initiation of
the planned interim safety analysis relative to one of our two
ongoing Phase 3 clinical trials of ADVEXIN therapy in
patients with recurrent squamous cell cancer of the head and
neck. We had anticipated such analysis would have already begun,
but the requisite number of survival events (i.e., patient
deaths) has not occurred. We believe such safety information
will be useful to the FDA as part of our ongoing BLA submission
process. We also plan to avail ourselves of suggestions by the
FDA that we consider proposing to them an interim efficacy
analysis of one or both of the ongoing Phase 3 clinical
trials. As with the acceleration of the interim safety analysis,
we believe that the interim efficacy results from one or both
Phase 3 studies will be useful to the FDA in its review of
our BLA.
We have conducted multi-national, multi-site Phase 2
clinical trials of ADVEXIN therapy in 217 patients with
recurrent squamous cell cancer of the head and neck treated
previously with surgery, radiation or chemotherapy. In the
combined analysis of these trials, the overall tumor growth
control rate was 59%. Tumor growth control rate represents the
percentage of treated tumors where there was disappearance of
the tumor, shrinkage of the tumor or the absence of additional
tumor growth beyond 25% of pre-treatment measurements. In
approximately 10% of the treated lesions there was either
complete tumor regression or a reduction of tumor size greater
than or equal to 50% of the pre-treatment size. Subpopulations
of patients participating in these trials had certain defining
prognostic, medical and biological characteristics that
represent refined targeting of ADVEXIN therapy. Analysis of the
data from these patient subpopulations showed objective response
rates of up to 29%. These findings, along with other data, are
planned for presentation at future scientific meetings and for
future publication in a peer-reviewed medical journal.
We performed a Phase 2 clinical trial of ADVEXIN therapy
combined with neoadjuvant chemotherapy and surgery in women with
locally advanced breast cancer. After at least 35 months of
follow-up, 92% of the treated patients were alive and 83% had
survived without evidence of disease recurrence. Objective
clinical responses were seen following the combined therapy in
all of the patients with a median of 80% reduction in tumor
size. Following tumor shrinkage, complete tumor removal by
subsequent surgery was achieved in 100% of the patients. The
results of the therapy with the addition of ADVEXIN are better
than what would be expected from neoadjuvant chemotherapy
treatment alone. Neoadjuvant treatments are administered prior
to surgery and represent a novel and increasingly applied
approach to making surgical tumor resections less invasive,
improving outcomes and facilitating breast conservation. These
data were announced during the 2005 San Antonio Breast
Cancer Symposium.
We completed a Phase 2 clinical trial of ADVEXIN therapy
administered as a complement to radiation therapy in non-small
cell lung cancer. In the 19 patients who participated in
the trial, combined ADVEXIN and radiation treatment resulted in
63% biopsy-proven complete responses at three months, which is
approximately four times the expected rate using radiotherapy
alone. The results of this study were published in Clinical
Cancer Research.
We performed a Phase 1/early Phase 2 clinical trial of
ADVEXIN therapy for the treatment of advanced, unresectable,
squamous cell esophageal cancer. Results of this trial in
patients with esophageal cancer refractory to chemotherapy and
radiation indicate three of the ten patients treated, or 30%,
had negative biopsies after receiving ADVEXIN therapy. The
median survival of the patients treated with ADVEXIN therapy was
approximately twelve months, which compared favorably to
historical controls in which a median survival of less than ten
months was observed for patients who did not respond to standard
treatments. Six patients, or 60%, were still alive one year
after beginning ADVEXIN therapy. This clinical trial was
performed at Chiba University in Japan.
10
We are currently conducting additional Phase 1/2 clinical
trials of ADVEXIN therapy by itself and in combination with
chemotherapy or radiation therapy in a variety of cancers. These
additional clinical trials include:
|
|
|
|
|
A Phase 2 clinical trial of ADVEXIN therapy in squamous
cell carcinoma of the oral cavity, or oropharynx, that can be
removed surgically, to assess the feasibility, efficacy and
safety of administering ADVEXIN therapy at the time of surgery
for suppression of remaining tumor cells, followed by a
combination of chemotherapy and radiation therapy. |
|
|
|
A Phase 1/early Phase 2 clinical trial in which a
mouthwash or oral rinse formulation of ADVEXIN therapy, which
has been designated as INGN 234, is administered to prevent
precancerous oral lesions from developing into cancerous lesions. |
We have completed other clinical trials of Advexin, including
Phase 1 studies in prostate cancer and bronchoalveolar
carcinoma. To date, clinical investigators at sites in North
America, Europe and Japan have treated over 500 patients
with ADVEXIN therapy, establishing a large safety database.
Findings from several of our clinical trials have been published
in Clinical Cancer Research and Proceedings of the
American Society for Clinical Oncology as well as presented
at numerous conferences, including the San Antonio Breast
Cancer Conference and various meetings of the American Society
of Clinical Oncology, the American Association for Cancer
Research and the American Society of Gene Therapy.
A growing body of data suggests ADVEXIN therapy demonstrates
clinical activity in a variety of cancer indications. Safety
data from our clinical trials suggest this activity may be
achieved without the treatment-limiting side effects frequently
associated with many other cancer therapies.
Our clinical trials indicate ADVEXIN therapy is well tolerated
as a monotherapy. The addition of ADVEXIN therapy to standard
chemotherapy, surgery or radiation does not appear to increase
the frequency or severity of side effects normally associated
with these treatment regimens.
Recent studies provide new insight into the molecular pathways
by which the p53 tumor suppressor, the active component of
ADVEXIN therapy, kills tumor cells. These studies were
undertaken to provide additional molecular data supporting the
activity observed during the clinical development of ADVEXIN
therapy and to provide additional information regarding the
specific pathways that mediate the observed clinical effects of
ADVEXIN therapy. The studies were conducted by our collaborators
at Okayama University in Japan and at The University of Texas M.
D. Anderson Cancer Center and were published in Molecular
Cancer Therapeutics. Other data suggest the enhanced
therapeutic effects of a combination of ADVEXIN and Erbitux
therapies in an animal model of human non-small cell lung
cancer. Other pre-clinical studies conducted by our
collaborators at Wayne State University, the Karmanos Cancer
Institute located in Detroit, Michigan and the University of
California-Irvine, as published in The Laryngoscope, show
that the combination of ADVEXIN therapy and docetaxel resulted
in increased levels of programmed cell death in head and neck
tumor cells. Two lung cancer patients, who were part of our
ADVEXIN therapy studies program and who had recently celebrated
their five-year survival anniversary, were featured in
Conquest magazine, a publication of M. D. Anderson Cancer
Center. In addition, a patient with recurrent head and neck
cancer who achieved a complete tumor remission on ADVEXIN
therapy continues to be disease-free over seven years later
while receiving repeated ADVEXIN treatments.
We hold the worldwide rights for pre-clinical and clinical
development, manufacturing, marketing and commercialization of
ADVEXIN therapy.
INGN 241 uses mda-7, a promising tumor suppressor, that we
believe, like p53, has broad potential to induce apoptosis or
cell death in many types of cancer. We have combined the mda-7
tumor suppressor with our adenoviral delivery system to
form INGN 241. Our pre-clinical trials have shown the
protein produced by INGN 241 suppresses the growth of many
cancer cells, including those of the breast, lung, ovaries,
colon, prostate and the central nervous system, while not
affecting the growth of normal cells. Because INGN 241
11
kills cancer cells even if other tumor suppressors, including
p53, are not functioning properly, it appears mda-7 functions
via a novel mechanism of tumor suppression.
We have conducted pre-clinical work indicating that in addition
to its known activity as a tumor suppressor, the protein
produced by mda-7 may also stimulate the bodys immune
system to kill metastatic tumor cells and to protect the body
against cancer, thereby offering the potential of providing an
added advantage in treating various cancers because it may
attack cancer using two different mechanisms. Because the mda-7
tumor suppressor may act as a cytokine, or immune system
modulator, it is also known as interleukin 24, or IL-24.
The mda-7 molecule may also work as a radiation sensitizer to
make several types of human cancer cells more susceptible to
radiation therapy. We have seen evidence of this effect in our
pre-clinical work.
We have identified the molecular pathways by which mda-7, the
active component of INGN 241, induces growth arrest and
programmed cell death or apoptosis in cancer cells. Pre-clinical
studies using lung cancer cells have demonstrated the mda-7
protein binds to a critical cellular enzyme known as PKR. The
binding of mda-7 to PKR is essential for the anti-cancer
activity of INGN 241. The identification of this binding partner
demonstrates a significant advancement in understanding how this
therapeutic can be effective against cancer. Additional studies
have identified bystander killing of pancreatic cancer cells by
the mda-7 protein. Bystander killing involves the killing of
neighboring tumor cells by the mda-7 protein released from
adjacent INGN 241-treated tumor cells.
Pre-clinical data indicate INGN 241 works synergistically with
celecoxib, marketed by Pfizer as
Celebrex®,
to inhibit the growth and increase killing of breast cancer
cells. These data demonstrate the potential utility of INGN 241
in combination with celecoxib, a drug approved for treatment of
precancerous lesions of the colon as well as arthritis. The
combination of celecoxib and INGN 241 showed greater than
additive increases in cell death compared with either therapy
alone and also resulted in the suppression of tumor cell growth.
In pre-clinical studies, we have observed the expression of
mda-7 in ovarian cancer cells potently activates a cell death or
apoptotic pathway regulated by the Fas signaling system. This
activation resulted in significant increases in apoptosis and
inhibition of cancer cell proliferation that were specific to
cancer cells. These effects were not observed in normal ovarian
tissue, supporting previous data showing a cancer-selective
effect of INGN 241.
We have published the results of a pre-clinical study indicating
INGN 241 may suppress the growth in vivo of non-small
cell lung cancer through apoptosis in combination with
anti-angiogenesis. The data demonstrate INGN 241 can inhibit
production of the VEGF protein, a potent inducer of
angiogenesis, within lung cancer cells, which in turn inhibits
tumor angiogenesis, a key requirement for tumor growth.
Pre-clinical work has demonstrated administration of INGN 241
results in the development of systemic immune responses against
tumor cells and suggests INGN 241 could be used as a novel
cancer molecular immunotherapy. In pre-clinical studies,
implantation of INGN 241-treated tumor cells into mice resulted
in significant inhibition of tumor growth. Significantly, mice
immunized with INGN 241-treated cells showed inhibition of tumor
growth after a subsequent challenge with additional tumor cells.
We have conducted pre-clinical studies with INGN 241 in breast
cancer cell lines as a single agent, as well as in combination
with radiation therapy, with chemotherapy (Taxotere or
Adriamycin), with the hormone inhibitor Tamoxifen and with
Herceptin, a biologic cancer therapy. In all settings, INGN 241
reduced cell growth and increased programmed tumor cell death
(apoptosis). This effect was enhanced when combined with drugs
currently used to treat breast cancer. In animal models of
breast cancer, treatment with INGN 241 alone or in combination
with radiation therapy resulted in significant decreases in
tumor growth. In particular, our pre-clinical studies have shown
treatment with a combination of INGN 241 plus Herceptin induces
cell death in Her-2/neu positive breast cancer cells at a rate
greater than that seen with either agent alone. In these
studies, it was also noted while Herceptin exhibited no activity
on Her-2/neu negative cells, INGN 241 did induce cell death in
these cells.
12
Pre-clinical studies indicate the mda-7 protein released from
cells treated with INGN 241 can kill nearby, untreated breast
cancer cells resulting in additional therapeutic effect. This
bystander effect occurs when the therapeutic protein binds to
certain receptors on nearby cancer cells. We believe this
bystander effect is significant because it could indicate the
number of cancer cells INGN 241 can kill is greater than the
number of cells that take up this novel investigational cancer
therapy.
We have completed enrollment of a Phase 1/early
Phase 2 clinical trial using INGN 241 to evaluate safety,
mechanism of action and efficacy in approximately
25 patients with solid tumors. This trial has indicated
that in patients with solid tumors, INGN 241 was well tolerated,
was biologically active and displayed minimal toxicity
associated with its use. We have initiated later stage clinical
trials using INGN 241 in patients with metastatic melanoma and
head and neck cancer.
Data from our Phase 1 trial of INGN 241 in patients with
solid tumors demonstrate that direct injection of INGN 241
induced programmed cell death in 100% of the tumors treated,
even in patients who had failed prior therapy with other
anti-cancer drugs. Clinical responses were observed in 44% of
the treated lesions, including complete and partial responses
(greater than or equal to 50% reduction in tumor size) in two
patients with melanoma. Patients treated with INGN 241 had
increases in a subset of T-cells that help to destroy cancer
cells, which is consistent with the role of the mda-7 protein as
a member of the interleukin family of immune stimulating
proteins.
Findings and results arising from our development of INGN 241
have been published in the Journal of Leukocyte Biology,
Cancer Gene Therapy, Cancer Research, Molecular Therapy,
Oncogene, Surgery, and International
Immunopharmacolgy. Data from this work have also been
presented at the annual San Antonio Breast Cancer Symposium.
We have an exclusive license to the mda-7 tumor suppressor for
our therapeutic applications originally from Corixa Corporation
(Corixa), which was acquired by GlaxoSmithKline. Pre-clinical
studies regarding the active component of INGN 241 have included
research at The University of Texas M. D. Anderson Cancer Center
and Columbia University.
|
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|
INGN 225 (p53 molecular immunotherapy) |
We are developing INGN 225 using the p53 tumor suppressor in a
different manner to create a molecular immunotherapy for cancer
that stimulates a particular type of immune system cell known as
a dendritic cell. Research published in Current Opinion in
Drug Discovery & Development concluded that the p53
tumor suppressor can be used with a patients isolated
dendritic cells as an antigen delivery and immune enhancing
therapeutic strategy. Pre-clinical testing has shown that the
immune system can recognize and kill tumors after treatment with
dendritic cells stimulated by the p53 tumor suppressor, which
suggests a molecular immunotherapy consisting of dendritic cells
stimulated by p53 could have broad utility as a treatment for
progression of solid tumors.
We are conducting a Phase 1/2 clinical trial in
collaboration with the Moffitt Cancer Center at the University
of South Florida in patients with small cell lung cancer. We are
also conducting a Phase 1/2 trial in patients with breast
cancer in collaboration with the University of Nebraska. In both
trials, INGN 225 is administered after the patients have been
treated with standard chemotherapy.
Interim results from the Phase 1/2 trial in patients with
extensive small cell lung cancer who were previously treated
with chemotherapy indicate that greater than 60% of the
evaluable patients in the study treated with INGN 225 had
objective responses to subsequent chemotherapy. Historically,
the expected objective response rate in similar patients to
further chemotherapy is between approximately 5% and 30%.
Similar patients with this type of lung cancer have a grave
prognosis with a median survival of approximately
six months, but treated patients in this study who
developed an immune response to p53 had a median survival of
approximately twelve months. These findings were published in
Clinical Cancer Research.
We believe the data indicate INGN 225 may sensitize tumors to
the effects of platinum and taxane chemotherapies. Of particular
interest, patients with highly aggressive disease (termed
platinum resistant) showed improved response rates and increased
survival compared to historical controls. These findings are
13
consistent with the results observed in lung and breast cancer
patients treated with ADVEXIN therapy that increased the
expected effects of cisplatin, taxane and doxorubicin
chemotherapies. As platinum, taxanes and doxorubicin are among
the most common types of cancer chemotherapies, these findings
may have important implications for improving the efficacy of
these widely utilized cancer treatments.
We are developing INGN 234 for the prevention of oral cancers
and the treatment of oral leukoplakia. We are conducting a
Phase 1/early Phase 2 clinical trial in which p53 is
being administered in an oral mouthwash formulation to prevent
precancerous oral lesions from developing into cancerous
lesions. We are conducting pre-clinical work on other topical
administrations of tumor suppressors to control or prevent oral
or dermal cancers. We are investigating multiple delivery
platforms, including both viral and non-viral approaches. We are
also investigating combining delivery of our therapies with
rinses, patches, ointments and enhancing polymers. We believe
the opportunity exists to develop non-toxic treatments for
pre-malignant and malignant cells that can be easily exposed to
natural biological tumor suppressor and DNA repairing molecules.
We have entered into an alliance agreement with
Colgate-Palmolive to develop and potentially market oral
healthcare products. See Item 1. Business
Business and Collaborative Arrangements Alliance
with Colgate-Palmolive Company below for further
discussion of this alliance agreement.
INGN 401 uses a nanoparticle vector system to deliver the tumor
suppressor FUS-1, which
we exclusively license from M. D. Anderson Cancer Center.
Pre-clinical studies have shown that
FUS-1, delivered using
an adenoviral or a non-viral delivery system through either
intravenous (systemic) administration or direct
intratumoral injection, significantly inhibits the growth of
tumors and greatly reduces the metastatic spread of lung cancer
in animals.
Pre-clinical data suggest that INGN 401 may have utility as a
monotherapy in lung cancer. We have observed significant
inhibition of tumor growth in lung cancer animal models
following INGN 401 monotherapy treatment when compared with
untreated animals.
INGN 401 has demonstrated synergistic activity with Gefitinib, a
novel class of anti-cancer agents that decrease tumor growth by
inhibiting growth factor receptors that promote tumor
proliferation. While Gefitinib can produce dramatic responses in
a small subset of lung cancer patients, most lung cancers are
refractory to its effects. The data indicate nanoparticle
delivery of INGN 401 can synergize with Gefitinib in killing
lung tumor cells resistant to Gefitinib alone. Furthermore, in
Gefitinib-sensitive tumors, INGN 401 delivery significantly
enhanced anti-cancer activity.
A Phase 1/early Phase 2 clinical trial is ongoing at
M. D. Anderson Cancer Center testing INGN 401 in patients with
advanced non-small cell lung cancer who have previously been
treated with chemotherapy. Data and findings from our work to
develop INGN 401 have been published in Cancer Gene Therapy
and Cancer Research.
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INGN 402 and INGN 403 (nanoparticle formulations of p53
and mda-7, respectively) |
We are developing two nanoparticle formulations for systemic
delivery. INGN 402 contains the p53 tumor suppressor and INGN
403 contains the mda-7 tumor suppressor, also known as
interleukin 24 (IL-24). Early studies with these new
nanoparticle drug candidates have demonstrated a good safety
profile and promising anti-cancer activity in murine lung tumor
models. Data from the mda-7 nanoparticle studies was published
in DNA and Cell Biology.
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INGN 007 (replication-competent viral therapy) |
We are developing INGN 007, a replication-competent viral
therapy in which viruses bind directly to cancer cells,
replicate in those cells, and cause those cancer cells to die.
Pre-clinical testing in animal models
14
indicates INGN 007 over-expresses a molecule that allows the
vector to saturate the entire tumor. This testing has
demonstrated that INGN 007 has a favorable safety profile and
significantly inhibits tumor growth. Findings from this work to
develop INGN 007 have been published in Cancer Research
and were presented at a meeting of the American Society of
Clinical Oncology. We are developing this replication-competent
viral therapy through our strategic collaboration with VirRx,
Inc. (VirRx).
Other Research and Development Programs
We are conducting a number of pre-clinical and research programs
involving a variety of targeted therapies for the treatment of
cancer. These programs involve molecules that act through
diverse mechanisms to inhibit the growth of or kill cancer cells.
We licensed from M. D. Anderson Cancer Center a group of
molecules known as the 3p21.3 family. Pre-clinical research
performed on these molecules by collaborators at The University
of Texas Southwestern Medical Center and M. D. Anderson Cancer
Center suggests that the 3p21.3 family plays a critical role in
the suppression of tumor growth in lung and other cancers. This
family of molecules includes the
FUS-1 tumor suppressor
we are testing as INGN 401. We are working with M. D. Anderson
Cancer Center to further evaluate other 3p21.3 family molecules
as clinically relevant therapeutics.
We are evaluating additional molecules, including BAK, which
hold promise as therapeutic candidates. BAK is a pro-apoptotic
molecule that kills cancer cells. We are working with our
collaborators at M. D. Anderson Cancer Center to identify and
develop both viral and non-viral vectors containing this
therapeutic molecule. We had exclusive rights to use the BAK
molecule under a license with LXR Biotechnology, Inc. (LXR), the
rights of which were subsequently sold to Tanox, Inc (Tanox).
We are evaluating the development of mebendazole, our first
small molecule candidate, which we refer to as INGN 601, for
treatment of cancer and other hyperproliferative diseases. The
use of the mebendazole compound is approved by the FDA for the
oral treatment of parasitic diseases. Pre-clinical work suggests
that mebendazole may also be an effective treatment for cancer.
The results of pre-clinical investigations involving mebendazole
and lung cancer were published in Clinical Cancer Research
and Molecular Cancer Therapeutics.
We believe our research and development expertise gained from
our molecular therapies for cancer is also applicable to other
diseases that, like cancer, result from cellular dysfunction and
uncontrolled cell growth. As a result, we are conducting
research in collaboration with medical institutions to
understand the safety and effectiveness of our molecular therapy
product candidates in the treatment of other diseases.
Introgen Enabling Technologies
We have a portfolio of technologies, referred to as enabling
technologies, for administering targeted molecular products to
patients and for enhancing the effects of these products, which
we plan to exploit to develop additional products to treat
cancer and other diseases which, like cancer, result from
cellular dysfunction and uncontrolled cell growth.
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Nanoscale Viral Delivery Systems |
We have demonstrated that ADVEXIN therapy and INGN 241, which
use our adenoviral vector system, enter tumor cells and express
their proteins despite the bodys natural immune response
to the adenoviral vector. While the adenoviral vector system
used appears to be appropriate for the treatment of cancer by
local administration, we have developed a number of additional
systems that utilize modified adenoviral vectors for delivery.
These systems also may be applicable to indications where
activity of the therapeutic molecule for disease treatment is
required for longer periods of time or where systemic
administration may be necessary.
15
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Nanoparticle Systemic Delivery Platform |
We have in-licensed and are developing a non-viral, nanoparticle
delivery platform as a complementary delivery technology for
certain types of cancers, or clinical indications, particularly
those that require systemic administration. We are currently
using this technology in INGN 401, INGN 402 and INGN 403.
Data published in DNA and Cell Biology highlight the
potential utility of combining our nanoparticle delivery system
with the mda-7 tumor suppressor for the treatment of lung
cancer. The data reported in this publication demonstrate that
combining this innovative delivery system with the mda-7 tumor
suppressor results in potent anti-cancer effects and systemic
tumor growth inhibition in an animal model of lung cancer. We
believe combining potent anti-cancer tumor suppressors, such as
mda-7 or p53, with our nanoparticle delivery system could allow
development of clinical strategies to attack metastatic cancers.
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Replication-Competent Viral Delivery Systems |
Through our strategic collaboration with VirRx, we are
developing replication-competent viral therapies in which
viruses bind directly to cancer cells, replicate in those cells,
and cause those cancer cells to die. This technology forms the
basis for our INGN 007 product development. We anticipate
pursuing clinical confirmation as to whether this
self-amplifying delivery system can complement our existing
adenoviral delivery system, which is replication disabled, in
selected therapeutic scenarios, in applications beyond
INGN 007.
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Additional Enabling Technologies |
Our research and licensing activities include a number of
additional technologies that expand our capabilities. These
activities include the following:
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Multi-Molecule Vector System. This technology is designed
to combine multiple therapeutic molecules with a vector. This
approach has the potential for use with both viral and non-viral
delivery systems to allow the activity of more than one
molecular therapy at a time for disease treatment. |
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Pro-Apoptotic Molecule Delivery System. This technology
is designed to allow the activity of pro-apoptotic, or
apoptosis-inducing, molecules during treatment only, while
temporarily suppressing the ability of the apoptotic molecule to
kill producer cells during production. This system could
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Tissue-Specific Targeting Systems. This technology is
designed to promote the activity of the therapeutic molecule in
only those cells which have been affected by the disease being
targeted. It is intended to be applied to both viral and
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Manufacturing and Process Development
Commercialization of a targeted molecular therapy product
requires process methodologies, formulations and quality release
assays in order to produce high quality materials at a large
scale. We believe the expertise we have developed in the areas
of manufacturing and process development represents a
competitive advantage. We have developed
scale-up methodologies
for both upstream and downstream production processes,
formulations that are safe and stable, and product release
assays that support product quality control.
We own and operate
state-of-the-art
manufacturing facilities, including a commercial-scale,
validated manufacturing facility designed to comply with the
FDAs Current Good Manufacturing Practice requirements,
commonly known as CGMP requirements. We have produced numerous
batches of ADVEXIN therapy clinical material for use in our
Phase 1, 2 and 3 clinical trials. The design and processes
of the facility used for ADVEXIN therapy production have been
reviewed with the FDA. We plan to use our facilities for the
market launch of ADVEXIN therapy. We also use our facilities to
produce INGN 241 and other investigative materials for use in
clinical trials of those product candidates. From time to time,
as requirements
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for our own products allow, we also manufacture pre-clinical and
clinical materials for outside parties for a fee under contract
services arrangements.
Business and Collaborative Arrangements
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Alliance with Colgate-Palmolive Company |
In November 2005, we entered into an alliance agreement with
Colgate-Palmolive to develop and potentially market oral
healthcare products. In connection with the alliance agreement
and pursuant to a common stock purchase agreement,
Colgate-Palmolive purchased 3,610,760 shares of our common
stock at a purchase price of $5.539 per share for a total
of approximately $20.0 million. These shares are subject to
trading and transfer restrictions for one year from the date of
purchase. Under the common stock purchase agreement,
Colgate-Palmolive also agreed to vote these shares and any other
shares of our capital stock owned by it in favor of corporate
actions approved by our Board of Directors. This voting
agreement is subject to suspension or termination upon certain
events specified in the common stock purchase agreement.
Pursuant to the alliance agreement, we will conduct research and
development activities involving specialized formulations of our
molecular therapies (such as p53, mda-7 and
FUS-1) targeted at
precancerous conditions of the oral cavity and at oral cancer.
The objective is to market these formulations as oral healthcare
products. Excluded from the alliance agreement is our current
portfolio of cancer product candidates, including ADVEXIN
therapy, INGN 241, INGN 225 and INGN 401.
Under the alliance agreement, Colgate-Palmolive has a first
right to negotiate development, manufacturing, marketing and
distribution rights with us for specifically designed oral
healthcare products for use in the human oral cavity that may
result from these research and development activities. In
addition, we agreed to use commercially reasonable efforts to
develop one or more specialized oral formulations through
completion of Phase 2 clinical trials within the seven-year
term of the alliance agreement. We can terminate our development
efforts earlier under certain circumstances, including if the
prospects for these products do not warrant further investment,
or if we expend $15.0 million in this effort. In
calculating the amount of our expenditures on these efforts, we
may include grant funding received by us or our collaborators
for work performed by third parties (e.g., universities and
other institutions) that is directly related to program
activities, as specified in the alliance agreement. The term of
the alliance agreement continues to November 2012, unless
earlier terminated by the parties as provided in the alliance
agreement.
We are working with VirRx to investigate other vector
technologies, specifically replication-competent viral
therapies, for delivering products into targeted cells. These
technologies form the basis for our INGN 007 product candidate.
We have an agreement with VirRx, which began in 2002, to
purchase shares of VirRxs Series A Preferred Stock.
From inception of this agreement through December 31, 2005,
we have purchased $2,325,000 of this stock for cash, of which we
purchased $600,000 per year in 2005, 2004 and 2003. These
purchases are recorded as research and development expense. We
have agreed to purchase an additional $150,000 of this stock on
January 1, 2006, after which time we have no further
obligation to make such purchases.
VirRx is required to use the proceeds from these stock sales in
accordance with the terms of a collaboration and license
agreement between VirRx and us for the development of
VirRxs technologies. We may unilaterally terminate this
collaboration and license agreement with 90 days prior
notice, which would also terminate the requirement for us to
make any additional stock purchases.
Provided the collaboration and license agreement remains in
place, we are required to make additional milestone stock
purchases, either for cash or through the issuance of our common
stock, upon the completion of Phase 1, 2 and 3 clinical
trials involving technologies licensed under this agreement. We
are required to make a $5.0 million cash milestone payment
to VirRx, for which we receive no VirRx stock, upon approval by
the FDA of a BLA for the first collaboration product based on
these technologies. To the extent we have
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already made cash milestone payments, we may receive a credit of
50% of the Phase 2 clinical trial milestone payments and
25% of the Phase 3 clinical trial milestone payments
against this $5.0 million cash milestone payment. The
additional milestone stock purchases and cash payment are not
anticipated to be required in the near future. We have an option
to purchase all outstanding shares of VirRx at any time until
March 2007.
In July 2005, we purchased approximately 8.3% of the issued
share capital of SR Pharma plc (SR Pharma) for approximately
$3.0 million. As of December 31, 2005, the shares we
purchased had a fair market value of $2.9 million. SR
Pharma is a European biotechnology company publicly traded on
the Alternative Investment Market of the London Stock Exchange
(LSE) that is developing oncology and other products.
Academic and Other Collaborations
Academic collaboration agreements have been a cost-effective way
of expanding our intellectual property portfolio, generating
data necessary for regulatory submissions, accessing industry
expertise and finding new technology in-license candidates, all
without building a large internal scientific and administrative
infrastructure.
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The University of Texas M. D. Anderson Cancer
Center |
Many of our core technologies were developed by scientists at
The University of Texas M. D. Anderson Cancer Center in Houston,
Texas, one of the largest academic cancer centers in the world.
We sponsor research conducted at M. D. Anderson Cancer Center to
further the development of technologies that have potential
commercial viability. Through these sponsored research
agreements, we have access to M. D. Anderson Cancer
Centers resources and expertise for the development of our
technology. In addition, we have the right to include certain
patentable inventions arising from these sponsored research
agreements under our exclusive license with M. D. Anderson
Cancer Center.
We entered into a license agreement with The Board of Regents of
the University of Texas System and M. D. Anderson Cancer Center
in 1994. The license agreement terminates on July 20, 2009
(if no patent rights are applicable) or upon the last to expire
of the relevant patents. The agreement is also terminable upon
our insolvency, either partys breach or upon our notice on
a patent-by-patent basis. The technologies we have licensed from
M. D. Anderson Cancer Center under the exclusive license
agreement relate to multiple technologies. Under the agreement,
we have agreed to pay M. D. Anderson Cancer Center royalties on
sales of products utilizing these technologies. We are obligated
to reimburse any of M. D. Anderson Cancer Centers costs
that may be incurred in connection with obtaining patents
related to the licensed technologies. Our strategy for product
development is designed to take advantage of the significant
multidisciplinary resources available at M. D. Anderson Cancer
Center. These efforts have resulted in our becoming a
significant corporate sponsor of activities at M. D. Anderson
Cancer Center in recent years and have yielded to us exclusive
patent and licensing rights to numerous technologies.
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National Cancer Institute |
We have a cooperative research and development agreement, or
CRADA, with the National Cancer Institute (NCI). The CRADA has a
flexible duration, but is terminable upon the mutual consent of
the parties or upon 30 days notice of either party. Under
the CRADA, NCI agreed to sponsor and conduct pre-clinical and
human clinical trials to evaluate the effectiveness and
potential superiority to other treatments of ADVEXIN therapy
against a range of designated cancers, including breast cancer,
ovarian cancer, bladder cancer and brain cancer. To date, NCI
has conducted or is conducting numerous Phase 1 clinical
trials for ADVEXIN therapy. NCI provided most of the funding for
these activities. We supplied NCI with ADVEXIN therapy product
to be administered in these trials. We have exclusive rights to
all pre-clinical and clinical data accumulated under the CRADA.
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Research and License Agreement for the mda-7 Tumor
Suppressor |
We have a research and license agreement with Corixa, pursuant
to which we acquired an exclusive, worldwide license to the
mda-7 tumor suppressor for the therapeutic applications we are
pursuing. This agreement was originally with Corixa, which
subsequently was acquired by GlaxoSmithKline. The agreement is
effective until the last to expire of the subject patents. It is
terminable upon the breach or insolvency of either party, or
upon our notice on a patent-by-patent or product-by-product
basis. Under the agreement, we paid Corixa an initial license
fee and have agreed to make additional payments upon the
achievement of development milestones, as well as royalty
payments on product sales. We also made research payments to
Corixa in connection with research it performed involving the
mda-7 tumor suppressor. Corixa originally licensed the mda-7
tumor suppressor from Columbia University.
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The University of South Florida and the Moffitt Cancer
Center |
We are collaborating with the H. Lee Moffitt Cancer Center and
Research Institute to advance our INGN 225 molecular cancer
immunotherapy program. Moffitt Cancer Center has conducted
pre-clinical research with us, and they are currently treating
patients in the ongoing INGN 225 clinical study. We are
designing additional studies in collaboration with Moffitt
Cancer Center personnel to continue clinical research in the
dendritic cell molecular immunotherapy field.
Research and Development Expense
Our research and development expense was $21.4 million,
$20.5 million and $15.0 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
Marketing and Sales
We are focusing our current product development and
commercialization efforts on the oncology market. This market is
characterized by its concentration of specialists in relatively
few major cancer centers, which we believe can be effectively
addressed by a small, focused sales force. As regulatory
approval of one or more of our product candidates for commercial
sale approaches, we will address the methods of sales and
marketing available to us. We will continue to evaluate the
merits of building our own direct sales force, pursuing
marketing and distribution arrangements with corporate partners
or some combination of both.
Patents and Intellectual Property
Our success will depend in part on our ability to develop and
maintain proprietary aspects of our technology. To this end, we
have an intellectual property program directed at developing
proprietary rights in technology that we believe may be
important to our success. We also rely on a licensing program to
ensure continued strong technology development and technology
transfer from companies and research institutions with whom we
work. We have entered into a number of exclusive license
agreements or options with companies and institutions, including
M. D. Anderson Cancer Center, Sidney Kimmel Cancer Center,
Corixa, which was acquired by GlaxoSmithKline, Aventis
Pharmaceutical Products, Inc. (Aventis), which is now
Sanofi-Aventis, Columbia University, VirRx and LXR, with the LXR
rights being subsequently sold to Tanox. In addition to patents,
we rely on trade secrets and proprietary know-how, which we seek
to protect, in part, through confidentiality and proprietary
information agreements.
We currently own or have an exclusive license to a large number
of issued and pending United States and foreign patents and
patent applications. If we do not seek a patent term extension,
the currently issued United States patents that we own or have
exclusively licensed will expire between the years 2010 and
2017. The exclusive licenses that give us rights on the patents,
and applications that such licenses cover, will expire no
earlier than the life of any patent covered under the license.
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Adenoviral p53 Compositions and Therapies |
In developing our patent portfolio, we have focused our efforts
in part on seeking protection for our potential products and how
they will be used in the clinical trials. Arising out of our
work with M. D. Anderson Cancer Center, we currently have an
exclusive license to a number of United States and corresponding
international patent applications directed to adenoviruses that
contain p53, referred to as adenoviral p53, adenoviral p53
pharmaceutical compositions and the use of adenoviral p53
compositions in various cancer therapies and protocols. One of
these applications, directed to the clinical use of adenoviral
p53 to treat cancer, has issued as a United States patent.
Additionally, various other United States patents have issued to
which we have licensed exclusive rights, which are directed to
adenoviral p53 compositions in general, adenoviral p53
pharmaceutical compositions, therapeutic applications of
adenoviral p53, as well as a patent covering the DNA core of
adenoviral p53. We have also exclusively licensed from Aventis a
patent application directed to adenoviral p53 and its clinical
applications. We also have an exclusive license to a United
States patent application and corresponding international
applications directed to the use of the p53 tumor suppressor in
the treatment of cancer patients whose tumors express a normal
p53 protein.
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Combination Therapy with the p53 Tumor Suppressor |
Our portfolio development includes seeking protection for
clinical therapeutic strategies that combine the use of the p53
tumor suppressor with traditional cancer therapies. In this
regard, also arising out of our work with M. D. Anderson Cancer
Center, we have an exclusive license to two issued United States
patents with corresponding international applications directed
to cancer therapy using the p53 tumor suppressor in combination
with DNA-damaging agents such as conventional chemotherapy or
radiotherapy. This patent and corresponding international
applications concern the therapeutic application of the p53
tumor suppressor before, during or after chemotherapy or
radiotherapy. We have also exclusively licensed from Aventis a
United States patent and corresponding international
applications directed to therapy using the p53 tumor suppressor
together with taxanes such as
Taxol®
or
Taxotere®.
Furthermore, we have exclusively licensed a United States patent
application and corresponding international applications
directed to the use of the p53 tumor suppressor in combination
with surgical intervention in cancer therapy.
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Adenovirus Production, Purification and Formulation |
Another focus of our research has involved the development of
procedures for the commercial-scale production of our potential
adenoviral-based products, including that of ADVEXIN therapy. In
this regard, we own three issued United States patents as well
as a number of pending United States applications and
corresponding international applications directed to highly
purified adenoviral compositions, commercial-scale processes for
producing adenoviral -based compositions having a high level of
purity, as well as to storage-stable formulations. These
applications include procedures for preparing commercial
quantities of recombinant adenovirus products and include
procedures applicable to the p53 tumor suppressor, as well as
any of our other potential products. We have also licensed from
Aventis a United States application and corresponding
international applications directed to processes for the
production of purified adenoviruses, which are useful for our
product applications. With respect to storage-stable
formulations, we were issued a United States patent directed to
compositions and methods concerning improved, storage-stable
adenovirus formulations. This patent is not limited to our
ADVEXIN product candidate and may eventually replace
formulations currently in use.
We either own or have exclusively licensed rights in a number of
other patents and applications directed to the clinical
application of various tumor suppressors other than p53,
including the mda-7, BAK, the 3p21.3 family
(FUS-1) and anti-sense
K-ras. We have exclusively licensed or optioned rights in a
number of issued United States patents covering the use of the
mda-7, BAK and PTEN tumor suppressors.
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Other Therapeutic, Composition and Process
Technologies |
We own or have exclusively licensed a number of United States
and international patent applications on a range of additional
technologies. These include various applications and patents
relating to p53, combination therapy with 2-methoxyestradiol,
anti-proliferative factor technologies, retroviral delivery
systems, stimulation of anti-p53, screening and product
assurance technologies, as well as second-generation p53
molecules. We have exclusively licensed a number of United
States and international applications directed to various
improved vector applications employing more than one molecular
therapy for disease treatment, as well as applications directed
to the delivery of molecular therapies for disease treatment
without the use of a vector, or non-viral therapy.
For example, a United States patent, exclusively licensed to us,
was recently issued that is directed to adenoviruses that
exhibit tissue specific replication. We also have exclusive
rights in an issued United States patent and corresponding
international applications directed to a low toxicity analogue
of IL-2, also called F42K.
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Benzimidazole Small Molecule Cancer Therapy Program |
We also have exclusively licensed a United States and a
corresponding international patent application directed to the
use of a family of known anti-helminthic benzimidazole
molecules, most notably mebendazole, in the treatment of cancer.
These applications are directed generally to the use of small
molecules of the benzimidazole family to induce apoptosis in
cancers, as well as to treat cancer patients, particularly those
having p53-related cancers. Both of these therapeutic actions
are based on the discovery by our scientists and their
collaborators that members of the benzimidazole family will
actively induce apoptosis in cancer cells, particularly in
conjunction with the action of an endogenous or exogenously
added p53 tumor suppressor.
We rely on trade secrets law to protect technology where we
believe patent protection is not appropriate or obtainable.
However, trade secrets are difficult to protect. In addition, we
generally require employees, academic collaborators and
consultants to enter into confidentiality agreements. Despite
these measures, we may not be able to adequately protect our
trade secrets or other proprietary information. We are a party
to various license agreements that give us rights to use
specified technologies in our research and development
processes. If we are not able to continue to license this
technology on commercially reasonable terms, our product
development and research may be delayed. In addition, in the
case of technologies that we have licensed, we do not have the
ability to make the final decisions on how the patent
application process is managed, and accordingly are unable to
exercise the same degree of control over this intellectual
property as we exercise over our internally developed
technology. Our research collaborators and scientific advisors
have rights to publish data and information in which we have
rights. If we cannot maintain the confidentiality of our
technology and other confidential information in connection with
our collaborations, then our ability to receive patent
protection or protect our proprietary information will be
diminished.
Government Regulation
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The Drug Approval Process |
Prescription pharmaceutical products and biologics are subject
to extensive pre- and post- marketing regulation by the FDA,
including regulations that govern the testing, manufacturing,
safety, efficacy, labeling, storage, recordkeeping, advertising
and promotion of the products under the Federal Food, Drug, and
Cosmetics Act (FDC Act) and the Public Health Services Act, and
by comparable regulatory agencies in most foreign countries. The
process required by the FDA before a new drug or biologic may be
marketed in the United States generally involves:
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Completion of preclinical laboratory and animal testing; |
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Submission of an investigational new drug application, or IND,
which must become effective before clinical trials may begin; |
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Performance of adequate and well controlled human clinical
trials to establish the safety and efficacy of the proposed drug
or biologics intended use; and |
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In the case of a new drug, approval by the FDA of a New Drug
Application (NDA) or of a BLA for a biologic. |
Our products will be regulated as biologics.
Facilities used to manufacture drugs and biologics are subject
to periodic inspection by the FDA and other authorities where
applicable, and must comply with the FDAs CGMP
regulations. Manufacturers of biologics also must comply with
FDAs general biological product standard. Failure to
comply with the statutory and regulatory requirements subjects
the manufacturer to possible legal or regulatory action, such as
suspension of manufacturing, seizure of product or voluntary
recall of a product.
Pre-clinical testing includes laboratory evaluation of product
chemistry and formulation as well as animal trials to assess the
potential safety and effectiveness of the product. Compounds
must be adequately manufactured and pre-clinical safety tests
must be conducted in compliance with FDA Good Laboratory
Practices regulations. The results of the pre-clinical tests are
submitted to the FDA as part of an IND application to be
reviewed by the FDA prior to the commencement of human clinical
trials. Submission of an IND application may not result in FDA
authorization to commence clinical trials, but the IND becomes
effective if not rejected by the FDA within 30 days. The
IND application must indicate: the results of previous testing;
how, where and by whom the clinical trials will be conducted;
the chemical structure of the compound; the method by which it
is believed to work in the human body; any toxic effects of the
compound found in the animal trials; and how the compound is
manufactured.
Clinical trials involve the administration of the drug or
biologic to healthy volunteers or to patients, under the
supervision of qualified principal investigators. All clinical
trials must be conducted in accordance with Good Clinical
Practices regulations under protocols that detail the objectives
of the trial, the parameters to be used to monitor safety and
the effectiveness criteria to be evaluated. Each protocol must
be submitted to the FDA for review as part of the IND
application prior to commencing the trial. Further, each
clinical trial must be conducted under the auspices of an
independent review panel termed the Institutional Review Board,
or IRB, at the institution at which the trial will be conducted.
The IRB will consider, among other things, ethical factors, the
safety of human subjects, informed consent and the possible
liability of the institution. Progress reports detailing the
status of on-going clinical trials must be submitted at least
annually to the FDA.
Clinical trials are typically conducted in three sequential
phases, but the phases often overlap. In Phase 1, the
initial introduction of the drug into healthy volunteers or
patients, the drug is tested for safety or adverse effects,
dosage tolerance, absorption, distribution, metabolism,
excretion and clinical pharmacology. Phases 2 and 3 involve
clinical trials in patient populations to determine the
effectiveness of the drug for specific, targeted indications,
determine dosage tolerance and optimal dosage. Phase 3
clinical trials typically contain control groups and are
undertaken to further evaluate clinical effectiveness, to
further test for safety within an expanded patient population at
geographically dispersed clinical trial sites and may be
utilized to seek marketing approval by the FDA.
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National Institutes of Health |
The NIH publishes guidelines concerning recombinant DNA
products. The NIH guidelines require that human recombinant DNA
protocols subject to the guidelines, and involving a novel
product, disease indication, route of administration or other
component, be discussed at the quarterly meetings of the NIH
Recombinant DNA Advisory Committee. Companies involved in
clinical trials as sponsors generally are expected to report all
serious adverse events to the NIH.
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We report to the FDA and the NIH serious adverse events and
deaths, whether treatment-related or not, that occur in our
clinical trials. Clinical trials we conduct include cancer
patients who have failed all conventional treatments available
to them, and who therefore have short life expectancies and who
sometimes die before completion of their full course of
treatment in our clinical trials.
If the clinical data indicate that the drug is safe and
effective, a BLA or an NDA is filed with the FDA for approval of
the marketing and commercial shipment of the drug. This
marketing application must contain all of the information on the
drug gathered to that date, including data from the clinical
trials. It is often over 100,000 pages in length.
The FDA reviews all marketing applications submitted to it
before it accepts them for filing and may request additional
information, rather than accepting the application for filing.
In such event, the application must be re-submitted with the
additional information and the application is again subject to
review before filing. Once the submission is accepted for
filing, the FDA begins an in-depth review of the BLA or NDA.
Under the FDC Act, the FDA has 180 days in which to review
it and respond to the applicant. The review process is often
significantly extended by FDA requests for additional
information or clarification of information already provided in
the submission. The FDA may refer the application to an
appropriate advisory committee, typically a panel of clinicians,
for review, evaluation and a recommendation as to whether the
application should be approved. However, the FDA is not bound by
the recommendation of an advisory committee. If the FDA
evaluations of the marketing application and the manufacturing
facilities are favorable, the FDA may issue either an approval
letter or an approvable letter. An approvable letter usually
contains a number of conditions that must be met in order to
secure final approval of the application. When, and if, those
conditions have been met to the FDAs satisfaction, the FDA
will issue an approval letter, authorizing commercial marketing
of the drug for certain indications. Approvals may be withdrawn
if compliance with regulatory standards is not maintained or if
problems occur following initial marketing. If the FDAs
evaluation of the submission or manufacturing facilities is not
favorable, the FDA may refuse to approve the BLA or NDA or issue
a not-approvable letter.
If the FDA approves the BLA or NDA, the drug becomes available
for physicians to prescribe. Periodic reports must be submitted
to the FDA, including descriptions of any adverse reactions
reported. The FDA may request additional trials, referred to as
Phase 4 clinical trials, to evaluate long-term effects.
Phase 4 clinical trials and post-marketing trials may also
be conducted to explore new indications and to broaden the
application and use of the drug and its acceptance in the
medical community.
Satisfaction of FDA premarket approval requirements for new
drugs and biologics typically takes several years and the actual
time required may vary substantially based upon the type,
complexity and novelties of the product or disease. Government
regulation may delay or present marketing of potential products
for a considerable period of time and impose costly procedures
upon our activities. Success in early stage clinical trials and
on prior versions of the products does not assure success in
later stage clinical trials. Data obtained from clinical
activities is not always conclusive and may be susceptible to
varying interpretations that could delay, limit or prevent
regulatory approval.
We have received Orphan Drug designation for ADVEXIN therapy for
the treatment of head and neck cancer under the Orphan Drug Act.
This act provides incentives to manufacturers to develop and
market drugs for rare diseases and conditions affecting fewer
than 200,000 people in the United States. The first developer to
receive FDA marketing approval for an Orphan Drug is entitled to
a seven-year exclusive marketing period in the United States
following FDA approval of that product. However, the FDA will
allow the sale of a drug clinically superior to or different
from another approved Orphan Drug, although for the same
indication, during the seven-year exclusive marketing period.
We may pursue Orphan Drug designation for other products we are
developing. We cannot be sure that any of those potential
products will ultimately receive Orphan Drug designation, or
that the benefits currently
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provided by such a designation will not subsequently be amended
or eliminated. The Orphan Drug Act has been controversial, and
legislative proposals have from time to time been introduced in
Congress to modify various aspects of the Orphan Drug Act,
particularly the market exclusivity provisions. New legislation
may be introduced in the future that could adversely affect the
availability or attractiveness of Orphan Drug status for our
potential products. Orphan Drug designation does not convey any
advantage in, or shorten the duration of, the regulatory review
and approval process.
Physicians may prescribe drugs for uses that are not described
in the products labeling that differ from those tested by
us and approved by the FDA. Such off-label uses are
common across medical specialties and may constitute the best
treatment for many patients in various circumstances. The FDA
does not regulate the behavior of physicians in their choice of
treatments. The FDA does, however, restrict manufacturers
communications on the subject of off-label use. Companies cannot
actively promote FDA-approved drugs for off-label uses.
However, new regulations, if followed, provide a safe harbor
from FDA enforcement action that would allow us to disseminate
to physicians articles published in peer-reviewed journals, such
as the New England Journal of Medicine, that discuss
off-label uses of approved products. We cannot disseminate
articles concerning drugs that have not been approved for any
indication.
Fast Track Designation. The FDAs Fast Track program
is intended to facilitate the development and expedite the
review of drugs that are intended for the treatment of a serious
or life-threatening condition for which there is no effective
treatment and that demonstrates the potential to address unmet
medical needs for their condition. Under the Fast Track program,
the sponsor of a new drug may request the FDA to designate the
drug for a specific indication as a Fast Track product at any
time during the clinical development of the product. The FDA
must determine if the product qualifies for Fast Track
designation within 60 days of receipt of the sponsors
request.
If Fast Track designation is obtained, the FDA may initiate
review of sections of an NDA or BLA before the applicant is
complete. This rolling review is available if the applicant
provides a schedule for the submission of the remaining
information and pays applicable user fees. However, the time
period specified in the Prescription Drug User Fees Act, which
governs the time period goals the FDA has committed to reviewing
an application, does not begin until the complete application is
submitted. Additionally, the Fast Track designation may be
withdrawn by the FDA if the FDA believes that the designation is
no longer supported by data emerging in the clinical trial
process.
In some cases, a Fast Track designated product may also qualify
for one or more of the following programs:
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Priority Review. Under FDA policies, a product is
eligible for priority review, or review within a six-month time
frame from the time an NDA or BLA is accepted for filing, if the
product provides a significant improvement compared to marketed
products in the treatment, diagnosis, or prevention of a
disease. A Fast Track designated product would ordinarily meet
the FDAs criteria for priority review. We cannot guarantee
any of our products will receive a priority review designation,
or if a priority designation is received, that review or
approval will be faster than conventional FDA procedures. |
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Accelerated Approval. Under the FDAs Accelerated
Approval regulations, the FDA is authorized to approve products
that have been studied for their safety and effectiveness in
treating serious or life-threatening illnesses and that provide
meaningful therapeutic benefit to patients over existing
treatments based upon either a surrogate endpoint that is
reasonably likely to predict clinical benefit or on the basis of
an effect on a clinical endpoint other than patient survival. In
clinical trials, surrogate endpoints are alternative
measurements of the symptoms of a disease or condition that are
substituted for measurements of observable clinical symptoms.
Accelerated Approval of an application will be subject to
Phase 4 or post-approval studies to validate the surrogate
endpoint or confirm the effect on the clinical endpoint. Failure
to validate a surrogate endpoint or confirm a clinical benefit
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marketing studies will allow the product to be withdrawn from
the market by the FDA on an expedited basis. All promotional
materials for drugs approved under accelerated regulations are
subject to prior review by the FDA. |
Although we have obtained a Fast Track designation for ADVEXIN
therapy from the FDA, we cannot guarantee a faster development
process, review process or approval compared to conventional FDA
procedures. We also may elect not to seek or we may be prevented
from seeking approval under the Accelerated Approval process for
any of our products.
When appropriate, we also intend to seek Fast Track designation
for our other products. We cannot predict the ultimate impact,
if any, of the Fast Track process on the timing or likelihood of
FDA approval of any of our other potential products.
ADVEXIN therapy is designated as a Fast Track product by the FDA
for its effect on prolonging survival and the time to
loco-regional disease progression in patients with recurrent,
unresectable squamous cell carcinoma of the head and neck. By
designating ADVEXIN therapy as a Fast Track product, the FDA
will take actions to expedite the evaluation and review of the
application for approval of ADVEXIN therapy.
We will continue to seek Fast Track designation to secure
expedited review of additional appropriate products. It is
uncertain whether we will obtain Fast Track designation. We
cannot predict the ultimate effect, if any, of the new Fast
Track process on the timing or likelihood of FDA approval of any
of our potential products.
Steps similar to those in the United States must be undertaken
in virtually every other country comprising the market for our
products before any such product can be commercialized in those
countries. The approval procedure and the time required for
approval vary from country to country and may involve additional
testing. We cannot be sure that approvals will be granted on a
timely basis, or at all. In addition, regulatory approval of
prices is required in most countries, other than the United
States. There can be no assurance that the resulting prices
would be sufficient to generate an acceptable return to us.
Competition
The biotechnology and pharmaceutical industries are subject to
rapid and intense technological change. We face, and will
continue to face, competition in the development and marketing
of our product candidates from academic institutions, government
agencies, research institutions and biotechnology and
pharmaceutical companies. Competition may arise from other drug
development technologies, methods of preventing or reducing the
incidence of disease, including molecular immunotherapies, and
new small molecule or other classes of therapeutic agents.
Developments by others may render our product candidates or
technologies obsolete or non-competitive.
We are aware that the Chinese pharmaceutical companies SiBiono
GeneTech, Inc. (SiBiono GeneTech) and Shanghai Sunway Biotech
Co. Ltd. have announced they have received regulatory approval
from the Chinese drug regulatory authorities to market an
adenoviral p53 product and an oncolytic virus product,
respectively, both only in China. We are also aware of other
pharmaceutical and biotechnology companies, including Canji,
Inc. (Canji), Genvec, Inc. (Genvec) and ImClone Systems, Inc.,
which are pursuing forms of treatment for the diseases ADVEXIN
therapy and our other product candidates target. We are aware
that ImClone and Bristol Myers Squibb have obtained marketing
approval based on a supplemental application to the FDA for a
monoclonal antibody product (Erbitux) for the treatment of
certain kinds of head and neck cancer. Erbitux was approved for
two stages of treatment of the cancer, one for an early, as yet
untreated form, and a second for refractory head and neck cancer
already treated with chemotherapy. We are also aware that Canji,
with its parent Schering-Plough Corporation (Schering-Plough),
has in the past been involved in research and/or development of
adenoviral p53 products and owns or controls patents and patent
applications directed to adenoviral p53 therapy. We understand
that Canji/ Schering-Plough has stopped its adenoviral p53
clinical trials, and it is unknown whether these parties are
continuing their adenoviral p53 research and/or
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development efforts. There are many other companies, both
publicly and privately held, including well-known pharmaceutical
companies, engaged in developing products for human therapeutic
applications. We also compete with universities and other
research institutions in the development of products,
technologies and processes. In many instances, we compete with
other commercial entities in acquiring products or technologies
from universities and other research institutions.
We expect that competition among products approved for sale will
be based, among other things, on product efficacy, safety,
reliability, availability, price, patent position and sales,
marketing and distribution capabilities. Our competitive
position also depends upon our ability to attract and retain
qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes, and secure sufficient
capital resources for the often substantial period between
technological conception and commercial sales.
Human Resources
As of March 15, 2006, we had approximately 80 employees and
contracted personnel engaged in research and development,
regulatory affairs, clinical affairs, manufacturing and quality,
finance and corporate development activities. Our employees
include eight holders of a Ph.D. or M.D. degree. Many of our
employees have extensive experience in pharmaceutical and
biotechnology industries.
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Scientific Advisory Board |
We receive guidance on a broad range of scientific, clinical and
technical issues from our Scientific Advisory Board. Members of
our Scientific Advisory Board are recognized experts in their
respective fields of research and clinical medicine related to
molecular oncology. The members of the Scientific Advisory Board
are:
Jack A. Roth, M.D., Chairman of the Scientific
Advisory Board, is Chairman of the Department of Thoracic and
Cardiovascular Surgery and Director of the W.M. Keck Center for
Cancer Gene Therapy at M.D. Anderson Cancer Center where he
holds the Bud Johnson Clinical Distinguished Chair.
Dr. Roth was one of our founders and is our Chief Medical
Advisor. Dr. Roth is a widely-recognized pioneer in the
application of targeted molecular therapies to the treatment of
cancer. He is the primary inventor of the technology supporting
our tumor suppressor products. He received his M.D. from The
Johns Hopkins University School of Medicine.
Carol L. Prives, Ph.D., is a professor of biology at
Columbia University. She is the Chair of the NIH Experimental
Virology Trial Section, a member of the NCI Intramural
Scientific Advisory Board and a member of the Advisory Board of
the Dana-Farber Cancer Center in Boston. Dr. Prives is an
editor of the Journal of Virology and serves on the editorial
boards of three other prominent journals. She received her Ph.D.
in biochemistry from McGill University.
Daniel D. Von Hoff, M.D., is the Director of the
Arizona Cancer Center in Tucson, Arizona, and a professor of
medicine in the Department of Medicine of the University of
Arizona. Dr. Von Hoff is a past President of the American
Association for Cancer Research. Dr. Von Hoff is certified
in medical oncology by the American Board of Internal Medicine.
He received his M.D. from The Columbia College of Physicians and
Surgeons.
Elizabeth Grimm, Ph.D., is a professor of experimental
therapeutics at M. D. Anderson Cancer Center. Dr. Grimm has
served as Cancer Expert, Surgical Branch of the NCI. She
received her Ph.D. in microbiology from the University of
California, Los Angeles School of Medicine.
Michael J. Imperiale, Ph.D., is the Director of Cancer
Biology Training Programs at the University of Michigan Cancer
Center and holds a concurrent position in the Department of
Microbiology and Immunology at the University of Michigan.
Dr. Imperiale earned his Ph.D. degree in biological
sciences from Columbia University and received postdoctoral
training at the Rockefeller University Laboratory of Molecular
Cell Biology, where he studied the regulation of adenoviruses.
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Item 1A. Risk
Factors
If we are unable to commercialize
ADVEXIN®
therapy in various markets for multiple indications,
particularly for the treatment of head and neck cancer, our
business will be harmed.
Our ability to achieve and sustain operating profitability
depends on our ability to successfully commercialize ADVEXIN
therapy in various markets for multiple indications, which
depends in large part on our ability to commence, execute and
complete clinical programs and obtain regulatory approvals for
ADVEXIN therapy and other drug candidates. In particular, our
ability to achieve and sustain profitability will depend in
large part on our ability to commercialize ADVEXIN therapy for
the treatment of head and neck cancer in the United States. We
cannot assure you we will receive approval for ADVEXIN therapy
for the treatment of head and neck cancer or other types of
cancer or indications in the United States or in other countries
or if approved that we will achieve significant level of sales.
If we are unable to do so, our business will be harmed.
If we fail to comply with FDA requirements or encounter
delays or difficulties in clinical trials for our product
candidates, we may not obtain regulatory approval of some or all
of our product candidates on a timely basis, if at all.
In order to commercialize our product candidates, we must obtain
certain regulatory approvals. Satisfaction of regulatory
requirements typically takes many years, and involves compliance
with requirements covering research and development, testing,
manufacturing, quality control, labeling and promotion of drugs
for human use. To obtain regulatory approvals, we must, among
other requirements, complete clinical trials demonstrating our
product candidates are safe and effective for a particular
cancer type or other disease. Regulatory approval of a new drug
is never guaranteed. The FDA has substantial discretion in the
approval process. Despite the time and experience exerted,
failure can occur at any stage, and we could encounter problems
causing us to abandon clinical trials.
We have completed three Phase 2 clinical trials and are
conducting two Phase 3 clinical trials of our lead product
candidate, ADVEXIN therapy, for the treatment of head and neck
cancer. In addition, we have completed a Phase 2 clinical
trial of ADVEXIN therapy for the treatment of non-small cell
lung cancer and are conducting a Phase 2 clinical trial of
ADVEXIN therapy for the treatment of breast cancer. We also are
conducting or have conducted several Phase 1 and
Phase 2 clinical trials of ADVEXIN therapy for other types
of cancer. Current or future clinical trials may demonstrate
ADVEXIN therapy is neither safe nor effective.
While we have completed enrollment of patients in a
Phase 1/early Phase 2 clinical trial of INGN 241, a
product candidate based on the mda-7 tumor suppressor, and have
initiated a follow-on Phase 2 clinical trial of INGN 241
for patients with metastatic melanoma, our most significant
clinical trial activity and experience has been with ADVEXIN
therapy. We will need to continue conducting significant
research and animal testing, referred to as pre-clinical
testing, to support performing clinical trials for our other
product candidates. It will take us many years to complete
pre-clinical testing and clinical trials, and failure could
occur at any stage of testing. Current or future clinical trials
may demonstrate INGN 241 or our other product candidates are
neither safe nor effective.
Any delays or difficulties we encounter in our pre-clinical
research and clinical trials, in particular the Phase 3
clinical trials of ADVEXIN therapy for the treatment of head and
neck cancer, may delay or preclude regulatory approval. Our
product development costs will increase if we experience delays
in testing or regulatory approvals or if we need to perform more
or larger clinical trials than planned. Any delay or preclusion
could also delay or preclude the commercialization of ADVEXIN
therapy or any other product candidates. In addition, we or the
FDA might delay or halt any of our clinical trials of a product
candidate at any time for various reasons, including:
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the product candidate is less effective and/or more toxic than
current therapies; |
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the presence of unforeseen adverse side effects of a product
candidate, including its delivery system; |
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a longer than expected time required to determine whether or not
a product candidate is effective; |
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the death of patients during a clinical trial, even if the
product candidate did not cause those deaths; |
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the failure to enroll a sufficient number of patients in our
clinical trials; |
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the inability to produce sufficient quantities of a product
candidate to complete the trials; or |
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the inability to commit the necessary resources to fund the
clinical trials. |
We cannot be certain the results we observed in our pre-clinical
testing will be confirmed in clinical trials or the results of
any of our clinical trials will support FDA approval.
Pre-clinical and clinical data can be interpreted in many
different ways, and FDA officials could interpret differently
data we consider promising, which could halt or delay our
clinical trials or prevent regulatory approval.
Despite the FDAs designation of ADVEXIN therapy as a Fast
Track product, we may encounter delays in the regulatory
approval process due to additional information requirements from
the FDA, unintentional omissions in our BLA for ADVEXIN therapy,
or other delays in the FDAs review process. We may
encounter delays or rejections in the regulatory approval
process because of additional government regulation from future
legislation or administrative action or changes in FDA policy
during the period of product development, clinical trials and
FDA regulatory review.
Despite the initiation of the BLA process for ADVEXIN therapy
under the FDAs accelerated approval regulations, the FDA
could determine that accelerated approval is not warranted and
that a traditional BLA filing must be made. Such a determination
could delay regulatory approval. Additionally, accelerated
approval of an application could be subject to Phase 4 or
post-approval studies to validate the surrogate endpoint or
confirm the effect on the clinical endpoint. Failure to validate
a surrogate endpoint or confirm a clinical benefit during
post-marketing studies could cause the product to be withdrawn
from the market by the FDA on an expedited basis.
Even if our products are approved by regulatory authorities,
if we fail to comply with ongoing regulatory requirements, or if
we experience unanticipated problems with our products, these
products could be subject to restrictions or withdrawal from the
market.
Any product for which we obtain marketing approval, along with
the manufacturing processes, post-approval clinical data and
promotional activities for such product, will be subject to
continual review and periodic inspections by the FDA and other
regulatory bodies. Even if regulatory approval of a product is
granted, the approval may be subject to limitations on the
indicated uses for which the product may be marketed or certain
requirements for costly post-marketing testing and surveillance
to monitor the safety or efficacy of the product. Later
discovery of previously unknown problems with our products,
including unanticipated adverse events of unanticipated severity
or frequency, manufacturer or manufacturing processes or failure
to comply with regulatory requirements, may result in
restrictions on such products or manufacturing processes,
withdrawal of the products from the market, voluntary or
mandatory recall, fines, suspension of regulatory approvals,
product seizures or detention, injunctions or the imposition of
civil or criminal penalties.
Failure to comply with foreign regulatory requirements
governing human clinical trials and marketing approval for drugs
could prevent us from selling our products in foreign markets,
which may adversely affect our operating results and financial
conditions.
For marketing drugs and biologics outside the United States, the
requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from country
to country and may require additional testing. The time required
to obtain approvals outside the United States may differ from
that required to obtain FDA approval. We may not obtain foreign
regulatory approval on a timely basis, if at all. Approval by
the FDA does not ensure approval by regulatory authorities in
other countries, and approval by one foreign regulatory
authority does not ensure approval by regulatory authorities in
other countries or by the FDA. Failure to comply with these
regulatory requirements or to obtain required approvals could
impair our ability to develop these markets and could have a
material adverse effect on our results of operations and
financial condition.
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We have a history of operating losses, expect to incur
significant additional operating losses and may never become
profitable.
We have generated operating losses since we began operations in
June 1993. As of December 31, 2005, we had an accumulated
deficit of approximately $143.5 million. We expect to incur
substantial additional operating expense and losses over the
next several years as our research, development, pre-clinical
testing and clinical trial activities increase. As we expand our
operations and develop systems to support commercialization of
our product candidates, these losses, among other things, have
had, and are expected to continue to have, an adverse impact on
our total assets, stockholders equity and working capital.
We have no products that have generated any commercial revenue.
Presently, we earn minimal revenue from contract services
activities, grants, interest income and rent from the lease of a
portion of our facilities to M. D. Anderson Cancer Center. We do
not expect to generate revenue from the commercial sale of
products in the near future, and we may never generate revenue
from the commercial sale of products.
If we continue to incur operating losses for a period longer
than we anticipate and fail to obtain the capital necessary to
fund our operations, we will be unable to advance our
development program and complete our clinical trials.
Developing a new drug and conducting clinical trials is
expensive. Our product development efforts may not lead to
commercial products, either because our product candidates fail
to be found safe or effective in clinical trials or because we
lack the necessary financial or other resources or relationships
to pursue our programs through commercialization. Our capital
and future revenue may not be sufficient to support the expense
of our operations, the development of commercial infrastructure
and the conduct of our clinical trials and pre-clinical research.
We expect we will fund our operations over approximately the
next 18 to 24 months with our current working capital,
which we accumulated primarily from sale of equity securities,
income from contract services and research grants, debt
financing of equipment acquisitions, the lease of a portion of
our facilities to M. D. Anderson Cancer Center and interest on
invested funds. We may need to raise additional capital sooner,
however, under various circumstances, including if we experience:
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an acceleration of the number, size or complexity of our
clinical trials; |
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slower than expected progress in developing ADVEXIN therapy,
INGN 241 or other product candidates; |
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higher than expected costs to obtain regulatory approvals; |
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higher than expected costs to pursue our intellectual property
strategy; |
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higher than expected costs to further develop and scale up our
manufacturing capability; |
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higher than expected costs to develop our sales and marketing
capability; |
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faster than expected rate of progress and cost of our research
and development and clinical trial activities; |
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a decrease in the amount and timing of milestone payments we
receive from collaborators; |
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higher than expected costs of preparing an application for FDA
approval of ADVEXIN therapy; |
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higher than expected costs of developing the processes and
systems to support FDA approval of ADVEXIN therapy; |
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an increase in our timetable and costs for the development of
marketing operations and other activities related to the
commercialization of ADVEXIN therapy and our other product
candidates; |
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a change in the degree of success in our Phase 3 clinical
trial of ADVEXIN therapy and in the clinical trials of our other
products; |
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the emergence of competing technologies and other adverse market
developments; or |
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changes in or terminations of our existing collaboration and
licensing arrangements. |
We do not know whether additional financing will be available
when needed or on terms favorable to us or our stockholders. We
may need to raise any necessary funds through public or private
equity offerings, debt financings or additional corporate
collaboration and licensing arrangements. To the extent we raise
additional capital by issuing equity securities, our
stockholders will experience dilution. If we raise funds through
debt financings, we may become subject to restrictive covenants.
To the extent we raise additional funds through collaboration
and licensing arrangements, we may be required to relinquish
some rights to our technologies or product candidates, or grant
licenses on terms not favorable to us. If we are not able to
raise additional funds, we may have to delay, reduce or
eliminate our clinical trials and our development programs.
If we cannot maintain our existing corporate and academic
arrangements and enter into new arrangements, we may be unable
to develop products effectively, or at all.
Our strategy for the research, development and commercialization
of our product candidates may result in our entering into
contractual arrangements with corporate collaborators, academic
institutions and others. We have entered into sponsored
research, license and/or collaborative arrangements with several
entities, including M. D. Anderson Cancer Center, the NCI, Chiba
University in Japan, VirRx and Corixa, which was acquired by
GlaxoSmithKline, as well as numerous other institutions that
conduct clinical trials work or perform pre-clinical research
for us. Our success depends upon our collaborative partners
performing their responsibilities under these arrangements and
complying with the regulations and requirements governing
clinical trials. We cannot control the amount and timing of
resources our collaborative partners devote to our research and
testing programs or product candidates, or their compliance with
regulatory requirements which can vary because of factors
unrelated to such programs or product candidates. These
relationships may in some cases be terminated at the discretion
of our collaborative partners with only limited notice to us. We
may not be able to maintain our existing arrangements, enter
into new arrangements or negotiate current or new arrangements
on acceptable terms, if at all. Some of our collaborative
partners may also be researching competing technologies
independently from us to treat the diseases targeted by our
collaborative programs.
If we do not continue to receive grant funding from federal
agencies and others, we may be unable to continue our research
and development programs for certain of our product candidates
at current levels or in the manner we have planned for the
future.
We rely on grants from third parties, generally federal
agencies, to provide the funding necessary to conduct our
research and development programs for some of our technologies
and product candidates. Funding of these grants is typically
subject to government appropriations. These grants often contain
provisions that allow for termination at the convenience of the
government. Further, these grants are subject to complex federal
guidelines and regulations. If federal agencies or regulatory
authorities determine that we, or the programs for which we
desire to receive or have received grant funding, do not qualify
for funding, our scientific or product development programs
could be slowed or stopped and we may suffer financial losses
and be unable to successfully commercialize our products.
If we are not able to create effective collaborative
marketing relationships, we may be unable to market ADVEXIN
therapy successfully or in a cost-effective manner.
To effectively market our products, we will need to develop
sales, marketing and distribution capabilities. In order to
develop or otherwise obtain these capabilities, we may have to
enter into marketing, distribution or other similar arrangements
with third parties in order to sell, market and distribute our
products successfully. To the extent we enter into any such
arrangements with third parties, our product revenue are likely
to be lower than if we directly marketed and sold our products,
and any revenue we receive will depend upon the efforts of such
third parties. We have no experience in marketing or selling
pharmaceutical products and we currently have no sales,
marketing or distribution capability. We may be unable to
develop sufficient sales, marketing and distribution
capabilities to commercialize our products successfully.
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Serious and unexpected side effects attributable to molecular
therapies may result in governmental authorities imposing
additional regulatory requirements or a negative public
perception of our products.
ADVEXIN therapy and most of our other product candidates under
development could be broadly described as targeted molecular
therapies or recombinant DNA therapies. A number of clinical
trials are being conducted by other pharmaceutical companies
involving related therapies, including compounds similar to, or
competitive with, our product candidates. The announcement of
adverse results from these clinical trials, such as serious
unwanted and unexpected side effects attributable to treatment,
or any response by the FDA to such clinical trials, may impede
the timing of our clinical trials, delay or prevent us from
obtaining regulatory approval or negatively influence public
perception of our product candidates, which could harm our
business and results of operations and depress the value of our
stock.
The United States Senate has held hearings concerning the
adequacy of regulatory oversight of recombinant DNA therapy
clinical trials, as well as the adequacy of research subject
education and protection in clinical research in general, and to
determine whether additional legislation is required to protect
volunteers and patients who participate in such clinical trials.
The Recombinant DNA Advisory Committee, which acts as an
advisory body to the NIH, has expanded its public role in
evaluating important public and ethical issues in recombinant
DNA therapy clinical trials. Implementation of any additional
review and reporting procedures or other additional regulatory
measures could increase the costs of or prolong our product
development efforts or clinical trials.
We report to the FDA and other regulatory agencies serious
adverse events, including those we believe may be reasonably
related to the treatments administered in our clinical trials.
Such serious adverse events, whether treatment-related or not,
could result in negative public perception of our treatments and
require additional regulatory review or measures, which could
increase the cost of or prolong our clinical trials.
The FDA has not approved any recombinant DNA therapy products of
the types being developed by Introgen for sale in the United
States. The commercial success of our products will depend in
part on public acceptance of the use of these types of
recombinant DNA products, which are a new type of disease
treatment for the prevention or treatment of human diseases.
Public attitudes may be influenced by claims that these types of
recombinant DNA products are unsafe, and these treatment
methodologies may not gain the acceptance of the public or the
medical community. Negative public reaction to these types of
recombinant DNA products could also result in greater government
regulation and stricter clinical trial oversight.
Patient enrollment may be slow and patients may discontinue
their participation in clinical studies, which may negatively
impact the results of these studies, and extend the timeline for
completion of our and our collaborators development
programs for our product candidates.
The time required to complete clinical trails is dependent upon,
among other factors, the rate of patient enrollment. Patient
enrollment is a function of many factors, including:
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the nature of the clinical protocol requirements; |
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the diversion of patients to other trials or marketed therapies; |
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the ability to recruit and manage clinical centers and
associated trials; |
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the proximity of patients to clinical sites; and |
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We are subject to the risk that patients enrolled in our and our
collaborators clinical studies for our product candidates
may discontinue their participation at any time during the study
as a result of a number of factors, including, withdrawing their
consent or experiencing adverse clinical events which may or may
not be related to our product candidates under evaluation. We
are subject to the risk that if a large number of patients in
any one of our studies discontinue their participation in the
study, the results from that study may not be positive or may
not support an NDA for regulatory approval of our product
candidates.
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We cannot predict the safety profile of the use of ADVEXIN
therapy when used in combination with other therapies.
Many of our trials involve the use of ADVEXIN therapy in
combination with other drugs or therapies. While the data we
have evaluated to date suggest ADVEXIN therapy does not increase
the adverse effects of other therapies, we cannot predict if
this outcome will continue to be true or whether possible
adverse side effects not directly attributable to the other
drugs will compromise the safety profile of ADVEXIN therapy when
used in certain combination therapies.
If we fail to adequately protect our intellectual property
rights, our competitors may be able to take advantage of our
research and development efforts to develop competing drugs.
Our commercial success will depend in part on obtaining patent
protection for our products and other technologies and
successfully defending these patents against third-party
challenges. Our patent position, like that of other
biotechnology and pharmaceutical companies, is highly uncertain.
One uncertainty is the United States Patent and Trademark
Office, or PTO, or the courts, may deny or significantly narrow
claims made under patents issued to us or patent applications we
file. This is particularly true for patent applications or
patents that concern biotechnology and pharmaceutical
technologies, such as ours, since the PTO and the courts often
consider these technologies to involve unpredictable sciences.
Another uncertainty is any patents that may be issued or
licensed to us may not provide any competitive advantage to us
because they may not effectively preclude others from developing
and marketing products like ours. Also, our patents may be
successfully challenged, invalidated or circumvented in the
future. In addition, our competitors, many of which have
substantial resources and have made significant investments in
competing technologies, may seek to apply for and obtain patents
that will prevent, limit or interfere with our ability to make,
use and sell our potential products either in the United States
or in international markets.
Our ability to develop and protect a competitive position based
on our biotechnological innovations, innovations involving
molecular therapies, recombinant DNA therapeutic agents, viruses
for delivering targeted molecular therapies to cells,
formulations, delivery systems not involving viruses, and the
like, is particularly uncertain. Due to the unpredictability of
the biotechnological sciences, the PTO, as well as patent
offices in other jurisdictions, has often required patent
applications concerning biotechnology-related inventions to be
limited or narrowed substantially to cover only the specific
innovations exemplified in the patent application, thereby
limiting their scope of protection against competitive
challenges. Similarly, courts have invalidated or significantly
narrowed many key patents in the biotechnology industry. Thus,
even if we are able to obtain patents covering commercially
significant innovations, our patents may not be upheld or our
patents may be substantially narrowed.
Through our exclusive license from The University of Texas
System for technology developed at M. D. Anderson Cancer Center,
we have obtained and are currently seeking further patent
protection for adenoviral p53, including ADVEXIN therapy, and
its use in cancer therapy. Further, the PTO issued us a United
States patent for our adenovirus production technology as well
as a related patent for purified adenoviral compositions. We
also control, through licensing arrangements, five issued United
States patents for combination therapy involving the p53 tumor
suppressor and conventional chemotherapy or radiation, two
issued United States patents covering the use of adenoviral p53
in cancer therapy, one issued United States patent covering
adenoviral p53 as a product, one issued United States patent
covering the core DNA of adenoviral p53, one issued patent
covering pharmaceutical compositions of adenoviral p53 and
clinical applications of such pharmaceutical compositions, as
well as three patents covering our mda-7 technology. Our
competitors may challenge the validity of one or more of our
patents in the courts or through an administrative procedure
known as an interference, in which the PTO determines the
priority of invention where two or more parties are claiming the
same invention. The courts or the PTO may not uphold the
validity of our patents, we may not prevail in such interference
proceedings regarding our patents and none of our patents may
give us a competitive advantage. In this regard, we have been
notified by the PTO that an unidentified third party is
attempting to provoke an interference with one of our patents
directed to adenoviral p53 therapy. We do not at present know
the identity of this party and cannot assess the likelihood of
an interference actually being declared. Should that party
prevail in an interference proceeding, a patent may issue to
that party that is
32
infringed by, and therefore potentially preclude our
commercialization of, products like ADVEXIN therapy that are
used for adenoviral p53 therapy.
Schering-Plough filed with the European Patent Office, or EPO,
an opposition against our European patent directed to
combination therapy with p53 and conventional chemotherapy
and/or radiation. An opposition is an administrative proceeding
instituted by a third party and conducted by the EPO to
determine whether a patent should be maintained or revoked, in
part or in whole, based on evidence brought forth by the party
opposing the patent. In February 2006, the Technical Board of
Appeals of the EPO held a final oral proceeding concerning
Schering-Ploughs opposition and determined our patent
should be maintained as amended. No further appeal by
Schering-Plough is possible.
We rely on trade secrets law to protect technology where we
believe patent protection is not appropriate or obtainable.
However, trade secrets are difficult to protect. In addition, we
generally require employees, academic collaborators and
consultants to enter into confidentiality agreements. Despite
these measures, we may not be able to adequately protect our
trade secrets or other proprietary information. We are a party
to various license agreements that give us rights to use
specified technologies in our research and development
processes. If we are not able to continue to license this
technology on commercially reasonable terms, our product
development and research may be delayed. In addition, in the
case of technologies that we have licensed, we do not have the
ability to make the final decisions on how the patent
application process is managed, and accordingly are unable to
exercise the same degree of control over this intellectual
property as we exercise over our internally developed
technology. Our research collaborators and scientific advisors
have rights to publish data and information in which we have
rights. If we cannot maintain the confidentiality of our
technology and other confidential information in connection with
our collaborations, then our ability to receive patent
protection or protect our proprietary information will be
diminished.
Third-party claims of infringement of intellectual property
could require us to spend time and money to address the claims
and could limit our intellectual property rights.
The biotechnology and pharmaceutical industry has been
characterized by extensive litigation regarding patents and
other intellectual property rights, and companies have employed
intellectual property litigation to gain a competitive
advantage. We are aware of a number of issued patents and patent
applications related to recombinant DNA therapy, the treatment
of cancer and the use of the p53 and other tumor suppressors.
Schering-Plough, including its subsidiary Canji, controls
various United States applications and a European patent and
applications, some of which are directed to therapy using p53,
and others to adenoviruses containing p53, or adenoviral p53,
and to methods for carrying out therapy using adenoviral p53.
Adenoviral p53 technology underlies our ADVEXIN therapy product
candidate. Furthermore, we are aware of a United States patent
directed to replication-deficient recombinant adenoviral vectors
apparently controlled by Transgene SA. While we believe the
claims of the Transgene adenoviral vector patent are invalid or
not infringed by our products, Transgene could assert a claim
against us.
One of the foregoing patent applications directed to p53
therapy, which we understand is owned by The Johns Hopkins
University and controlled by Schering-Plough, was involved in a
PTO interference proceeding with a patent owned by Canji. This
Johns Hopkins application was the United States counterpart to
the European patent recently revoked in its entirety by the EPO
(see below). Priority of invention in that interference was
awarded by the PTO to the Johns Hopkins inventors, leading to
the issuance of a United States patent, and the Canji patent has
been found unpatentable. While it is our belief that the claims
of the Johns Hopkins patent are invalid and not infringed by our
ADVEXIN therapy, Schering-Plough or Johns Hopkins may assert
that our ADVEXIN therapy, which uses p53 therapy, infringes the
claims of such patent. While we believe we would have both an
invalidity and non-infringement defense against such an
assertion, in the United States an issued patent enjoys a
presumption of validity, which can be overcome only through
clear and convincing evidence. We cannot assure such a defense
would prevail.
We may also become subject to infringement claims or litigation
arising out of other patents and pending applications of our
competitors, if they issue, or additional interference
proceedings declared by the PTO to determine the priority of
inventions. The defense and prosecution of intellectual property
suits, PTO
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interference proceedings and related legal and administrative
proceedings are costly and time-consuming to pursue, and their
outcome is uncertain. Litigation may be necessary to enforce our
issued patents, to protect our trade secrets and know-how or to
determine the enforceability, scope and validity of the
proprietary rights of others. An adverse determination in
litigation or interference proceedings to which we may become a
party could subject us to significant liabilities, require us to
obtain licenses from third parties, or restrict or prevent us
from selling our products in certain markets. Although patent
and intellectual property disputes are often settled through
licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing
royalties. Furthermore, the necessary licenses may not be
available to us on satisfactory terms, if at all. In particular,
if we were found to infringe a valid claim of the Transgene
adenoviral vector United States patent, the Johns Hopkins patent
or a patent that may issue from a currently pending application,
our business could be materially harmed.
We have recently been involved in patent opposition proceedings
before the EPO, in which we have sought to have the EPO revoke
three different European patents owned or controlled by Canji/
Schering-Plough. These European patents relate to the use of
p53, or the use of tumor suppressors, in the preparation of
therapeutic products. In one opposition involving a Canji
European patent directed to the use of a recombinant tumor
suppressor, the EPO revoked the European patent in its entirety
in a final, non-appealable decision. In the second opposition,
involving a patent that is directed to therapeutic and other
applications of the p53 and that is owned by Johns Hopkins and,
we understand, controlled by Schering-Plough, the EPO recently
revoked the patent in its entirety. The patent owner appealed
this decision and the final hearing before the EPO Technical
Board of Appeals was held in June 2005, at which time the
Technical Board of Appeals confirmed the final revocation of all
claims of this patent relevant to clinical therapeutic
applications of p53. In a third case involving the use of p53,
the European patent at issue was initially upheld, but finally
revoked in a hearing held in late April 2004.
We may be subject to litigation and infringement claims that
may be costly, divert managements attention, and
materially harm our business.
Extensive litigation regarding patents and other intellectual
property rights has been common in the biopharmaceutical
industry. Litigation may be necessary to assert infringement
claims, enforce patent rights, protect trade secrets or know-how
and determine the enforceability, scope and validity of certain
proprietary rights. The defense and prosecution of intellectual
property lawsuits, PTO interference proceedings, and related
legal and administrative proceedings in the United States and
internationally involve complex legal and factual questions. As
a result, such proceedings are costly and time-consuming to
pursue and their outcome is uncertain.
Regardless of merit or outcome, our involvement in any
litigation, interference or other administrative proceedings
could cause us to incur substantial expense and could
significantly divert the efforts of our technical and management
personnel. An adverse determination may subject us to the loss
of our proprietary position or to significant liabilities, or
require us to seek licenses that may include substantial cost
and ongoing royalties. Licenses may not be available from third
parties, or may not be obtainable on satisfactory terms. An
adverse determination or a failure to obtain necessary licenses
may restrict or prevent us from manufacturing and selling our
products, if any. These outcomes could materially harm our
business, financial condition and results of operations.
If we fail to meet our obligations under license agreements,
we may lose our rights to key technologies on which our business
depends.
Our business depends in part on patents licensed from third
parties. Those third-party license agreements impose obligations
on us, such as payment obligations and obligations to diligently
pursue development of commercial products under the licensed
patents. If a licensor believes we have failed to meet our
obligations under a license agreement, the licensor could seek
to limit or terminate our license rights, which could lead to
costly and time-consuming litigation and, potentially, a loss of
the licensed rights. During the period of any such litigation,
our ability to carry out the development and commercialization
of product candidates could be
34
significantly and negatively affected. If our license rights
were restricted or ultimately lost, our ability to continue our
business based on the affected technology platform would be
severely adversely affected.
Competition and technological change may make our product
candidates and technologies less attractive or obsolete.
We compete with pharmaceutical and biotechnology companies,
including Canji and Genvec, which are pursuing forms of
treatment similar to ours for the diseases ADVEXIN therapy and
our other product candidates target. We are aware Canji, with
its parent Schering-Plough, has in the past been involved in
research and/or development of adenoviral p53 products and has
numerous patents and patent applications relating to adenoviral
p53 therapy. We understand Schering-Plough has stopped its
adenoviral p53 clinical trials, and it is unknown whether these
parties are continuing their adenoviral p53 research and/or
development efforts. We are also aware that a Chinese
pharmaceutical company, SiBiono GeneTech, has recently announced
it has received regulatory approval from the Chinese drug
regulatory agency to market an adenoviral p53 product only in
China. We control an issued Chinese patent covering adenoviral
p53, and a number of pending Chinese applications directed to
p53 therapy and adenoviral production. We understand enforcement
of patents in China is unpredictable and we do not know if
monetary damages could be recovered from SiBiono GeneTech if its
product infringes our patent or patent applications. Patent
enforcement and respect of international patent standards, rules
and laws have not historically been a key characteristic of the
Chinese government and patent system. Further, geopolitical
developments, including trade and tariff disputes between the
government of China and the United States Department of Commerce
could add additional uncertainty to any effort to enforce
patents, recover damages, if any, or engage in the sales and
marketing of patented or non-patented products in China. We are
aware that ImClone and Bristol Myers Squibb have obtained
marketing approval for a monoclonal antibody product (Erbitux)
for the treatment of certain kinds of head and neck cancer. We
also may face competition from companies that may develop
internally or acquire competing technology from universities and
other research institutions. As these companies develop or
acquire their technologies, they may develop competitive
positions that may prevent or limit our product
commercialization efforts.
Some of our competitors are established companies with greater
financial and other resources than ours. Other companies may
succeed in developing products earlier than we do, obtaining FDA
approval for products before we do or developing products that
are more effective than our product candidates. While we will
seek to expand our technological capabilities to remain
competitive, research and development by others may render our
technology or product candidates obsolete or non-competitive or
result in treatments or cures superior to any therapy developed
by us.
Even if we receive regulatory approval to market our ADVEXIN
therapy, INGN 241, INGN 225 or other product candidates, we may
not be able to commercialize them profitably.
Our profitability will depend on the markets acceptance of
ADVEXIN therapy, INGN 241, INGN 225, if approved, and our other
product candidates. The commercial success of our product
candidates will depend on whether:
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they are more effective than alternative treatments; |
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their side effects are acceptable to patients and doctors; |
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insurers and other third-party healthcare payers will provide
adequate reimbursement for them; |
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we produce and sell them at a profit; and |
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we market ADVEXIN therapy, INGN 241, INGN 225 and other product
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We must achieve significant market share and obtain high
per-patient prices for our products to achieve profitability.
ADVEXIN therapy, our lead product candidate will, if approved,
initially be targeted for the treatment of recurrent squamous
cell cancer of the head and neck, a disease with an annual
incidence of approximately 40,000 patients in the United
States. As a result, our per-patient prices must be sufficiently
high in order to recover our development costs and achieve
profitability. Until additional disease targets with larger
potential markets are approved, we believe we will need to
market worldwide to achieve significant market penetration. If
we are unable to obtain sufficient market share for our drug
products at a high enough price, or obtain expanded approvals
for larger markets, we may not achieve profitability or be able
to independently continue our product development efforts.
If we are unable to manufacture our products in sufficient
quantities or obtain regulatory approvals for our manufacturing
facilities, or if our manufacturing process is found to infringe
a valid patented process or processes of another company, then
we may be unable to meet demand for our products and lose
potential revenue.
To complete our clinical trials and commercialize our product
candidates, if approved, we will need access to, or development
of, facilities to manufacture a sufficient supply of our product
candidates. We have used manufacturing facilities we constructed
in Houston, Texas to manufacture ADVEXIN therapy, INGN 241
and other product candidates for currently planned clinical
trials. We anticipate our facilities are suitable for the
initial commercial launch of ADVEXIN therapy. We have no
experience manufacturing ADVEXIN therapy, INGN 241 or any
other product candidates in the volumes necessary to support
commercial sales. If we are unable to manufacture our product
candidates in clinical or, when necessary, commercial
quantities, then we will need to rely on third-party
manufacturers to produce our products for clinical and
commercial purposes. These third-party manufacturers must
receive FDA approval before they can produce clinical material
or commercial product. Our products may be in competition with
other products for access to these facilities and may be subject
to delays in manufacture if third parties give other products
greater priority than ours. In addition, we may not be able to
enter into any necessary third-party manufacturing arrangements
on acceptable terms. There are a limited number of contract
manufacturers who currently have the capability to produce
ADVEXIN therapy, INGN 241 or our other product candidates, and
the inability of any of these contract manufacturers to deliver
our required quantities of product candidates timely and at
commercially reasonable prices would negatively affect our
operations.
Before we can begin commercially manufacturing ADVEXIN therapy,
INGN 241 or any other product candidate, we must obtain
regulatory approval of our manufacturing facilities and process.
Manufacturing of our product candidates for clinical and
commercial purposes must comply with the FDAs CGMP
requirements, and foreign regulatory requirements. The CGMP
requirements govern quality control and documentation policies
and procedures. In complying with CGMP and foreign regulatory
requirements, we will be obligated to expend time, money and
effort in production, record keeping and quality control to
assure the product meets applicable specifications and other
requirements. We must also pass a FDA inspection prior to FDA
approval.
Our current manufacturing facilities have not yet been subject
to a Pre-Approval Inspection by the FDA or other global
regulatory authorities. Failure to pass Pre-Approval Inspections
may significantly delay approval of our products. If we fail to
comply with these requirements, we would be subject to possible
regulatory action and may be limited in the jurisdictions in
which we are permitted to sell our products. Further, the FDA
and foreign regulatory authorities have the authority to perform
unannounced periodic inspections of our manufacturing facilities
to ensure compliance with CGMP and foreign regulatory
requirements. Our facilities in Houston, Texas are our only
manufacturing facilities. If these facilities were to incur
significant damage or destruction, then our ability to
manufacture ADVEXIN therapy, INGN 241 or any other product
candidates would be significantly hampered, and our pre-clinical
testing, clinical trials and commercialization efforts would be
delayed.
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In order to produce our products in the quantities we believe
will be required to meet anticipated market demand, if our
products are approved, we will need to increase, or
scale-up, our production process. If we are unable
to do so, or if the cost of this
scale-up is not
economically viable to us, we may not be able to produce our
products in a sufficient quantity to meet the requirements of
future demand.
Canji controls a United States patent and the corresponding
international applications, including a European counterpart,
relating to the purification of viral or adenoviral
compositions. While we believe our manufacturing process does
not infringe this patent, Canji could still assert a claim
against us. We may also become subject to infringement claims or
litigation if our manufacturing process infringes upon other
patents. The defense and prosecution of intellectual property
suits and related legal and administrative proceedings are
costly and time-consuming to pursue, and their outcome is
uncertain.
We rely on a limited number of suppliers for some of our
manufacturing materials. Any problems experienced by such
suppliers could negatively affect our operations.
We rely on third-party suppliers for most of the equipment,
materials and supplies used in the manufacturing of ADVEXIN
therapy, INGN 241 and our other product candidates. Some items
critical to the manufacture of these product candidates are
available from only a limited number of suppliers or vendors. We
do not have supply agreements with these key suppliers. To
mitigate the related supply risk, we maintain inventories of
these items. Any significant problem experienced by one or more
of this limited number of suppliers could result in a delay or
interruption in the supply of materials to us until the supplier
cures the problem or until we locate an alternative source of
supply. Such problems would likely lead to a delay or
interruption in our manufacturing operations or could require a
significant modification to our manufacturing process, which
could impair our ability to manufacture our product candidates
in a timely manner and negatively affect our operations.
If product liability lawsuits are successfully brought
against us, we may incur substantial damages and demand for our
product candidates may be reduced.
The testing and marketing of medical products is subject to an
inherent risk of product liability claims. Regardless of their
merit or eventual outcome, product liability claims may result
in:
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decreased demand for our product candidates; |
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injury to our reputation and significant media attention; |
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withdrawal of clinical trial volunteers; |
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substantial delay in FDA approval; |
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costs of litigation; and |
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substantial monetary awards to plaintiffs. |
We currently maintain product liability insurance with coverage
of $5.0 million per occurrence with a $10.0 million
annual aggregate limit. This coverage may not be sufficient to
protect us fully against product liability claims. We intend to
expand our product liability insurance coverage beyond clinical
trials to include the sale of commercial products if we obtain
marketing approval for any of our product candidates. Our
inability to obtain sufficient product liability insurance at an
acceptable cost to protect against product liability claims
could prevent or limit the commercialization of our products.
We use hazardous materials in our business, and any claims
relating to improper handling, storage or disposal of these
materials could harm our business.
Our business involves the use of a broad range of hazardous
chemicals and materials. Environmental laws impose stringent
civil and criminal penalties for improper handling, disposal and
storage of these materials. In addition, in the event of an
improper or unauthorized release of, or exposure of individuals
to, hazardous materials, we could be subject to civil damages
due to personal injury or property damage caused by the
37
release or exposure. A failure to comply with environmental laws
could result in fines and the revocation of environmental
permits, which could prevent us from conducting our business.
Our stock price may fluctuate substantially.
The market price for our common stock will be affected by a
number of factors, including:
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progress and results of our pre-clinical and clinical trials; |
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announcement of technological innovations by us or our
competitors; |
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developments concerning proprietary rights, including patent and
litigation matters; |
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publicity regarding actual or potential results with respect to
products under development by us or by our competitors; |
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regulatory developments; |
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the announcement of new products by us or our competitors; |
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quarterly variations in our or our competitors results of
operations; |
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failure to achieve operating results projected by securities
analysts; |
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changes in earnings estimates or recommendations by securities
analysts; |
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developments in our industry; and |
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general market conditions and other factors. |
In addition, stock prices for many companies in the technology
and emerging growth sectors have experienced wide fluctuations
that have often been unrelated to the operating performance of
such companies.
If we do not progress in our programs as anticipated, our
stock price could decrease.
For planning purposes, we estimate the timing of a variety of
clinical, regulatory and other milestones, such as when a
certain product candidate will enter clinical development, when
a clinical trial will be completed or when an application for
regulatory approval will be filed. Some of our estimates are
included in this Annual Report on
Form 10-K. Our
estimates are based on present facts and a variety of
assumptions. Many of the underlying assumptions are outside of
our control. If milestones are not achieved when we expect them
to be, investors could be disappointed, and our stock price may
decrease.
Any acquisition we might make may be costly and difficult to
integrate, may divert management resources or dilute stockholder
value.
As part of our business strategy, we may acquire assets or
businesses principally relating to or complementary to our
current operations, and we have in the past evaluated and
discussed such opportunities with interested parties. Any
acquisitions we undertake will be accompanied by the risks
commonly encountered in business acquisitions. These risks
include, among other things:
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potential exposure to unknown liabilities of acquired companies; |
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the difficulty and expense of assimilating the operations and
personnel of acquired businesses; |
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diversion of management time and attention and other resources; |
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loss of key employees and customers as a result of changes in
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the incurrence of amortization expense; and |
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possible dilution to our stockholders. |
In addition, geographic distances may make the integration of
businesses more difficult. We may not be successful in
overcoming these risks or any other problems encountered in
connection with any acquisitions.
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If we lose key personnel or are unable to attract and retain
additional, highly skilled personnel required to develop our
products or obtain new collaborations, our business will
suffer.
We depend, to a significant extent, on the efforts of our key
employees, including senior management and senior scientific,
clinical, regulatory, manufacturing and other personnel. The
development of new therapeutic products requires expertise from
a number of different disciplines, some of which is not widely
available. We depend upon our scientific staff to discover new
product candidates and to develop and conduct pre-clinical
studies of those new potential products. Our clinical and
regulatory staff is responsible for the design and execution of
clinical trials in accordance with FDA requirements and for the
advancement of our product candidates toward FDA approval. Our
manufacturing staff is responsible for designing and conducting
our manufacturing processes in accordance with the FDAs
CGMP requirements. The quality and reputation of our scientific,
clinical, regulatory and manufacturing staff, especially the
senior staff, and their success in performing their
responsibilities, are a basis on which we attract potential
funding sources and collaborators. In addition, our Chief
Executive Officer and other executive officers are involved in a
broad range of critical activities, including providing
strategic and operational guidance. The loss of these
individuals, or our inability to retain or recruit other key
management and scientific, clinical, regulatory, manufacturing
and other personnel, may delay or prevent us from achieving our
business objectives. We face intense competition for personnel
from other companies, universities, public and private research
institutions, government entities and other organizations.
Future changes in financial accounting standards or practices
or existing taxation rules or practices may cause adverse
unexpected financial reporting fluctuations and affect our
reported results of operations.
A change in accounting standards or practices or a change in
existing taxation rules or practices can have a significant
effect on our reported results and may even affect our reporting
of transactions completed before the change is effective. New
accounting pronouncements and taxation rules and varying
interpretations of accounting pronouncements and taxation
practice have occurred and may occur in the future. Changes to
existing rules or the questioning of current practices may
adversely affect our reported financial results or the way we
conduct our business. For example, Statement of Financial
Accounting Standards No. 123 (revised 2004),
Share-Based Payment, (SFAS No. 123R) is
effective for us beginning the first quarter of fiscal year
2006. This statement requires that employee share-based
compensation be measured based on its fair-value on the grant
date and treated as an expense that is reflected in the
financial statements over the related service period. While we
are currently evaluating the impact on our Consolidated
Financial Statements of the adoption of SFAS No. 123R,
we anticipate that our adoption of SFAS No. 123R will
have a significant impact on our results of operations for 2006
and subsequent periods.
Our corporate governance structure, including provisions in
our certificate of incorporation and by-laws, and Delaware law,
may prevent a change in control or management that stockholders
may consider desirable.
Section 203 of the Delaware General Corporation Law and our
certificate of incorporation and by-laws contain provisions that
might enable our management to resist a takeover of our company
or discourage a third party from attempting to take over our
company. These provisions include the inability of stockholders
to act by written consent or to call special meetings, the
ability of our board of directors to designate the terms of and
issue new series of preferred stock without stockholder approval
and the fact that our board of directors is divided into three
classes serving staggered thee-year terms.
These provisions could have the effect of delaying, deferring,
or preventing a change in control of us or a change in our
management that stockholders may consider favorable or
beneficial. These provisions could also discourage proxy
contests and make it more difficult for stockholders to elect
directors and take other corporate actions. These provisions
could also limit the price that investors might be willing to
pay in the future for shares of our common stock or our other
securities.
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Some of our insiders are parties to transactions with us that
may cause conflicting obligations.
Dr. John N. Kapoor, the Chairman of our Board of Directors,
is also associated with EJ Financial Enterprises, Inc. (EJ
Financial), a healthcare investment firm that is wholly owned by
him, and therefore may have conflicts of interest in allocating
his time among us and his other business activities, and he may
have legal obligations to multiple entities. We have entered
into a consulting agreement with EJ Financial. The consulting
agreement provides we will pay EJ Financial $175,000 per
year for certain management consulting services, which is based
on anticipated time spent by EJ Financial personnel on our
affairs. EJ Financial is also involved in the management of
healthcare companies in various fields, and Dr. Kapoor is
involved in various capacities with the management and operation
of these companies. In addition, EJ Financial is involved with
other companies in the cancer field. Although these companies
are pursuing different therapeutic approaches for the treatment
of cancer, discoveries made by one or more of these companies
could render our products less competitive or obsolete.
David Parker, Ph.D., J.D., our Vice President,
Intellectual Property, is a partner with the law firm
Fulbright & Jaworski LLP, which provides legal services
to us as our primary outside counsel for intellectual property
matters.
In October 2004, we acquired all of the outstanding capital
stock of Magnum Therapeutics Corporation (Magnum), a company
owned at the time of this acquisition by one of our executive
officers. We paid approximately $1.75 million for the
Magnum stock by (1) issuing approximately
252,000 shares of our common stock valued at approximately
$1.48 million at the acquisition date and (2) assuming
liabilities of approximately $272,000. With respect to the
common stock we issued for the acquisition, 50% of the shares
were held by an independent escrow agent for a period of
approximately one year subsequent to the acquisition date to
satisfy the indemnification obligations of the selling
shareholder under terms of the purchase agreement. Such shares
have since been released from escrow. Magnums primary
asset is the funding it receives under a research grant from the
NIH, which supplements our ongoing research and development
programs. During the year ended December 31, 2005, we
earned $1.0 million of revenue under this grant. In the
event certain of Magnums technologies result in commercial
products, we may be obligated to pay royalties related to the
sales of those products to certain third parties.
We have relationships with Jack A. Roth, M.D., and M. D.
Anderson Cancer Center, both of whom are affiliated with The
Board of Regents of the University of Texas System, one of our
stockholders. For more information concerning these
relationships, see our Notes to Consolidated Financial
Statements beginning on page F-7 of this Annual Report on
Form 10-K.
We believe the foregoing transactions with insiders were and are
in our best interests and the best interests of our
stockholders. However, the transactions may cause conflicts of
interest with respect to those insiders.
Item 1B. Unresolved
Staff Comments
Not applicable.
Our primary operations are conducted from facilities in Houston,
Texas, totaling approximately 42,000 square feet in two
buildings. These buildings consist of a 12,000 square foot
CGMP production facility designed to support an ADVEXIN therapy
product launch and a 30,000 square foot building containing
our research and development laboratories and administrative
offices. We own these facilities through TMX Realty Corporation
(TMX), our wholly-owned subsidiary. Our corporate offices are
located in Austin, Texas. We expect our current facilities to
satisfy our requirements for the foreseeable future.
TMX leases the land under our Houston facilities from a third
party. The buildings are financed and pledged as collateral
under a mortgage note payable. Certain equipment in the
buildings is financed and pledged as collateral under notes
payable. See the discussion below under Item 7.
Managements Discussion
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and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources for
a summary of our obligations under notes payable and leases.
We sublease to M. D. Anderson Cancer Center approximately
10,000 square feet in the facilities described above. This
lease provides for rent payments at prevailing market rates and
has an initial term expiring in 2009.
In addition to the facilities described above, we lease other
space in Houston, Texas in which we constructed and operate a
second production facility. We use that facility to produce
investigative material for INGN 241 and other product candidates
in an environment separate from that used for production of
ADVEXIN therapy.
|
|
Item 3. |
Legal Proceedings |
We are involved from time to time in legal proceedings relating
to claims arising out of our operation in the ordinary course of
business, including actions relating to intellectual property
rights.
We do not believe that the outcome of any present, or all
litigation in the aggregate, will have a material effect on our
business. You can read the discussion of our opposition of the
patents under Item 1A. Risk Factors above.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report
on Form 10-K.
PART II
|
|
Item 5. |
Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Market and Equityholder Information
Our common stock has been quoted on the Nasdaq National Market
under the symbol INGN since our initial public
offering in October 2000. Prior to October 2000, there was no
established public trading market for our common stock. The
following table sets forth, for the periods indicated, the high
and low sale prices reported on the Nasdaq National Market.
|
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
Fiscal Year Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
First Fiscal Quarter
|
|
$ |
10.37 |
|
|
$ |
7.29 |
|
|
Second Fiscal Quarter
|
|
|
9.20 |
|
|
|
4.20 |
|
|
Third Fiscal Quarter
|
|
|
7.10 |
|
|
|
2.96 |
|
|
Fourth Fiscal Quarter
|
|
|
9.81 |
|
|
|
5.00 |
|
Fiscal Year Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
First Fiscal Quarter
|
|
$ |
8.60 |
|
|
$ |
6.35 |
|
|
Second Fiscal Quarter
|
|
|
8.10 |
|
|
|
6.07 |
|
|
Third Fiscal Quarter
|
|
|
7.40 |
|
|
|
4.90 |
|
|
Fourth Fiscal Quarter
|
|
|
6.60 |
|
|
|
4.54 |
|
At December 31, 2005, there were 37,147,351 shares of
our common stock issued and outstanding held by approximately
152 stockholders of record. A substantially greater number of
holders of our common stock are street name or
beneficial holders, whose shares are held of record by banks,
brokers and other financial institutions.
41
Dividend Policy
We have never declared or paid any dividends on our capital
stock. We currently expect to retain all of our future earnings,
if any, to support the development of our business. We do not
anticipate paying any cash dividends in the foreseeable future.
Stock Repurchases
We did not repurchase any shares of capital stock during the
fourth quarter of the fiscal year covered by this Annual Report
on Form 10-K.
|
|
Item 6. |
Selected Financial Data |
The selected consolidated financial data set forth below is
qualified in its entirety by, and should be read in conjunction
with, our Consolidated Financial Statements and notes thereto
and Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations included
elsewhere in this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months | |
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Ended | |
|
|
|
|
June 30, | |
|
December 31, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
| |
|
|
2001(b) | |
|
2001(b) | |
|
2001(c) | |
|
2002(b) | |
|
2003(a) | |
|
2004(a) | |
|
2005(a) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands except per share amounts) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract services, grants and other revenue
|
|
$ |
684 |
|
|
$ |
298 |
|
|
$ |
591 |
|
|
$ |
1,173 |
|
|
$ |
304 |
|
|
$ |
1,808 |
|
|
$ |
1,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaborative research and development revenue from affiliate
|
|
|
3,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales to affiliate
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
2,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin on product sales
|
|
|
(988 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
15,014 |
|
|
|
10,063 |
|
|
|
19,923 |
|
|
|
21,512 |
|
|
|
14,973 |
|
|
|
20,474 |
|
|
|
21,400 |
|
General and administrative
|
|
|
4,875 |
|
|
|
3,526 |
|
|
|
6,361 |
|
|
|
6,722 |
|
|
|
6,102 |
|
|
|
6,597 |
|
|
|
7,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expense
|
|
|
19,889 |
|
|
|
13,589 |
|
|
|
26,284 |
|
|
|
28,234 |
|
|
|
21,075 |
|
|
|
27,071 |
|
|
|
29,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(17,177 |
) |
|
|
(13,291 |
) |
|
|
(25,693 |
) |
|
|
(27,061 |
) |
|
|
(20,771 |
) |
|
|
(25,263 |
) |
|
|
(27,367 |
) |
Interest income (expense), net
|
|
|
381 |
|
|
|
445 |
|
|
|
423 |
|
|
|
(207 |
) |
|
|
393 |
|
|
|
(191 |
) |
|
|
166 |
|
Other income
|
|
|
354 |
|
|
|
518 |
|
|
|
871 |
|
|
|
1,140 |
|
|
|
1,052 |
|
|
|
1,067 |
|
|
|
1,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(16,442 |
) |
|
$ |
(12,328 |
) |
|
$ |
(24,399 |
) |
|
$ |
(26,128 |
) |
|
$ |
(19,326 |
) |
|
$ |
(24,387 |
) |
|
$ |
(26,103 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$ |
(1.02 |
) |
|
$ |
(0.58 |
) |
|
$ |
(1.14 |
) |
|
$ |
(1.22 |
) |
|
$ |
(0.84 |
) |
|
$ |
(0.91 |
) |
|
$ |
(0.80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted net loss per share
|
|
|
16,163 |
|
|
|
21,440 |
|
|
|
21,440 |
|
|
|
21,471 |
|
|
|
22,902 |
|
|
|
26,943 |
|
|
|
32,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2001(b) | |
|
2002(b) | |
|
2003(b) | |
|
2004(a) | |
|
2005(a) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and short-term investments
|
|
$ |
48,825 |
|
|
$ |
23,467 |
|
|
$ |
36,397 |
|
|
$ |
38,180 |
|
|
$ |
33,122 |
|
Working capital
|
|
|
43,175 |
|
|
|
18,852 |
|
|
|
31,091 |
|
|
|
31,981 |
|
|
|
29,529 |
|
Total assets
|
|
|
60,424 |
|
|
|
33,316 |
|
|
|
44,483 |
|
|
|
48,057 |
|
|
|
42,981 |
|
Notes payable, net of current portion
|
|
|
9,037 |
|
|
|
7,435 |
|
|
|
6,714 |
|
|
|
7,901 |
|
|
|
7,784 |
|
Deferred revenue, long-term
|
|
|
361 |
|
|
|
619 |
|
|
|
876 |
|
|
|
1,132 |
|
|
|
1,404 |
|
Accumulated deficit
|
|
|
(47,515 |
) |
|
|
(73,643 |
) |
|
|
(92,969 |
) |
|
|
(117,356 |
) |
|
|
(143,459 |
) |
Stockholders equity
|
|
|
44,566 |
|
|
|
19,835 |
|
|
|
31,285 |
|
|
|
32,166 |
|
|
|
27,011 |
|
|
|
(a) |
The selected Consolidated Statement of Operations data for the
years ended December 31, 2005, 2004 and 2003 and the
Consolidated Balance Sheet data as of December 31, 2005 and
2004, are derived from our and our subsidiaries audited
Consolidated Financial Statements, which appear in Part IV
of this Annual Report on
Form 10-K.
|
|
|
|
(b) |
|
The selected Consolidated Statement of Operations data for the
year ended June 30, 2001, the six months ended
December 31, 2001, the year ended December 31, 2002,
and the Consolidated Balance Sheet data as of December 31,
2003, 2002 and 2001, are derived from our and our
subsidiaries audited Consolidated Financial Statements
included in our Annual Reports on
Form 10-K filed
with the Commission on March 15, 2005 and March 5,
2004. |
|
(c) |
|
The selected Consolidated Statement of Operations data for the
year ended December 31, 2001 are derived from our and our
subsidiaries unaudited Consolidated Financial Statements. |
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
The following discussion and analysis should be read in
conjunction with our Condensed Consolidated Financial Statements
and the related notes thereto included in this Annual Report on
Form 10-K. The
discussion and analysis contains forward-looking statements
within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. These statements include
the statements under Item 1A. Risk Factors.
These forward-looking statements are based on our current
expectations and entail various risks and uncertainties. Our
actual results could differ materially from those projected in
the forward-looking statements as a result of various factors,
including those set forth under Item 1A. Risk
Factors.
Overview
Introgen Therapeutics, Inc. was incorporated in Delaware in
1993. We are a biopharmaceutical company focused on the
discovery, development and commercialization of targeted
therapies for the treatment of cancer and other diseases. We are
developing product candidates to treat a wide range of cancers
using tumor suppressors, cytokines and other targeted molecular
therapies. These agents are designed to increase production of
normal cancer-fighting proteins that act to overpower cancerous
cells, stimulate immune activity and enhance conventional cancer
therapies. See Item 1. Business
Overview above for a more complete discussion of our
business.
Since our inception in 1993, we have used our resources
primarily to conduct research and development activities for
ADVEXIN therapy and, to a lesser extent, for other product
candidates. At December 31, 2005, we had an accumulated
deficit of $143.5 million. We anticipate we will incur
losses in the future that may be greater than losses incurred in
prior periods. At December 31, 2005, we had cash, cash
equivalents and short-term investments of $33.1 million.
During the year ended December 31, 2005, we used
$21.7 million of cash and cash equivalents for operating
activities. In addition, we used $509,000 for purchases of
property and equipment and $707,000 for principal payments on
notes payable to support those activities. These uses of cash
were offset by the receipt of $772,000 under notes payable
primarily to finance equipment acquisitions,
43
$19.6 million net of related fees and expense from the sale
of common stock to Colgate-Palmolive and $615,000 from sales of
common stock resulting from stock option exercises. We expect to
incur substantial additional operating expense and losses over
the next several years as our research, development,
pre-clinical testing and clinical trial activities continue and
as we evolve our operations and systems to support
commercialization of our product candidates. These losses, among
other things, have caused and may cause our total assets,
stockholders equity and working capital to decrease.
Currently, we earn revenue or income from federal research
grants, contract services and process development activities,
the lease of a portion of our facilities to M. D. Anderson
Cancer Center and interest income on cash placed in short-term,
investment grade securities. In order to fund our operating
losses, we will need to raise additional funds through public or
private equity offerings, debt financings or additional
corporate collaboration and licensing arrangements. We do not
know whether such additional financing will be available when
needed or on terms favorable to us or our stockholders.
In June 2003, we sold 2.0 million shares of our common
stock for an aggregate purchase price of $11.5 million to
selected institutional investors through a private placement
pursuant to Regulation D promulgated under the Securities
Act. Our net proceeds from this transaction, after related fees
and expense, were $10.8 million. In connection with this
sale, we issued warrants to purchase 400,000 shares of
our common stock at $7.89 per share. These warrants are
exercisable at any time by the warrant holders through June
2008. We may force the exercise of these warrants if the average
closing market price of our common stock during any 20
consecutive trading days is greater than $15.78 per share.
The resale of the shares of common stock issued and issuable
upon the exercise of the warrants issued in this transaction was
registered pursuant to a registration statement on
Form S-3,
effective August 7, 2003 (Commission File
No. 333-107028).
In December 2003, we sold approximately 2.9 million shares
of our common stock in a direct equity offering pursuant to a
shelf registration for an aggregate purchase price of
approximately $20.0 million. Our net proceeds from this
transaction, after related fees and expense, were approximately
$18.5 million. The issuance of the shares of common stock
in this transaction was registered pursuant to a registration
statement on
Form S-3,
effective August 25, 2003 (Commission File
No. 333-107799)
registering the issuance of shares of our common stock with an
aggregate offering price of $100.0 million. We may sell
additional shares of our common stock pursuant to this
registration statement in the future.
In December 2004, we sold approximately 3.5 million shares
of our common stock in a direct equity offering pursuant to a
shelf registration statement for an aggregate purchase price of
approximately $24.3 million. Our net proceeds from this
transaction, after related fees and expense, were approximately
$22.9 million. The shares of common stock issued in this
transaction were registered pursuant to a registration statement
on Form S-3,
effective August 25, 2003 (Commission File
No. 333-107799)
registering shares of our common stock with an aggregate
offering price of $100.0 million. We may sell additional
shares of our common stock pursuant to this registration
statement in the future. In connection with this transaction, we
have issued or will issue warrants to the placement agents
representing us in this stock sale to purchase up to
225,238 shares of our common stock at a price of
$6.65 per share and to purchase up to 88,707 shares of
our common stock at a price of $8.00 per share. These
warrants are exercisable beginning in December 2005 and expire
in December 2009.
In November 2005, we sold approximately 3.6 million shares
of our common stock in a direct equity sale to Colgate-Palmolive
pursuant to a shelf registration statement for an aggregate
purchase price of approximately $20.0 million. Our net
proceeds from this transaction, after related fees and expense,
were approximately $19.6 million. See Item 1.
Business Business and Collaborative
Arrangements Alliance with Colgate-Palmolive
Company above for further discussion of our agreement with
Colgate-Palmolive.
In May 2004, we amended the mortgage note payable related to our
facilities. The original $6.0 million principal balance of
our note payable was increased to $7.8 million. The
proceeds from this increase were used to pay in full the
principal and interest outstanding on another note payable with
an original principal balance of approximately
$3.3 million, which resulted in that other note being
retired. In addition to this note
44
retirement, the proceeds from this loan amendment were used to
pay $96,000 of costs related to this transaction and to add
$668,000 to our cash and cash equivalents. The amended mortgage
note payable bears interest at 6.25%. The note is payable in
monthly installments of $56,400 until May 2006. At that time, we
may extend the note to a November 2009 maturity date. Upon such
extension, the interest rate is modified to the lesser of
(a) 2.5% above the five-year U.S. Treasury Bond Note
rate or (b) 8.5%, and principal and interest on the note
become payable in equal monthly installments based on a
225-month amortization
period. The principal balance outstanding on the notes
extended maturity date is payable in full at that time.
|
|
|
Acquisition of Magnum Therapeutics Corporation |
In October 2004, we acquired all of the outstanding capital
stock of Magnum, a company owned at the time of this acquisition
by one of our executive officers. We paid approximately
$1.75 million for the Magnum stock by (1) issuing
approximately 252,000 shares of our common stock valued at
approximately $1.48 million at the acquisition date and
(2) assuming liabilities of approximately $272,000. With
respect to the common stock we issued pursuant to the
acquisition, 50% of the shares were held by an independent
escrow agent for a period of approximately one year subsequent
to the acquisition date to satisfy the indemnification
obligations of the selling shareholder under terms of the
purchase agreement. Such shares have since been released from
escrow.
Magnums primary asset is the funding it receives under a
research grant from the NIH, which supplements our ongoing
research and development programs. During the years ended
December 31, 2005 and 2004, we earned revenue of
$1.0 million and $1.1 million, respectively, under
this grant. In the event certain of Magnums technologies
result in commercial products, we may be obligated to pay
royalties related to the sales of those products to certain
third parties.
The results of Magnums operations have been included with
ours for the period subsequent to the October 2004 acquisition
date. Since Magnum was a development stage company at the time
we acquired it, this acquisition has been accounted for as an
asset acquisition and not a business combination.
The total purchase consideration has been allocated to the
assets acquired based on their respective fair values at the
date of acquisition. The fair value of the net assets acquired
is as follows (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
9 |
|
Acquired grant rights
|
|
$ |
1,741 |
|
|
|
|
Conversion of Preferred Stock to Common Stock |
In June 2005, the 100,000 issued and outstanding shares of our
Series A Non-Voting Convertible Preferred Stock held by
Aventis were converted into 2,343,721 shares of our common
stock. The shares of preferred stock were cancelled and replaced
by newly issued shares of our common stock. The preferred shares
cancelled are no longer issuable. We received no cash or other
consideration in connection with this conversion.
Under a voting agreement related to these shares, Aventis must
vote these shares in the same manner as the shares voted by a
majority of the other stockholders on any corporate action put
to a vote of our stockholders. This voting requirement
terminates at the earliest of June 2011 or the sale of these
shares pursuant to an effective registration statement, on the
open market or to an Aventis non-affiliate, as defined in the
voting agreement. Pursuant to a demand registration made by
Aventis in accordance with the terms of a registration rights
agreement related to these shares, in November 2005 we filed a
Registration Statement on
Form S-3 (File
No. 333-129687)
registering for sale a total of 4,322,369 shares held by
Aventis, which includes the converted shares.
After this conversion, we have 5.0 million shares of
authorized and unissued preferred shares, of which
100,000 shares have been cancelled and 4.9 million
shares are undesignated and issuable.
45
|
|
|
Investment in SR Pharma plc |
In July 2005, we purchased approximately 8.3% of the issued
share capital of SR Pharma for approximately $3.0 million.
As of December 31, 2005, the shares we purchased had a fair
market value of $2.9 million. SR Pharma is a European
biotechnology company publicly traded on the Alternative
Investment Market of the LSE that is developing oncology and
other products.
We are evaluating the feasibility of listing our common stock on
the LSE, which would be in addition to the listing of our common
stock on the NASDAQ National Market System in the United States.
We believe an LSE listing may allow us to better leverage our
assets on a global basis and, specifically, in Europe and Asia.
We have a grant from the National Cancer Institute to support
our Phase 2 clinical trial of INGN 241 in patients with
metastatic melanoma. We received grant funding and earned grant
revenue under this grant of $148,000, $650,000 and $230,000
during the years ended December 31, 2003, 2004 and 2005,
respectively.
Magnum, our wholly-owned subsidiary, has a grant from the NIH
for the development of complementary adenoviral vectors for the
treatment of cancer. Magnum received grant funding and earned
grant revenue under this grant of zero, $1.1 million and
$1.0 million during the years ended December 31, 2003,
2004 and 2005, respectively.
The amount of grant funding, if any, available to us to perform
research and development is dependent upon many factors,
including the availability of grants from government agencies,
our performing the work and incurring the costs contemplated by
the grants we currently have, our success in obtaining
additional grants in the future and our compliance with statutes
and regulations governing such grants.
Critical Accounting Policies
Use of Estimates. The preparation of financial statements
in conformity with generally accepted accounting principles in
the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual
results could differ from those estimates.
Cash, Cash Equivalents and Short-term Investments. Our
cash, cash equivalents and short-term investments include
investments in short-term, investment grade securities, which
currently consist primarily of United States federal government
obligations. These investments are classified as
held-to-maturity and
are carried at amortized cost. At any point in time, amortized
costs may be greater or less than fair value. If investments are
sold prior to maturity, we could incur a realized gain or loss
based on the fair market value of the investments at the date of
sale. We could incur future losses on investments if the
investment issuer becomes impaired or the investment is
downgraded.
Marketable Securities. Our marketable securities consist
of issued share capital of other public companies and are
classified as available-for-sale. Unrealized gains and losses
are computed using the published share price of the applicable
stock exchange at the close of business on the last day of the
reporting period and are reported as a separate component of
accumulated other comprehensive income (loss) in
shareholders equity until realized.
Intangible Assets. Grant rights acquired, which are
presented as an intangible asset on our balance sheet, resulted
from our asset acquisition related to the Magnum purchase in
October 2004. We amortize that asset to expense on a
straight-line basis over the estimated remaining life of that
asset. We review purchased intangible assets for impairment
whenever changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Such evaluations
compare the carrying amount of an asset to future
46
undiscounted net cash flows expected to be generated by the
asset over its expected useful life. If the asset is considered
to be impaired, we record an impairment charge equal to the
amount by which the carrying value of the asset exceeds its fair
value determined by utilizing a discounted cash flow technique.
Revenue Recognition. Contract services revenue is
recognized when the related services are completed and delivered
to the customer. Deferred revenue is recorded for cash received
for which the related expense had not been incurred. Grant
revenue is recognized as research expense relating to a grant is
incurred and the work contemplated under the grant has been
performed. Rental income from the sublease of laboratory space
to third parties under leases that have variable monthly rent
amounts over the term of the lease is recognized on a
straight-line basis over the term of the lease. Any cash
payments received in excess of rental income recognized is
recorded as deferred revenue. Rental income is included in other
income in the accompanying Consolidated Statement of Operations.
Research and Development Costs. In conducting our
clinical trials of ADVEXIN therapy and other product candidates,
we procure services from numerous third-party vendors. The cost
of these services constitutes a significant portion of the cost
of these trials and of our research and development expense in
general. These vendors do not necessarily provide us billings
for their services on a regular basis and, accordingly, are
often not a timely source of information to determine the costs
we have incurred relative to their services for any given
accounting period. As a result, we make significant accounting
estimates as to the amount of costs we have incurred relative to
these vendors in each accounting period. These estimates are
based on numerous factors, including, among others, costs set
forth in our contracts with these vendors, the period of time
over which the vendor will render the services and the rate of
enrollment of patients in our clinical trials. Using these
estimates, we record expenses and accrued liabilities in each
accounting period that we believe fairly represent our
obligations to these vendors. Actual results could differ from
these estimates, resulting in increases or decreases in the
amount of expense recorded and the related accrual. We have
consistently applied these estimation procedures in the past and
plan to continue applying such procedures in the same manner
during the foreseeable future. Our experience has been that our
estimates have reasonably reflected the expense we actually
incur.
Recently Issued Accounting Pronouncements
In December 2004, SFAS No. 123R, Share-Based
Payment, was issued. This statement establishes standards
for the accounting for transactions in which an entity exchanges
its equity investments for goods and services. It also addresses
transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the
entitys equity instruments or that may be settled by the
issuance of those equity instruments. The statement does not
change the accounting guidance for share-based payments with
parties other than employees. The statement requires measurement
of the cost of employee service received in exchange for an
award of equity instruments based on the grant date fair value
of the award, with limited exceptions. That cost is to be
recognized over the period during which an employee is required
to provide service in exchange for the award, which is usually
the vesting period of the award. A public entity will initially
measure the cost of employee services received in exchange for
an award of a liability instrument based on the
instruments current fair value. The fair value of that
award will be remeasured subsequently at each reporting date
through the settlement date. Changes in fair value during the
requisite service period will be recognized as compensation over
that period. The grant date fair value of employee share options
and similar instruments will be estimated using option pricing
models adjusted for the unique characteristics of these
instruments.
We will be required to comply with SFAS No. 123R for
the annual reporting period beginning January 1, 2006. We
have not yet determined which fair-value method and transitional
provision we will follow. We expect the adoption of
SFAS No. 123R will have a significant impact on our
results of operations. We do not expect such adoption to
significantly impact our financial position or liquidity. See
Share-Based Compensation in Note 2 to our
Consolidated Financial Statements for the pro forma impact on
net loss and net loss per share from calculating share-based
compensation costs under the fair value alternative of
SFAS No. 123. The calculation of compensation cost for
share-based payment transactions after the effective date of
47
SFAS No. 123R may be different from the calculation of
compensation cost under SFAS No. 123, but such
differences have not yet been quantified.
Results of Operations
Our operations consist primarily of the research and development
of our product candidates and technologies described in
Item 1. Business Product Development
Programs above. Our research and development expense
includes, but is not limited to, expense related to personnel,
facilities and equipment, pre-clinical research, clinical
trials, manufacturing of materials for use in clinical trials,
conducting data analysis and conducting regulatory documentation
submissions to the FDA. Our research and development expense can
be divided between programs in the pre-clinical stage and
programs in the clinical stage, and general research and
development expense attributable to all programs. We manage our
business by tracking research and development expense in these
categories in lieu of tracking research and development expense
on a project-by-project basis. Tables setting forth the amount
of research and development expense we have incurred in each of
these categories are presented below under Comparison of
the Years Ended December 31, 2005 and December 31,
2004 and Comparison of the Years Ended
December 31, 2004 and December 31, 2003.
To commercialize our product candidates, we must obtain certain
regulatory approvals. Satisfaction of regulatory requirements
typically takes many years and involves compliance with
requirements covering pre-clinical research, clinical trials,
manufacturing, quality control, labeling and promotion of drugs
for human use. To obtain regulatory approvals, we must, among
other requirements, complete clinical trials and other work
demonstrating our product candidates are safe and effective for
a particular cancer type or other disease. The FDA and other
similar agencies throughout the world have substantial
discretion over the work we must perform to obtain regulatory
approval.
The likelihood that a product candidate will be commercially
successful may be affected by a variety of factors, including,
among others, the quality of the product candidate, the validity
of the target and disease indication, early clinical data,
competition, manufacturing capability and commercial viability.
Because of the discretion of the FDA and similar agencies
throughout the world, as well as the foregoing factors, we
cannot predict with reasonable accuracy (1) the future
expense we will incur developing these product candidates,
(2) when we will complete our work in developing these
product candidates or (3) when, if ever, we will earn
significant revenue from approved products that might result
from these product development programs.
For a discussion of the risks and uncertainties associated with
developing our products, as well as the risks and uncertainties
associated with potential commercialization of our product
candidates, see Item 1A. Risk Factors, and
particularly the risk factors entitled:
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If we are unable to commercialize
ADVEXIN®
therapy in various markets for multiple indications,
particularly for the treatment of head and neck cancer, our
business will be harmed; |
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|
If we fail to comply with FDA requirements or encounter
delays or difficulties in clinical trials for our product
candidates, we may not obtain regulatory approval of some or all
of our product candidates on a timely basis, if at all; |
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|
Even if our products are approved by regulatory
authorities, if we fail to comply with ongoing regulatory
requirements, or if we experience unanticipated problems with
our products, these products could be subject to restrictions or
withdrawal from the market; |
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|
Failure to comply with foreign regulatory requirements
governing human clinical trials and marketing approval for drugs
could prevent us from selling our products in foreign markets,
which may adversely affect our operating results and financial
conditions; |
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|
If we continue to incur operating losses for a period
longer than we anticipate and fail to obtain the capital
necessary to fund our operations, we will be unable to advance
our development program and complete our clinical
trials; |
48
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If we cannot maintain our existing corporate and
academic arrangements and enter into new arrangements, we may be
unable to develop products effectively, or at all; |
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If we are not able to create effective collaborative
marketing relationships, we may be unable to market ADVEXIN
therapy successfully or in a cost-effective manner; and |
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Even if we receive regulatory approval to market our
ADVEXIN therapy, INGN 241, INGN 225 or other product candidates,
we may not be able to commercialize them profitably. |
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|
Comparison of Years Ended December 31, 2005 and
2004 |
In the following comparison of years ended December 31,
2005, and December 31, 2004, references to the 2005 period
refer to the year ended December 31, 2005, and references
to the 2004 period refer to the year ended December 31,
2004.
Contract Services, Grant and Other Revenue. For the 2005
period, we earned revenue from (a) research grants from
U.S. Government agencies and (b) third parties under
agreements to provide manufacturing process development and
product production services for them. In the 2004 period, we
earned revenue from (a) research grants from
U.S. Government agencies and (b) contract research
services provided to Aventis, one of our stockholders, under an
agreement through which Aventis provided funding for the conduct
of a Phase 2 clinical trial of ADVEXIN therapy in breast
cancer. Total contract services, grant and other revenue was
$1.9 million for the 2005 period compared to
$1.8 million for the 2004 period, an increase of 6%. This
increase was primarily due to increased contract services
revenue from third parties under agreements to provide
manufacturing process development and product production
services for them partially offset by a decrease in revenue
earned from research grants from U.S. Government agencies.
Research and Development. Research and development
expense consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
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| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
Pre-clinical stage programs expense
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|
$ |
2,632 |
|
|
$ |
2,644 |
|
Clinical stage programs expense
|
|
|
14,822 |
|
|
|
15,713 |
|
General research and development expense
|
|
|
3,020 |
|
|
|
3,043 |
|
|
|
|
|
|
|
|
Total research and development expense
|
|
$ |
20,474 |
|
|
$ |
21,400 |
|
|
|
|
|
|
|
|
Research and development expense included share-based payments
expense of $396,000 in the 2005 period and $48,000 in the 2004
period.
The 5% increase in research and development expense in the 2005
period compared to the 2004 period was a result of
(1) increased amortization related to the amortization of
grant rights acquired in the purchase of Magnum,
(2) increased share-based compensation expense for the
reasons discussed below under Share-Based Compensation
Expense, (3) increased manufacturing and process
development costs in the 2005 period compared to the 2004 period
resulting from ongoing development of production processes for
our product candidates and (4) increased manufacturing
process development and product production services for third
parties. These increases were offset by lower costs in the 2005
period compared to the 2004 period related to the preparation of
the BLA for ADVEXIN therapy for filing with the FDA since
significant portions of that initial work were completed in 2004.
General and Administrative. General and administrative
expense was $7.8 million for the 2005 period compared to
$6.6 million for the 2004 period. This expense included
share-based compensation expense of
49
$936,000 in the 2005 period and $205,000 in the 2004 period.
This 18% increase in general and administrative expense was due
to (1) higher share-based compensation expense, which
increased for the reasons discussed below under
Share-Based Compensation Expense, (2) increased
consulting and professional fees related to the pursuit of
foreign capital offset by (3) decreased costs related to
securities offerings not pursued to completion in the 2004
period that were not repeated in the 2005 period.
Share-Based Compensation Expense. Share-based
compensation expense was $1.3 million for the 2005 period
compared to $253,000 for the 2004 period. The 514% increase in
this expense was primarily due to the grant of shares of our
common stock to certain of our officers in the 2005 period as a
result of the expiration of certain of their stock options
during that period and for which there was no similar
transaction during the 2004 period.
During the 2005 period, options to purchase an aggregate of
191,200 shares of our common stock held by certain of our
officers reached the end of their stated contractual ten year
life, resulting in the expiration of the right to exercise those
options. To provide those officers with an economic equivalent
to those expired options, we granted them an aggregate of
178,362 shares of our common stock during the 2005 period,
of which 113,349 shares were issued to those officers and
65,013 shares were withheld by us in consideration for our
payment on their behalf of approximately $411,000 of federal
income taxes. We recorded compensation expense of approximately
$1.1 million in connection with these share issuances.
Our insider trading policy restricts sales of our common stock
by our officers and employees. Accordingly, the expiring options
described above could not be exercised pursuant to a cashless
exercise program prior to their respective expiration dates due
to these insider trading restrictions.
See Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations
Recently Issued Accounting Pronouncements above for a
discussion of our application of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation and the expected future
effects of our adoption of SFAS No. 123R,
Share-Based Payment.
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Interest Income, Interest Expense and Other Income |
Interest income was $787,000 for the 2005 period compared to
$309,000 for the 2004 period, an increase of 155%. This increase
was primarily due to (1) a higher overall average balance
of cash, cash equivalents and short-term investments in the 2005
period compared to the 2004 period and (2) higher interest
rates earned on our invested funds during the 2005 period
compared to the 2004 period.
Interest expense was $621,000 for the 2005 period compared to
$500,000 for the 2004 period, an increase of 24%. This increase
was primarily due to (1) additional borrowings in the 2005
period to finance equipment acquisitions and (2) higher
interest rates charged on borrowings originating in the 2005
period compared to borrowings originating in earlier periods.
Other income was $1.1 million for both the 2005 period and
the 2004 period. This income is earned primarily from our
sublease of space to M. D. Anderson Cancer Center for which
there were no substantial change between periods in the business
activity related to that lease.
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Comparison of Years Ended December 31, 2004 and
2003 |
In the following comparison of years ended December 31,
2004, and December 31, 2003, references to the 2004 period
refer to the year ended December 31, 2004, and references
to the 2003 period refer to the year ended December 31,
2003.
Contract Services, Grant and Other Revenue. For the 2003
and 2004 periods, we earned revenue from (a) research
grants from U.S. Government agencies and (b) contract
research services provided to Aventis, one of our stockholders,
under an agreement through which Aventis provided funding for
the conduct of a Phase 2 clinical trial of ADVEXIN therapy
in breast cancer. In the 2003 period, we also earned revenue from
50
third parties under agreements to provide manufacturing process
development and product production services for them. Total
contract services, grant and other revenue was $1.8 million
for the 2004 period and $304,000 for the 2003 period, an
increase of 492%. This increase was primarily due to increased
grant funding earned under (1) our grant from the National
Cancer Institute to support our Phase 2 clinical trial of
INGN 241 in patients with metastatic melanoma as a result
of our increased activity related to that research and
(2) the grant from the NIH held by Magnum, our wholly-owned
subsidiary, as a result of our acquisition of Magnum in October
2004. During 2004, we earned $1.1 million under the grant
held by Magnum.
Research and Development. Research and development
expense consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Pre-clinical stage programs expense
|
|
$ |
2,775 |
|
|
$ |
2,632 |
|
Clinical stage programs expense
|
|
|
9,820 |
|
|
|
14,822 |
|
General research and development expense
|
|
|
2,378 |
|
|
|
3,020 |
|
|
|
|
|
|
|
|
Total research and development expense
|
|
$ |
14,973 |
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|
$ |
20,474 |
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|
|
|
|
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|
Research and development expense was $20.5 million for the
2004 period, compared to $15.0 million for the 2003 period.
This expense included share-based payments expense of $48,000
for the 2004 period and $242,000 for the 2003 period. This 37%
increase in research and development expense was a result of
increased activity related to the preparation of the BLA for
ADVEXIN therapy for filing with the FDA, which resulted in us
hiring more employees and engaging additional consultants to
perform this work.
General and Administrative. General and administrative
expense was $6.6 million for the 2004 period compared to
$6.1 million for the 2003 period. This expense included
share-based payments expense of $205,000 for the 2004 period and
$1.1 million for the 2003 period. This 8% increase in
general and administrative expense was primarily due to
increased activity related to the preparation of the BLA for
ADVEXIN therapy for filing with the FDA, which resulted in us
hiring more employees and engaging additional consultants to
perform this work. Also, in the 2004 period, we expensed
$267,000 of costs incurred with respect to certain securities
offering activities for the sale of our common stock during the
first two quarters of 2004 that did not result in a closing of a
sale of common stock.
Share-Based Compensation Expense. Share-based
compensation expense was $253,000 for the 2004 period and
$1.4 million for the 2003 period. This compensation for the
2003 period arose primarily as a result of:
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Stock options granted to certain members of our Board of
Directors for which some of the options were fully vested upon
issuance and had exercise prices below the market value of our
common stock at the date of grant, which resulted in
compensation expense; |
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|
Stock options, which were fully vested upon issuance, issued to
our corporate secretary, who is not a director or employee and
for whom option grants result in compensation charges under fair
value accounting; and |
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Amortization of deferred compensation remaining from stock
options granted in earlier periods. |
This compensation expense decreased for the 2004 period because:
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|
The options granted to members of our Board of Directors during
the 2004 period had exercise prices equal to the market value of
our common stock at the date of grant, resulting in no
compensation expense; |
51
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|
The options granted to our corporate secretary during the 2004
period vest over multiple periods, resulting in recognition of
some of the compensation expense arising from those options
being deferred to future periods; and |
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Deferred compensation related to previously granted stock
options became fully amortized in previous periods. |
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Interest Income, Interest Expense and Other Income |
Interest income was $309,000 for the 2004 period compared to
$1.0 million for the 2003 period, a decrease of 69%.
Included in the 2003 amount was $775,000 we received from the
settlement of litigation related to a decline in the market
value of certain commercial paper we held as an investment in
2001. Excluding the amount from this settlement, interest income
for the 2003 period was $225,000. Interest income for the 2004
period increased compared to interest income for the 2003
period, exclusive of the litigation settlement, primarily due to
higher average cash balances during the 2004 period as a result
of the proceeds received from the sales of our common stock in
December 2003 and December 2004 and higher yields on invested
funds for the 2004 period compared to the 2003 period.
Interest expense was $500,000 for the 2004 period compared to
$624,000 for the 2003 period, a decrease of 20%. This decrease
was primarily due to certain capital leases becoming fully paid
in late 2003 and early 2004.
Other income was $1.1 million for the 2004 period and the
2003 period. This income is earned primary from our sublease of
space to M. D. Anderson Cancer Center under which there were no
significant changes between the 2003 and 2004 periods.
Liquidity and Capital Resources
In the following discussion of liquidity and capital resources,
references to the 2005 period refer to the year ended
December 31, 2005 and references to the 2004 period refer
to the year ended December 31, 2004.
We have incurred annual operating losses since our inception. At
December 31, 2005, we had an accumulated deficit of
$143.5 million. From inception through December 31,
2005, we have financed our operations primarily from the
following sources:
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$49.7 million of collaborative research and development
payments from Aventis; |
|
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|
$41.4 million of equity sales in December 2003 and December
2004 through registered direct offerings under a shelf
registration filed with the Commission; |
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|
$39.4 million of private equity sales to Aventis; |
|
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|
$32.2 million of net proceeds from our initial public
offering in October 2000; |
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|
$26.6 million of private equity sales, net of offering
costs, to others (including $10.8 million from the private
sale of our common stock in June 2003); |
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|
$19.6 million of equity sales, net of offering costs, to
Colgate-Palmolive pursuant to an alliance agreement entered into
in November 2005; |
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|
$19.2 million from contract services, grants, interest and
other income; |
|
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|
$9.9 million in mortgage financing from banks for our
facilities; |
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|
$7.5 million of sales of ADVEXIN therapy product to Aventis
for use in later-stage clinical trials; and |
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|
$5.7 million in leases and notes payable from commercial
lessors and lenders to acquire equipment pledged as collateral
for those leases and notes. |
At December 31, 2005, we had cash, cash equivalents and
short-term investments of $33.1 million, compared to
$38.2 million at December 31, 2004. Cash and cash
equivalents constituted $28.1 million and
52
$30.2 million of these amounts at December 31, 2005,
and December 31, 2004, respectively. This decrease in cash
and cash equivalents at December 31, 2005, as compared to
December 31, 2004 was due to activity during the year ended
December 31, 2005, that included
(1) $21.7 million used in operating activities,
(2) $589,000 used by investing activities and
(3) $20.3 million provided by financing activities. We
expect to continue to focus our activities primarily on
conducting Phase 3 and other clinical trials, conducting
data analysis related to those trials, preparing regulatory
documentation submissions to the FDA, producing ADVEXIN therapy
and other clinical materials for use in our clinical trials and
conducting pre-marketing activities for ADVEXIN therapy. We
expect to continue our research and development of various other
targeted molecular therapy technologies. If ADVEXIN therapy or
any of our other product candidates are approved for commercial
sale by the FDA, we expect to conduct activities supporting the
marketing, sales, production and distribution of those products,
either ourselves or in collaboration with other parties. The
majority of our expenditures for the foreseeable future will
most likely be for these activities as they relate to ADVEXIN
therapy. These activities may increase the rate at which we use
cash in the future as compared to the cash we used for operating
activities during the year ended December 31, 2005. We
believe our existing working capital can fund our operations for
the next 18 to 24 months, although we may have to make
adjustments to the scope of operations to achieve that
objective, and unforeseen events could shorten that time period.
Our existing resources may not be sufficient to support the
commercial introduction of any of our product candidates. In
order to fund our operating losses, we will need to raise
additional funds through public or private equity offerings,
debt financings or additional corporate collaboration and
licensing arrangements. We do not know whether such additional
financing will be available when needed or on terms favorable to
us or our stockholders.
Net cash used in operating activities was $21.7 million for
the 2005 period compared to $21.5 million for the 2004
period. This increase was due to:
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A larger net loss in the 2005 period compared to the 2004
period; and |
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An aggregate decrease in accounts payable and accrued
liabilities during the 2005 period compared to an aggregate
increase in accounts payable and accrued liabilities during the
2004 period due to variations in the timing of payments to
vendors that is a function of the nature of vendors to whom we
have obligations and variations in the terms of payment to them; |
with the above items offset by:
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Depreciation that increased in the 2005 period compared to the
2004 period due to acquisitions of property and equipment during
and subsequent to the 2004 period for which the first full year
of depreciation was the 2005 period; |
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|
Share-based compensation expense that increased in the 2005
period compared to the 2004 period due to the issuance of shares
to certain officers in connection with expiring stock options as
discussed above under Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Comparison of the Year Ended
December 31, 2005 and December 31, 2004
Share-Based Compensation Expense; |
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An increase in amortization of grant rights acquired during the
2005 period compared to the 2004 period since such amortization
was recorded throughout 2005 but for only a portion of 2004
because the rights being amortized arose in connection with our
acquisition of Magnum in October 2004; |
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A decrease in other assets during the 2005 period compared to an
increase in other assets during the 2004 period due to
(1) a prepayment of certain expenses in the 2004 period
that did not occur in the 2005 period and (2) a decrease in
federal grant funding receivable during the 2005 period compared
to an increase in federal grant funding receivable during the
2004 period due to the receipt in the 2005 period of grant
funding earned during that period whereas grant funding earned
during the 2004 period was received in subsequent
periods; and |
53
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An increase in deferred revenue during the 2005 period that was
greater than the increase during the 2004 period due to an
increase in payments from third parties in advance of us
performing work under agreements to provide manufacturing
process development services for them. |
Net cash used in investing activities was $589,000 for the 2005
period compared to $9.1 million for the 2004 period. This
decrease was primarily due to (1) a lower level of
equipment purchases in the 2005 period compared to the 2004
period and (2) a lower level of net activity in purchases
and maturities of short-term investments in the 2005 period
compared to the 2004 period due to normal variations in the
amount and timing of purchases and sales of short-term
investments based on our operating needs for cash and cash
equivalents and the availability of cash from sales of our
common stock. These decreases were offset by our purchase of
marketable securities during the 2005 period through our
investment in SR Pharma as discussed above under
Item 1. Business Overview
Investment in SR Pharma plc.
We have no obligations at this time to purchase significant
amounts of additional property or equipment, but our needs may
change. It may be necessary for us to purchase larger amounts of
property and equipment to support our clinical programs and
other research, development and manufacturing activities. We may
need to obtain debt or lease financing to facilitate such
purchases. If that financing is not available, we may need to
use our existing resources to fund those purchases, which could
result in a reduction in the cash and cash equivalents available
to fund operating activities.
Net cash provided by financing activities was $20.3 million
during the 2005 period compared to $24.4 million during the
2004 period. This change was due to:
|
|
|
|
|
A decrease in proceeds from sales of common stock to third
parties and a lower level of stock option exercises in the 2005
period compared to the 2004 period; |
|
|
|
A decrease in proceeds from notes payable in the 2005 period
compared to the 2004 period as the 2004 period included proceeds
received from an amendment of a mortgage note in that period,
which is an event that did not occur again in the 2005
period; and |
|
|
|
An increase in principal payments under notes payable and
capital leases in the 2005 period compared to the 2004 period
due to additional borrowings subsequent to the 2004 period to
finance equipment acquisitions. |
We have an agreement with VirRx, which began in 2002, to
purchase shares of VirRxs Series A Preferred Stock.
Key activity and provisions under this agreement include the
following:
|
|
|
|
|
From inception of this agreement through December 31, 2005,
and during the year ended December 31, 2005, we have
purchased $2,325,000 and $600,000, respectively, of VirRxs
Series A Preferred Stock for cash. These purchases are
recorded as research and development expense. We purchased an
additional $150,000 of this stock for cash on January 1,
2006, which was our final scheduled quarterly purchase of such
stock. We have no plans at this time to purchase additional
shares of this stock except in the event of VirRxs
achievement of prescribed milestones discussed below. |
|
|
|
VirRx is required to use the proceeds from these stock sales in
accordance with the terms of a collaboration and license
agreement between VirRx and us for the development of
VirRxs technologies. We may unilaterally terminate this
collaboration and license agreement with 90 days prior
notice, which would also terminate the requirement for us to
make any additional stock purchases. |
|
|
|
Provided the collaboration and license agreement remains in
place, we are required to make additional milestone stock
purchases, either for cash or through the issuance of our common
stock, upon the completion of Phase 1, 2 and 3 clinical
trials involving technologies licensed under this agreement. We
are required to make a $5.0 million cash milestone payment
to VirRx, for which we receive no VirRx stock, upon approval by
the FDA of a BLA for the first collaboration product based on
these technologies. To the extent we have already made cash
milestone payments, we may receive a credit of 50% of the
Phase 2 clinical trial milestone payments and 25% of the
Phase 3 clinical trial milestone payments against this
$5.0 million cash milestone payment. The additional
milestone stock purchases |
54
|
|
|
|
|
and cash payment are not anticipated to be required in the near
future. We have an option to purchase all outstanding shares of
VirRx at any time until March 2007. |
We have fixed debt service obligations under notes payable for
which the liability is reflected on our balance sheet. We used
the proceeds from these notes payable to finance facilities and
equipment. Aggregate payments due under these obligations are as
follows (in thousands):
|
|
|
|
|
|
Total debt service payments due during the year ending
December 31:
|
|
|
|
|
|
2006
|
|
$ |
1,293 |
|
|
2007
|
|
|
1,102 |
|
|
2008
|
|
|
777 |
|
|
2009
|
|
|
675 |
|
|
2010
|
|
|
670 |
|
|
Thereafter
|
|
|
9,486 |
|
|
|
|
|
Total debt service payments
|
|
|
14,003 |
|
|
Less portion representing interest
|
|
|
(5,463 |
) |
|
|
|
|
|
Total principal balance at December 31, 2005
|
|
$ |
8,540 |
|
|
|
|
|
Principal balance presented on the December 31, 2005
balance sheet as liabilities in these categories:
|
|
|
|
|
|
Current portion of notes payable
|
|
$ |
756 |
|
|
Notes payable, net of current portion
|
|
|
7,784 |
|
|
|
|
|
|
Total principal balance at December 31, 2005
|
|
$ |
8,540 |
|
|
|
|
|
We have a fixed rent obligation under a ground lease for the
land on which we built our facilities. Since this is an
operating lease, there is no liability reflected on our balance
sheet for this item, which is in accordance with generally
accepted accounting principles. We make total annual rent
payments of $156,000 under this lease which will continue until
the expiration of the initial term of this lease in September
2026. Such payments are subject to adjustment in the future for
inflation. Future minimum annual rental payments due under all
operating leases are as follows (in thousands):
|
|
|
|
|
|
Year ending December 31, 2006
|
|
$ |
428 |
|
|
2007
|
|
|
344 |
|
|
2008
|
|
|
325 |
|
|
2009
|
|
|
225 |
|
|
2010
|
|
|
156 |
|
|
Thereafter
|
|
|
2,459 |
|
|
|
|
|
Total minimum lease payments under operating leases
|
|
$ |
3,937 |
|
|
|
|
|
In the normal course of business, we enter into various
long-term agreements with vendors to provide services to us.
Some of these agreements require up-front payment prior to
services being rendered, some require periodic monthly payments
and some provide for the vendor to bill us for their services as
they are rendered. In substantially all cases, we may cancel
these agreements at any time with minimal or no penalty and pay
the vendor only for services actually rendered. Regardless of
the timing of the payments under these agreements, we record the
expense incurred in the periods in which the services are
rendered.
Pursuant to a consulting agreement, we pay consulting fees of
approximately $175,000 per annum to EJ Financial, a
company owned by the Chairman of our Board of Directors.
EJ Financial provides us guidance on strategic product
development, business development and marketing activities. We
are obligated to continue paying this fee until we terminate the
services of that company at our option.
55
We have a consulting agreement with Jack A. Roth, M.D.,
Chairman of the Department of Thoracic Surgery and Director of
the Keck Center for Gene Therapy at The University of Texas M.
D. Anderson Cancer Center where he holds the Bud Johnson
Clinical Distinguished Chair. Dr. Roth is the primary
inventor of the technology upon which our ADVEXIN therapy is
based and numerous other technologies we utilize. We licensed
Dr. Roths inventions from M. D. Anderson Cancer
Center. Dr. Roth is our Chief Medical Advisor and chairman
of our scientific advisory board. His duties involve the regular
interaction and consultation with our scientists and others on
our behalf. As compensation for his services and
responsibilities, this consulting agreement provides for
payments to Dr. Roth of $205,000 per annum, with that
amount subject to adjustment for inflation in the future. These
payments continue through the end of the consulting agreement
term on September 30, 2009. We may terminate this agreement
at our option upon one years advance notice. If we had
terminated this agreement as of December 31, 2005, we would
have been obligated to make final payments totaling $205,000.
Dr. Roth is one of our stockholders.
We have a consulting agreement with the placement agent and
investment advisor who assisted us with the sale of our common
stock in December 2004. We intend to pay them a fee of
$25,000 per month on a month-to-month basis in
consideration for their ongoing assistance with business
development and financial matters.
We sublease a portion of our facilities to M. D. Anderson Cancer
Center under a lease with a non-cancelable term that expires in
2009. M. D. Anderson Cancer Center is obligated to pay us rent
and facilities operating expense reimbursements of approximately
$94,000 per month through January 2006 and $28,000 per
month thereafter.
56
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly
financial data for the years ended December 31, 2004 and
2005. This information has been prepared on the same basis as
the Consolidated Financial Statements and all necessary
adjustments have been included in the amounts stated below to
present fairly the selected quarterly information when read in
conjunction with the Consolidated Financial Statements and notes
thereto. Historical quarterly financial results and trends may
not be indicative of future results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
| |
|
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(In thousands, except per share amounts) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract services, grant and other revenue
|
|
$ |
109 |
|
|
$ |
273 |
|
|
$ |
209 |
|
|
$ |
1,217 |
|
|
$ |
509 |
|
|
$ |
336 |
|
|
$ |
398 |
|
|
$ |
624 |
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,295 |
|
|
|
5,948 |
|
|
|
5,734 |
|
|
|
4,497 |
|
|
|
5,239 |
|
|
|
5,700 |
|
|
|
5,090 |
|
|
|
5,371 |
|
|
General and administrative
|
|
|
1,444 |
|
|
|
2,147 |
|
|
|
1,710 |
|
|
|
1,.296 |
|
|
|
1,810 |
|
|
|
2,006 |
|
|
|
1,657 |
|
|
|
2,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,630 |
) |
|
|
(7,822 |
) |
|
|
(7,235 |
) |
|
|
(4,576 |
) |
|
|
(6,540 |
) |
|
|
(7,370 |
) |
|
|
(6,349 |
) |
|
|
(7,108 |
) |
Interest income (expense), net
|
|
|
(67 |
) |
|
|
(35 |
) |
|
|
(55 |
) |
|
|
(34 |
) |
|
|
34 |
|
|
|
35 |
|
|
|
8 |
|
|
|
89 |
|
Other income
|
|
|
250 |
|
|
|
306 |
|
|
|
269 |
|
|
|
242 |
|
|
|
275 |
|
|
|
274 |
|
|
|
277 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(5,447 |
) |
|
$ |
(7,551 |
) |
|
$ |
(7,021 |
) |
|
$ |
(4,368 |
) |
|
$ |
(6,231 |
) |
|
$ |
(7,061 |
) |
|
$ |
(6,064 |
) |
|
$ |
(6,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$ |
(0.21 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.18 |
) |
|
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted net loss per share
|
|
|
26,566 |
|
|
|
26,607 |
|
|
|
26,703 |
|
|
|
27,886 |
|
|
|
30,741 |
|
|
|
31,182 |
|
|
|
33,394 |
|
|
|
35,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
The following table summarizes our contractual obligations as of
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More | |
|
|
|
|
One Year | |
|
Two to | |
|
Four to | |
|
than Five | |
|
|
Total | |
|
or Less | |
|
Three Years | |
|
Five Years | |
|
Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Long-term debt
|
|
$ |
14,003 |
|
|
$ |
1,293 |
|
|
$ |
1,879 |
|
|
$ |
1,345 |
|
|
$ |
9,486 |
|
Operating leases
|
|
|
3,937 |
|
|
|
428 |
|
|
|
669 |
|
|
|
381 |
|
|
|
2,459 |
|
Employment agreements
|
|
|
329 |
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting agreements
|
|
|
862 |
|
|
|
298 |
|
|
|
410 |
|
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
19,131 |
|
|
$ |
2,348 |
|
|
$ |
2,958 |
|
|
$ |
1,880 |
|
|
$ |
11,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
As of December 31, 2005, we did not have any significant
off-balance sheet arrangements, as defined in
Item 303(a)(4)(ii) of
Regulation S-K.
57
|
|
Item 7A. |
Quantitative and Qualitative Disclosures about Market
Risk |
Interest Rate Risk
Our exposure to market risk for changes in interest rates
relates primarily to our fixed rate long-term debt and
short-term investments in investment grade securities, which
consist primarily of federal government obligations. Investments
are classified as held-to-maturity and are carried at amortized
cost. We do not hedge interest rate exposure or invest in
derivative securities. A hypothetical 100-basis point decrease
in the interest rates of our investments at the investment
balances as of December 31, 2005 would decrease our
interest income by approximately $331,000.
At December 31, 2005, the fair value of our fixed-rate debt
approximated its carrying value based upon discounted future
cash flows using current market prices.
Equity Price Risk and Foreign Currency Exchange Rate Risk
From time to time, we may invest in marketable securities of
public companies, typically in the form of equity instruments,
for business and strategic purposes. We own British
Pound-denominated shares in SR Pharma, a publicly traded company
listed on the Alternative Investment Market of the LSE. These
marketable securities are classified as available-for-sale.
Unrealized gains and losses in these marketable securities and
the related foreign currency translation adjustments are
reported as a separate component of accumulated other
comprehensive income (loss) in stockholders equity until
realized. We are exposed to market risk for changes in equity
prices and foreign currency translation adjustments as a result
of our investments in marketable securities.
These marketable securities are subject to significant
fluctuation in fair value due to the volatility of the industry
in which SR Pharma participates and changes in the relative
foreign currency values. We do not hedge our equity price risk
or foreign currency translation exposure or invest in derivative
securities. A hypothetical 10% decrease in the stock price of
our marketable securities as of December 31, 2005 would
decrease the value of those marketable securities by
approximately $290,000. A hypothetical 10% decrease in the value
of the British Pound as of December 31, 2005 would decrease
the fair value of our marketable securities by approximately
$290,000. A hypothetical 10% decrease in the stock price of our
marketable securities and a hypothetical 10% decrease in the
value of the British Pound, in each case as of December 31,
2005, would decrease the fair value of our marketable securities
by approximately $550,000.
Our purchase price for these SR Pharma marketable securities was
approximately $3.0 million. At December 31, 2005, the
fair value of these marketable securities was approximately
$2.9 million, which is approximately $100,000 less than our
cost. The impact of the foreign currency translation adjustment
in the relative values of the Pound and the U.S. dollar was
not material during this period.
|
|
Item 8. |
Financial Statements and Supplementary Data |
The information required by this Item is set forth in our
Consolidated Financial Statements and notes thereto beginning on
page F-3 of this Annual Report on
Form 10-K.
|
|
Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
Not applicable.
|
|
Item 9A. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures. Our
management evaluated, with the participation of our Chief
Executive Officer and our Chief Financial Officer, the
effectiveness of our disclosure controls and procedures as of
the end of the period covered by this Annual Report on
Form 10-K. Based
on this evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that our disclosure controls
and procedures are effective to ensure that information we are
required to disclose in reports that we file or submit
58
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Commission rules
and forms.
Changes in Internal Control over Financial Reporting.
There was no change in our internal control over financial
reporting that occurred during the last fiscal quarter covered
by this Annual Report on
Form 10-K that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Managements Annual Report on Internal Control over
Financial Reporting. Our management is responsible for
establishing and maintaining adequate internal control over
financial reporting. Under the supervision and with the
participation of our management, including our President and
Chief Executive Officer and our Chief Financial Officer, we
assessed the effectiveness of our internal control over
financial reporting as of the end of the period covered by this
report based on the framework in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions
and that the degree of compliance with the policies or
procedures may deteriorate.
Based on its assessment of internal control over financial
reporting, management has concluded that, as of
December 31, 2005, our internal control over financial
reporting was effective to provide reasonable assurance
regarding the reliability of our financial reporting and the
preparation of our financial statements for external purposes in
accordance with United States generally accepted accounting
principles.
Our independent registered public accounting firm,
Ernst & Young LLP, has issued an attestation report on
our managements assessment of our internal control over
financial reporting. The attestation report is included on
page F-1 of this Annual Report on
Form 10-K.
|
|
Item 9B. |
Other Information |
Not applicable.
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
The information required by this Item is incorporated by
reference to the information under the sections captioned
Election of Directors, Executive
Officers, Section 16(a) Beneficial Ownership
Reporting Compliance and Code of Ethics
contained in our 2006 Proxy Statement.
|
|
Item 11. |
Executive Compensation |
The information required by this Item is incorporated by
reference to the information under the section captioned
Executive Compensation contained in our 2006 Proxy
Statement.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management |
The information required by this Item is incorporated by
reference to the information under the sections captioned
Security Ownership and Equity Compensation
Plan Information contained in our 2006 Proxy Statement.
|
|
Item 13. |
Certain Relationships and Related Transactions |
The information required by this Item is incorporated by
reference to the information under the sections captioned
Certain Relationships and Related Transactions and
Compensation Committee Interlocks and Insider
Participation contained in our 2006 Proxy Statement.
59
|
|
Item 14. |
Principal Accounting Fees and Services |
The information required by this Item related to principal
accountant fees and services as well as related pre-approval
policies is incorporated by reference to the information under
the sections captioned Fees Paid to Ernst & Young
LLP and Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Services of Independent Auditors
contained in our 2006 Proxy Statement.
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules |
1. Consolidated Financial Statements
The following financial statements are filed as part of this
Annual Report on
Form 10-K:
|
|
|
|
|
|
|
Page | |
|
|
| |
Report of Independent Registered Public Accounting Firm
|
|
|
F-1 |
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2 |
|
Consolidated Balance Sheets
|
|
|
F-3 |
|
Consolidated Statements of Operations
|
|
|
F-4 |
|
Consolidated Statements of Stockholders Equity
|
|
|
F-5 |
|
Consolidated Statements of Cash Flows
|
|
|
F-6 |
|
Notes to Consolidated Financial Statements
|
|
|
F-7 |
|
2. Financial Statement Schedules
All financial statement schedules are omitted because they are
not applicable or not required, or because the required
information is included in the Consolidated Financial Statements
or notes thereto.
3. Exhibits
(a) Exhibits
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description of Document |
|
|
|
|
|
|
3 |
.1(a)(6) |
|
|
|
Certificate of Incorporation as currently in effect |
|
3 |
.1(b)(6) |
|
|
|
Amendment to Certificate of Incorporation, effective as of
December 21, 2001 |
|
3 |
.1(c)(13) |
|
|
|
Amendment to Certificate of Incorporation, effective as of
August 6, 2004 |
|
3 |
.2(4) |
|
|
|
Bylaws of Introgen Therapeutics, Inc. (Introgen) as currently in
effect |
|
4 |
.1(2) |
|
|
|
Specimen Common Stock Certificate |
|
4 |
.2(5) |
|
|
|
Certificate of Designations of Series A Non-Voting
Convertible Preferred Stock |
|
4 |
.3(9) |
|
|
|
Form of Stock Purchase Warrant |
|
4 |
.4(20) |
|
|
|
Form of Stock Purchase Warrant |
|
10 |
.1(1) |
|
|
|
Form of Indemnification Agreement between Introgen and each
directors and officers |
|
10 |
.2(1)* |
|
|
|
1995 Stock Plan and form of stock option agreement thereunder |
|
10 |
.3(3)* |
|
|
|
2000 Stock Option Plan and forms of stock option agreement
thereunder |
|
10 |
.3(14)* |
|
|
|
2000 Stock Option Plan form of stock option agreement, as amended |
|
10 |
.4(3)* |
|
|
|
2000 Employee Stock Purchase Plan and forms of agreements
thereunder |
|
10 |
.5(1) |
|
|
|
Form of Series C Preferred Stock Purchase Agreement among
Introgen and certain investors |
|
10 |
.6(1) |
|
|
|
Registration Rights Agreement, dated October 31, 1997 |
|
10 |
.7(a)(1) |
|
|
|
Assignment of Leases, dated November 23, 1998, by TMX
Realty Corporation and Riverway Bank, and other related
agreements |
60
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description of Document |
|
|
|
|
|
|
10 |
.7(b)(1) |
|
|
|
Lease Agreement, dated June 7, 1996, by and between
Introgen and Plaza del Oro Business Center |
|
10 |
.7(c)(2) |
|
|
|
Amendment No. 1 to Lease Agreement, effective as of
May 9, 1997 |
|
10 |
.7(d)(2) |
|
|
|
Amendment No. 2 to Lease Agreement, effective as of
July 31, 1998 |
|
10 |
.7(e)(2) |
|
|
|
Amendment No. 3 to Lease Agreement, effective as of
June 29, 2000 |
|
10 |
.7(f)(13) |
|
|
|
Modification Agreement effective April 1, 2004 by TMX
Realty Corporation and Texas State Bank (formerly known as
Riverway Bank), and other related agreements |
|
10 |
.8(a)(1) |
|
|
|
Patent and Technology License Agreement, effective as of
July 20, 1994, by and between The Board of Regents of The
University of Texas System, M. D. Anderson Cancer
Center and Introgen |
|
10 |
.8(b)(1) |
|
|
|
Amendment No. 1 to Patent License Agreement, effective as
of September 1, 1996 |
|
10 |
.9(3) |
|
|
|
Sponsored Research Agreement for Clinical Trial,
No. CS 93-27, dated February 11, 1993, between
Introgen and M. D. Anderson, as amended |
|
10 |
.10 |
|
|
|
Reserved |
|
10 |
.11(3) |
|
|
|
Sponsored Research Agreement No. SR 93-04, dated
February 11, 1993 between M. D. Anderson and
Introgen, as amended |
|
10 |
.12 |
|
|
|
Reserved |
|
10 |
.13(3) |
|
|
|
Sponsored Research Agreement No. SR 96-004 between
Introgen and M. D. Anderson, dated January 17,
1996 |
|
10 |
.14 |
|
|
|
Reserved |
|
10 |
.15(3) |
|
|
|
License Agreement, dated March 29, 1996 between Introgen
and SKCC |
|
10 |
.16(1) |
|
|
|
Consulting Agreement between Introgen and Jack A.
Roth, M.D., effective as of October 1, 1994 |
|
10 |
.17(1) |
|
|
|
Consulting Agreement between EJ Financial Enterprises, Inc. and
Introgen, effective as of July 1, 1994 |
|
10 |
.18(d)(15)* |
|
|
|
Employment Agreement dated as of August 1, 2003 between
Introgen and David G. Nance |
|
10 |
.19(1) |
|
|
|
Service Agreement, effective as of July 1, 1994, between
Introgen and Domecq Technologies, Inc. |
|
10 |
.20(a)(1) |
|
|
|
Collaboration Agreement (p53 Products), effective as of
October 7, 1994, between Introgen and RPR, as amended |
|
10 |
.20(b)(3) |
|
|
|
Addendum No. 1 to Collaboration Agreement (p53 Products),
dated January 23, 1996, between Introgen and RPR |
|
10 |
.20(c)(1) |
|
|
|
1997 Agreement Memorandum, effective as of July 22, 1997,
between Introgen and RPR |
|
10 |
.20(d)(3) |
|
|
|
Letter Agreement, dated April 19, 1999, from Introgen to
RPR regarding manufacturing process for ADVEXIN therapy |
|
10 |
.21(a)(1) |
|
|
|
Collaboration Agreement (K-ras Products), effective as of
October 7, 1994, between Introgen and RPR, as amended |
|
10 |
.21(b)(1) |
|
|
|
Amendment No. 1 to Collaboration Agreement (K-ras
Products), effective as of September 27, 1995, between
Introgen and RPR |
|
10 |
.22(3) |
|
|
|
Collaborative Research and Development Agreement dated
October 30, 1998 between Introgen, RPR and NCI |
|
10 |
.23(1) |
|
|
|
Non-Exclusive License Agreement, effective as of April 16,
1997, by Introgen and Iowa Research Foundation |
|
10 |
.24(3) |
|
|
|
Option Agreement, effective as of June 1, 1998, by Introgen
and Imperial Cancer Research Technology Limited (ICRT) |
|
10 |
.25(3) |
|
|
|
Option Agreement, effective as of January 1, 1999, by
Introgen and ICRT |
|
10 |
.26(3) |
|
|
|
Exclusive License Agreement, effective as of July 19, 1999,
by Introgen and Corixa Corporation |
61
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description of Document |
|
|
|
|
|
|
10 |
.27(a) |
|
|
|
Reserved |
|
10 |
.27(b)(1) |
|
|
|
Letter dated January 28, 2000, from Introgen to LXR
Biotechnology (LXR), notifying LXR of its exercise of its option |
|
10 |
.27(c)(2) |
|
|
|
Exclusive License Agreement, effective as of May 16, 2000,
by and between Introgen and LXR |
|
10 |
.28(3) |
|
|
|
Administrative Services and Management Agreement, effective as
of January 1, 1999, by and between Introgen and Gendux, Inc. |
|
10 |
.29(3) |
|
|
|
Research and Development Agreement, effective as of
January 1, 1999, by and between Introgen and Gendux, Inc. |
|
10 |
.30(3) |
|
|
|
Delivery Technology License Agreement, effective as of
January 1, 1999, by and between Introgen and Gendux, Inc. |
|
10 |
.31(3) |
|
|
|
Target Gene License Agreement, effective as of January 1,
1999, by and between Introgen and Gendux, Inc. |
|
10 |
.32(1) |
|
|
|
Non-Exclusive License Agreement, effective as of August 17,
1998, by and between Introgen and National Institutes of Health |
|
10 |
.33 |
|
|
|
Reserved |
|
10 |
.34(2) |
|
|
|
Master Lease Agreement, effective as of August 4, 1999, by
and between Introgen and Finova Capital Corporation |
|
10 |
.35(2) |
|
|
|
Construction Loan Agreement, effective as of July 24, 2000,
by and between Introgen and Compass Bank |
|
10 |
.36(5) |
|
|
|
Restated p53 and K-ras Agreement, effective as of June 30,
2001, by and among Introgen, Aventis Pharmaceuticals Inc. (API)
and Aventis Pharma S.A. (Aventis) |
|
10 |
.37(5) |
|
|
|
p53 Assignment Agreement, effective as of June 30, 2001, by
and among Introgen, API and Aventis |
|
10 |
.38(5) |
|
|
|
K-ras Assignment Agreement, effective as of June 30, 2001,
by and among Introgen, API and Aventis |
|
10 |
.39(5) |
|
|
|
Registration Rights Agreement, effective as of June 30,
2001, by and among Introgen, API and RPR |
|
10 |
.40(5) |
|
|
|
Voting Agreement, effective as of June 30, 2001, by and
among Introgen, API and RPR |
|
10 |
.41(7) |
|
|
|
Master Services Agreement, effective as of July 9, 2001, by
and between Introgen and PPD Development, LLC |
|
10 |
.42(8) |
|
|
|
Series A Preferred Stock Purchase Agreement, effective as
of March 7, 2002, by and between Introgen and VirRx, Inc. |
|
10 |
.43(8) |
|
|
|
Collaboration and License Agreement, effective as of
March 7, 2002, by and between Introgen and VirRx, Inc. |
|
10 |
.44(9) |
|
|
|
Securities Purchase Agreement, effective as of June 18,
2003, by and among Introgen and the Investors named therein |
|
10 |
.45(10) |
|
|
|
Placement Agent Agreement, effective as of November 26,
2003, by and among Introgen, SG Cowen Securities
Corporation and First Albany Capital Inc. |
|
10 |
.46(11) |
|
|
|
Placement Agent Agreement, dated December 6, 2004, by and
between Introgen and Mulier Capital Limited |
|
10 |
.47(16)* |
|
|
|
Stock Purchase Agreement dated May 2, 2005, by and between
Introgen and David G. Nance |
|
10 |
.48(16)* |
|
|
|
Stock Purchase Agreement dated May 2, 2005, by and between
Introgen and J. David Enloe, Jr. |
|
10 |
.49(17) |
|
|
|
Letter Agreement dated July 26, 2005, by and between
Introgen and SR Pharma plc |
|
10 |
.50(18) |
|
|
|
Letter Agreement dated April 20, 2005 by and between
Introgen and Suiter Limited |
62
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description of Document |
|
|
|
|
|
|
10 |
.51(19)* |
|
|
|
Stock Purchase Agreement dated October 26, 2005, by and
between Introgen and David G. Nance |
|
10 |
.52(20) |
|
|
|
Letter Agreement Amendment dated July 14, 2005, by and
between Introgen and Suiter Limited |
|
10 |
.53 |
|
|
|
Oral Healthcare Alliance Agreement dated November 4, 2005,
by and between Introgen and Colgate-Palmolive Company |
|
10 |
.54 |
|
|
|
Common Stock Purchase Agreement dated November 4, 2005, by
and between Introgen and Colgate-Palmolive Company |
|
10 |
.55(21) |
|
|
|
Letter Agreement dated February 24, 2006, by and between
Introgen and Aventis Pharmaceuticals, Inc. |
|
14 |
.1(12) |
|
|
|
Code of Conduct and Ethics |
|
21 |
.1 |
|
|
|
List of subsidiaries of Introgen |
|
23 |
.1 |
|
|
|
Consent of Independent Registered Public Accounting Firm |
|
24 |
.1 |
|
|
|
Power of Attorney (See page 65) |
|
31 |
.1 |
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended |
|
32 |
.1 |
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
(1) |
Incorporated by reference to the same-numbered exhibit filed
with our Registration Statement on
Form S-1
(No. 333-30582)
filed with the Commission on February 17, 2000. |
|
(2) |
Incorporated by reference to the same-numbered exhibit filed
with Amendment No. 2 to our Registration Statement on
Form S-1
(No. 333-30582)
filed with the Commission on September 8, 2000. |
|
(3) |
Incorporated by reference to the same-numbered exhibit filed
with Amendment No. 3 to our Registration Statement on
Form S-1
(No. 333-30582)
filed with the Commission on October 4, 2000. |
|
(4) |
Incorporated by reference to the same-numbered exhibit filed
with our Quarterly Report on
Form 10-Q, for the
quarter ended December 31, 2000, (File
No. 000-21291),
filed with the Commission on February 14, 2001. |
|
(5) |
Incorporated by reference to the same-numbered exhibit filed
with our Annual Report on
Form 10-K for the
fiscal year ended June 30, 2001 (File
No. 000-21291),
filed with the Commission on September 19, 2001. |
|
(6) |
Incorporated by reference to the same-numbered exhibit filed
with our Transition Report on
Form 10-KT for the
six-month transition period ended December 31, 2001 (File
No. 000-21291),
filed with the Commission on March 20, 2002. |
|
(7) |
Incorporated by reference to the same-numbered exhibit filed
with Amendment No. 1 to our Transition Report on
Form 10-KT for the
six-month transition period ended December 31, 2001 (File
No. 000-21291),
filed with the Commission on March 26, 2002. |
|
(8) |
Incorporated by reference to the same-numbered exhibit filed
with our Quarterly Report on
Form 10-Q, for the
quarter ended March 31, 2002 (File
No. 000-21291),
filed with the Commission on May 15, 2002. |
|
(9) |
Incorporated by reference to the same-numbered exhibit filed
with our Current Report on
Form 8-K, filed
with the Commission on June 18, 2003. |
|
|
(10) |
Incorporated by reference to the same-numbered exhibit filed
with our Current Report on
Form 8-K, filed
with the Commission on November 26, 2003. |
|
(11) |
Incorporated by reference to the same-numbered exhibit filed
with our Current Report on
Form 8-K, filed
with the Commission on December 10, 2004. |
63
|
|
(12) |
See Access to Company Information on page 1 of
this Annual Report on
Form 10-K.
|
|
(13) |
Incorporated by reference to the same-numbered exhibit filed
with our Quarterly Report on
Form 10-Q, for the
quarter ended June 30, 2004 (File
No. 000-21291),
filed with the Commission on August 16, 2004. |
|
(14) |
Incorporated by reference to the same-numbered exhibit filed
with our Quarterly Report on
Form 10-Q, for the
quarter ended September 30, 2004 (File
No. 000-21291),
filed with the Commission on November 15, 2004. |
|
(15) |
Incorporated by reference to the same-numbered exhibit filed
with Amendment No. 1 to our
Form 10-K/ A for
the fiscal year ended December 31, 2003 (File
No. 000-21291),
filed with the Commission on April 29, 2004. |
|
(16) |
Incorporated by reference to the same-numbered exhibit filed
with our Current Report on
Form 8-K, filed
with the Commission on May 4, 2005. |
|
(17) |
Incorporated by reference to the same-numbered exhibit filed
with our Current Report on
Form 8-K, filed
with the Commission on August 1, 2005. |
|
(18) |
Incorporated by reference to the same-numbered exhibit filed
with our Quarterly Report on
Form 10-Q, for the
quarter ended June 30, 2005 (File No. 000-21291),
filed with the Commission on August 9, 2005. |
|
(19) |
Incorporated by reference to the exhibit filed with our Current
Report on
Form 8-K, filed
with the Commission on November 1, 2005. |
|
(20) |
Incorporated by reference to the same-numbered exhibit filed
with our Quarterly Report on
Form 10-Q, for the
quarter ended September 30, 2005 (File No. 000-21291),
filed with the Commission on November 9, 2005. |
|
(21) |
Incorporated by reference to the exhibit filed with our Current
Report on
Form 8-K, filed
with the Commission on February 24, 2006. |
|
|
|
|
|
Confidential treatment has been granted for portions of this
exhibit. |
|
|
|
Confidential treatment has been requested for portions of this
exhibit. |
|
|
|
|
* |
Indicates management contract or compensatory plan or
arrangement. |
(b) Exhibits
See Item 15(3) above.
(c) Financial Statement Schedules
See Item 15(2) above.
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report on
Form 10-K to be
signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
INTROGEN THERAPEUTICS, INC. |
|
|
|
|
|
David G. Nance |
|
President, Chief Executive Officer and Director |
|
(Principal Executive Officer) |
|
|
|
|
By: |
/s/ JAMES W. ALBRECHT, JR. |
|
|
|
|
|
James W. Albrecht, Jr. |
|
Chief Financial Officer |
|
(Principal Financial and Accounting Officer) |
Date: March 16, 2006
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints David G.
Nance and James W. Albrecht, Jr. and each of them acting
individually, as his or her
attorney-in-fact, each
with full power of substitution, for him or her in any and all
capacities, to sign any and all amendments to this Annual Report
on Form 10-K, and
to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Annual Report on
Form 10-K has been
signed on behalf of the Registrant by the following persons in
the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ DAVID G. NANCE
(David G. Nance) |
|
President, Chief Executive Officer, and Director (Principal
Executive Officer) |
|
March 16, 2006 |
|
/s/ JAMES W. ALBRECHT,
JR
(James W. Albrecht, Jr.) |
|
Chief Financial Officer (Principal Financial and Accounting
Officer) |
|
March 16, 2006 |
|
/s/ JOHN N. KAPOOR,
PH.D.
(John N. Kapoor, Ph.D.) |
|
Chairman of the Board and Director |
|
March 16, 2006 |
|
/s/ WILLIAM H. CUNNINGHAM,
PH.D
(William H. Cunningham, Ph.D.) |
|
Director |
|
March 12, 2006 |
|
/s/ MALCOLM GILLIS,
PH.D
(Malcolm Gillis, Ph.D.) |
|
Director |
|
March 16, 2006 |
|
/s/ CHARLES E. LONG
(Charles E. Long) |
|
Director |
|
March 16, 2006 |
|
/s/ PETER BARTON HUTT
(Peter Barton Hutt) |
|
Director |
|
March 16, 2006 |
65
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Introgen
Therapeutics, Inc. and Subsidiaries
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that Introgen Therapeutics, Inc. and
Subsidiaries maintained effective internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Introgen
Therapeutics, Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Introgen
Therapeutics, Inc. and Subsidiaries maintained effective
internal control over financial reporting as of
December 31, 2005, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion,
Introgen Therapeutics, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Introgen Therapeutics, Inc. and
Subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
fiscal years in the period ended December 31, 2005 of
Introgen Therapeutics, Inc. and Subsidiaries and our report
dated March 10, 2006 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Austin, Texas
March 10, 2006
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Introgen
Therapeutics, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Introgen Therapeutics, Inc. and Subsidiaries as of
December 31, 2005 and 2004, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2005. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Introgen Therapeutics, Inc. and
Subsidiaries at December 31, 2005 and 2004, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Introgen Therapeutics, Inc. and
Subsidiariess internal control over financial reporting as
of December 31, 2005, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 10, 2006 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Austin, Texas
March 10, 2006
F-2
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
ASSETS |
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
30,187 |
|
|
$ |
28,090 |
|
|
Short term investments
|
|
|
7,993 |
|
|
|
5,032 |
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and short term investments
|
|
|
38,180 |
|
|
|
33,122 |
|
|
Marketable securities
|
|
|
|
|
|
|
2,892 |
|
|
Prepaid expense and other current assets
|
|
|
659 |
|
|
|
297 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
38,839 |
|
|
|
36,311 |
|
Property and equipment, net of accumulated depreciation of
$10,983 and $12,588, respectively
|
|
|
7,277 |
|
|
|
6,181 |
|
Grant rights acquired
|
|
|
1,582 |
|
|
|
163 |
|
Other assets
|
|
|
359 |
|
|
|
326 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
48,057 |
|
|
$ |
42,981 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
2,683 |
|
|
$ |
2,258 |
|
|
Accrued liabilities
|
|
|
3,572 |
|
|
|
3,296 |
|
|
Deferred revenue
|
|
|
30 |
|
|
|
472 |
|
|
Current portion of notes payable
|
|
|
573 |
|
|
|
756 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,858 |
|
|
|
6,782 |
|
Notes payable, net of current portion
|
|
|
7,901 |
|
|
|
7,784 |
|
Deferred revenue, long-term
|
|
|
1,132 |
|
|
|
1,404 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
15,891 |
|
|
|
15,970 |
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 10)
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value per share;
5,000 shares authorized; 4,900 shares issuable; 100
and zero Series A shares issued and outstanding in 2004 and
2005, respectively
|
|
|
1 |
|
|
|
|
|
|
Common stock, $.001 par value per share;
100,000 shares authorized; 30,622 and 37,147 shares
issued and outstanding in 2004 and 2005, respectively
|
|
|
30 |
|
|
|
37 |
|
|
Additional paid-in capital
|
|
|
149,652 |
|
|
|
170,675 |
|
|
Deferred compensation
|
|
|
(161 |
) |
|
|
(68 |
) |
|
Accumulated deficit
|
|
|
(117,356 |
) |
|
|
(143,459 |
) |
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(174 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
32,166 |
|
|
|
27,011 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
48,057 |
|
|
$ |
42,981 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-3
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except | |
|
|
per share amounts) | |
Contract services, grant and other revenue
|
|
$ |
304 |
|
|
$ |
1,808 |
|
|
$ |
1,867 |
|
Operating costs and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
14,973 |
|
|
|
20,474 |
|
|
|
21,400 |
|
|
General and administrative
|
|
|
6,102 |
|
|
|
6,597 |
|
|
|
7,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expense
|
|
|
21,075 |
|
|
|
27,071 |
|
|
|
29,234 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(20,771 |
) |
|
|
(25,263 |
) |
|
|
(27,367 |
) |
Interest income
|
|
|
1,017 |
|
|
|
309 |
|
|
|
787 |
|
Interest expense
|
|
|
(624 |
) |
|
|
(500 |
) |
|
|
(621 |
) |
Other income
|
|
|
1,052 |
|
|
|
1,067 |
|
|
|
1,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(19,326 |
) |
|
$ |
(24,387 |
) |
|
$ |
(26,103 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$ |
(0.84 |
) |
|
$ |
(0.91 |
) |
|
$ |
(0.80 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted net loss per share
|
|
|
22,902 |
|
|
|
26,943 |
|
|
|
32,780 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-4
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Voting | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible | |
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
Preferred Stock | |
|
Common Stock | |
|
Additional | |
|
|
|
|
|
Other | |
|
|
|
|
| |
|
| |
|
Paid-In | |
|
Deferred | |
|
Accumulated | |
|
Comprehensive | |
|
|
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Deficit | |
|
Loss | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Balance, December 31, 2002
|
|
|
100 |
|
|
$ |
1 |
|
|
|
21,487 |
|
|
$ |
21 |
|
|
$ |
94,430 |
|
|
$ |
(974 |
) |
|
$ |
(73,643 |
) |
|
$ |
|
|
|
$ |
19,835 |
|
Issuance of common stock in a private equity offering in June
2003, net of offering costs of $729
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
3 |
|
|
|
10,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,772 |
|
Issuance of common stock in a direct equity offering in December
2003, net of offering costs of $1,473
|
|
|
|
|
|
|
|
|
|
|
2,859 |
|
|
|
3 |
|
|
|
18,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,543 |
|
Issuance of common stock in connection with exercise of stock
options and warrants
|
|
|
|
|
|
|
|
|
|
|
193 |
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98 |
|
Addition to deferred compensation relating to issuance of stock
options, net of reversals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
433 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
472 |
|
Amortization of deferred compensation and share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
891 |
|
|
|
|
|
|
|
|
|
|
|
891 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,326 |
) |
|
|
|
|
|
|
(19,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
100 |
|
|
$ |
1 |
|
|
|
26,539 |
|
|
$ |
27 |
|
|
$ |
124,270 |
|
|
$ |
(44 |
) |
|
$ |
(92,969 |
) |
|
$ |
|
|
|
$ |
31,285 |
|
Issuance of common stock in a direct equity offering in December
2004, net of offering costs of $1,366
|
|
|
|
|
|
|
|
|
|
|
3,451 |
|
|
|
3 |
|
|
|
22,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,894 |
|
Issuance of common stock in connection with exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
380 |
|
|
|
|
|
|
|
644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
644 |
|
Issuance of common stock in connection with asset acquisition
|
|
|
|
|
|
|
|
|
|
|
252 |
|
|
|
|
|
|
|
1,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,477 |
|
Addition to deferred compensation relating to issuance of stock
options, net of reversals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370 |
|
|
|
(297 |
) |
|
|
|
|
|
|
|
|
|
|
73 |
|
Amortization of deferred compensation and share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
180 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,387 |
) |
|
|
|
|
|
|
(24,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
100 |
|
|
$ |
1 |
|
|
|
30,622 |
|
|
$ |
30 |
|
|
$ |
149,652 |
|
|
$ |
(161 |
) |
|
$ |
(117,356 |
) |
|
$ |
|
|
|
$ |
32,166 |
|
Issuance of common stock in a direct equity offering in November
2005, net of offering costs of $414
|
|
|
|
|
|
|
|
|
|
|
3,611 |
|
|
|
4 |
|
|
|
19,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,585 |
|
Issuance of common stock in connection with exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
457 |
|
|
|
|
|
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
615 |
|
Issuance of common stock in connection with the grant of stock
|
|
|
|
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
687 |
|
Addition to deferred compensation relating to issuance of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142 |
|
|
|
(142 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock to common stock
|
|
|
(100 |
) |
|
|
(1 |
) |
|
|
2,344 |
|
|
|
3 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation and share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
235 |
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,103 |
) |
|
|
|
|
|
|
(26,103 |
) |
|
Net loss Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149 |
) |
|
|
(149 |
) |
|
Foreign currency translation adjustment, cumulative translation
loss of $25 at December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
(25 |
) |
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
|
|
|
$ |
|
|
|
|
37,147 |
|
|
$ |
37 |
|
|
$ |
170,675 |
|
|
$ |
(68 |
) |
|
$ |
(143,459 |
) |
|
$ |
(174 |
) |
|
$ |
27,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-5
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(19,326 |
) |
|
$ |
(24,387 |
) |
|
$ |
(26,103 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,475 |
|
|
|
1,322 |
|
|
|
1,605 |
|
|
|
Share-based compensation
|
|
|
1,362 |
|
|
|
253 |
|
|
|
922 |
|
|
|
Amortization of grant rights acquired
|
|
|
|
|
|
|
159 |
|
|
|
1,419 |
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets
|
|
|
523 |
|
|
|
(532 |
) |
|
|
395 |
|
|
|
|
Increase (decrease) in accounts payable
|
|
|
280 |
|
|
|
629 |
|
|
|
(425 |
) |
|
|
|
Increase (decrease) in accrued liabilities
|
|
|
538 |
|
|
|
773 |
|
|
|
(275 |
) |
|
|
|
Increase (decrease) in deferred revenue
|
|
|
204 |
|
|
|
270 |
|
|
|
714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(14,944 |
) |
|
|
(21,513 |
) |
|
|
(21,748 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(233 |
) |
|
|
(1,097 |
) |
|
|
(509 |
) |
|
Purchases of short-term investments
|
|
|
|
|
|
|
(38,383 |
) |
|
|
(31,869 |
) |
|
Maturities of short-term investments
|
|
|
|
|
|
|
30,390 |
|
|
|
34,830 |
|
|
Purchase of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(3,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(233 |
) |
|
|
(9,090 |
) |
|
|
(589 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock, net of offering costs
|
|
|
29,315 |
|
|
|
22,894 |
|
|
|
19,585 |
|
|
Proceeds from exercise of options for common stock
|
|
|
98 |
|
|
|
644 |
|
|
|
615 |
|
|
Proceeds from notes payable
|
|
|
314 |
|
|
|
1,448 |
|
|
|
772 |
|
|
Principal payments under notes payable and capital leases
|
|
|
(1,620 |
) |
|
|
(593 |
) |
|
|
(707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
28,107 |
|
|
|
24,393 |
|
|
|
20,265 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
12,930 |
|
|
|
(6,210 |
) |
|
|
(2,097 |
) |
Cash and cash equivalents, beginning of period
|
|
|
23,467 |
|
|
|
36,397 |
|
|
|
30,187 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
36,397 |
|
|
$ |
30,187 |
|
|
$ |
28,090 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
624 |
|
|
$ |
472 |
|
|
$ |
580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes for the issuance of common stock in
connection with the grant of common stock
|
|
$ |
|
|
|
$ |
|
|
|
$ |
411 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant rights acquired in asset acquisition
|
|
$ |
|
|
|
$ |
(1,741 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for the asset acquisition
|
|
$ |
|
|
|
$ |
1,477 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed in asset acquisition
|
|
$ |
|
|
|
$ |
272 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with the grant of stock
|
|
$ |
|
|
|
$ |
|
|
|
$ |
687 |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of equipment under capital lease obligations
|
|
$ |
314 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from insurance financing notes
|
|
$ |
|
|
|
$ |
123 |
|
|
$ |
117 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-6
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
|
|
1. |
Formation and Business of the Company |
Introgen Therapeutics, Inc., a Delaware corporation, and our
subsidiaries are biopharmaceutical companies focused on the
discovery, development and commercialization of targeted
molecular therapies for the treatment of cancer and other
diseases. We are developing product candidates to treat a wide
range of cancers using tumor suppressors, cytokines and other
targeted molecular therapies. These agents are designed to
increase production of normal cancer-fighting proteins that act
to overpower cancerous cells, stimulate immune activity and
enhance conventional cancer therapies.
Our primary approach to the treatment of cancers is to deliver
targeted molecular therapies that increase production of normal
cancer-fighting proteins. Our products work by acting as
templates for the transient in vivo production of
proteins that have pharmacological properties. The resultant
proteins engage disease-related molecular targets or receptors
to produce a specific therapeutic effect.
We believe the use of molecular therapies that are cleared from
the body after administration in order to induce the production
of biopharmaceutical proteins is an emerging field presenting a
new approach for treating many cancers without the toxic side
effects common to traditional therapies. We have developed
significant expertise in developing targeted therapies that may
be used to treat disease, and in using what we believe are safe
and effective delivery systems to transport these agents to
cancer cells. We believe we are able to treat a number of
cancers in a way that kills cancer cells without harming normal
cells.
Our lead product candidate,
ADVEXIN®
therapy, combines the p53 tumor suppressor with a
non-replicating, non-integrating, adenoviral delivery system we
have developed and extensively tested. The p53 molecule is one
of the most potent members of a group of naturally-occurring
tumor suppressors, which act to kill cancer cells, arrest cancer
growth and protect cells from becoming cancerous. We are
developing other product candidates for the treatment of cancer
using other molecules and delivery systems, such as the
mda-7 tumor suppressor.
We believe our research and development expertise gained from
our targeted molecular therapies for cancer is also applicable
to other diseases that, like cancer, result from cellular
dysfunction and uncontrolled cell growth. As a result, we are
conducting research in collaboration with medical institutions
to understand the safety and effectiveness of our targeted
molecular therapy product candidates in the treatment of other
diseases.
We typically license the technologies on which our products are
based from third parties. These licenses generally grant us
exclusive rights for pre-clinical and clinical development,
manufacturing, marketing and commercialization of product
candidates based on those technologies.
Our product research and development efforts include
pre-clinical activities as well as the conduct of Phase 1,
2 and 3 clinical trials. We rely on third parties to treat
patients in their facilities under these clinical trials. We
produce ADVEXIN therapy and other product candidates in
manufacturing facilities we own and operate using production
methods we developed. We hold a number of patents or patents
pending on certain product candidates and manufacturing
processes used to produce certain product candidates.
We have not yet generated any significant revenue from
unaffiliated third parties, nor is there any assurance of future
product revenue. Presently, we earn minimal revenue from
contract services activities, grants, interest income and rent
from the lease of a portion of our facilities to The University
of Texas M. D. Anderson Cancer Center. We do not
expect to generate revenue from the commercial sale of our
products in the near future. We may never generate revenue from
the commercial sale of our products.
Our research and development activities involve a high degree of
risk and uncertainty, and our ability to successfully develop,
manufacture and market our proprietary products is dependent
upon many factors. These factors include, but are not limited
to, the need for and the ability to obtain additional financing,
the reliance
F-7
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on collaborative research and development arrangements with
corporate and academic affiliates and the ability to develop
manufacturing, sales and marketing experience. Additional
factors include uncertainties as to patents and proprietary
technologies, competitive technologies, technological change and
risk of obsolescence, development of products, competition,
government regulations and regulatory approval, and product
liability exposure. As a result of these factors and the related
uncertainties, there can be no assurance of our future success.
Since our inception in 1993, we have used our resources
primarily to conduct research and development activities for
ADVEXIN therapy and, to a lesser extent, other product
candidates. As of December 31, 2005, we had an accumulated
deficit of approximately $143.5 million. We expect to incur
substantial additional operating expense and losses over the
next several years as our research, development, pre-clinical
testing and clinical trial activities continue and as we evolve
our operations and systems to support commercialization of our
product candidates. These losses, among other things, have
caused and may cause our total assets, stockholders equity
and working capital to decrease in the future.
|
|
2. |
Summary of Significant Accounting Policies |
The accompanying Consolidated Financial Statements include our
accounts and all of our subsidiaries. Intercompany transactions
and balances are eliminated in consolidation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual
results could differ from those estimates.
|
|
|
Cash and Cash Equivalents |
Cash and cash equivalents include amounts on deposit with
financial institutions and investments that are readily
convertible to cash and so near their maturity that they present
insignificant risk of changes in value because of changes in
interest rates. These investments have original maturities of
three months or less. Our investments generally consist of
securities in the form of United States federal government
obligations.
Our short-term investments are carried at an amount that
approximates amortized cost and consist primarily of fixed
income securities issued by the United States government. We
have the positive intent and ability to hold such securities
until their respective maturity dates, which are less than one
year from the date of purchase. As of December 31, 2005,
the carrying value approximates the market value of these
investments.
Our marketable securities consist of issued share capital of
other public companies and are classified as available-for-sale.
Unrealized gains and losses are computed using the published
share price of the applicable stock exchange at the close of
business on the last day of the reporting period and are
reported as a separate component of accumulated other
comprehensive income (loss) in shareholders equity until
realized.
F-8
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Fair Value of Financial Instruments |
Our financial instruments consist primarily of cash and cash
equivalents, short term investments, marketable securities, and
accounts payable. We believe all of these financial instruments
are recorded at amounts that approximate their current market
values.
Financial instruments that potentially subject us to significant
concentrations of credit risk consist primarily of cash and cash
equivalents, short term investments, and marketable securities.
We place these financial instruments with high credit quality
financial institutions and issuers.
Grant rights acquired, which are presented as an intangible
asset on our balance sheet, resulted from our asset acquisition
related to the Magnum purchase in October 2004. We amortize that
asset to expense on a straight-line basis over the estimated
remaining life of that asset. We review purchased intangible
assets for impairment whenever changes in circumstances indicate
that the carrying amount of the assets may not be recoverable.
Such evaluations compare the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by
the asset over its expected useful life. If the asset is
considered to be impaired, we record an impairment charge equal
to the amount by which the carrying value of the asset exceeds
its fair value determined by utilizing a discounted cash flow
technique.
Property and equipment are carried at cost, less accumulated
depreciation. Maintenance, repairs and minor replacements are
charged to expense as incurred. Depreciation is provided
generally using accelerated methods based on useful lives of
fifteen years for research, manufacturing and administrative
facilities and five to seven years for equipment. Interest
incurred during construction of facilities is capitalized as a
cost of those facilities.
Property and equipment consists of the following items
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
Facilities
|
|
$ |
12,415 |
|
|
$ |
12,524 |
|
Equipment
|
|
|
5,845 |
|
|
|
6,245 |
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
18,260 |
|
|
|
18,769 |
|
Less accumulated depreciation
|
|
|
(10,983 |
) |
|
|
(12,588 |
) |
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$ |
7,277 |
|
|
$ |
6,181 |
|
|
|
|
|
|
|
|
Substantially all of our facilities are pledged as collateral
for the mortgage notes payable described in Note 8. A
portion of our equipment is pledged as collateral for the
equipment notes payable described in Note 8.
We recognize deferred tax liabilities and assets for the
expected future tax consequences of events that have been
recognized differently between the financial statements and tax
returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial
statement carrying amounts and tax bases of liabilities and
assets using enacted tax rates and laws in effect in the years in
F-9
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
which the differences are expected to reverse. Deferred tax
assets are evaluated for realization based on
more-likely-than-not criteria in determining if a valuation
should be provided.
Accrued liabilities consist of the following significant items
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
Clinical costs due unrelated parties
|
|
$ |
803 |
|
|
$ |
267 |
|
Pre-clinical costs due related parties
|
|
|
631 |
|
|
|
677 |
|
Pre-clinical costs due unrelated parties
|
|
|
138 |
|
|
|
124 |
|
Property taxes
|
|
|
421 |
|
|
|
366 |
|
Franchise and use taxes
|
|
|
219 |
|
|
|
312 |
|
Payroll
|
|
|
64 |
|
|
|
78 |
|
Vacation
|
|
|
249 |
|
|
|
349 |
|
Legal and accounting fees
|
|
|
549 |
|
|
|
490 |
|
Other vendor charges not yet billed
|
|
|
498 |
|
|
|
633 |
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$ |
3,572 |
|
|
$ |
3,296 |
|
|
|
|
|
|
|
|
In conducting our pivotal Phase 3 clinical trials of
ADVEXIN therapy, we procure services from multiple third party
vendors. The cost of these services constitutes a significant
portion of the cost of these trials and of our research and
development expense in general. Some of our vendors do not
necessarily bill us for their services on a regular basis and,
accordingly, make it difficult for us to determine the costs we
have incurred relative to their services for any given
accounting period. As a result, we make significant accounting
estimates as to the amount of costs we have incurred relative to
these vendors in each accounting period. These estimates are
based on many factors, including, among others, costs set forth
in our contracts with these vendors, the period of time over
which the vendor has rendered the services and the rate of
enrollment of patients in our clinical trials. Using these
estimates, we record expense and accrued liabilities in each
accounting period that we believe fairly represent our
obligations to these vendors. Actual results could differ from
these estimates resulting in increases or decreases in the
amount of expense recorded and the related accrual.
Contract services revenue is recognized when the related
services are completed and delivered to the customer. Deferred
revenue is recorded as cash received in advance of completion of
these services.
Grant revenue is recognized as research expense relating to a
grant is incurred and the work contemplated under the grant has
been performed.
Rental income from the sublease of laboratory space to third
parties under leases that have variable monthly rent amounts
over the term of the lease is recognized on a straight-line
basis over the term of the lease. Any cash payments received in
excess of rental income recognized is recorded as deferred
revenue. Rental income is included in other income in the
accompanying Consolidated Statement of Operations.
|
|
|
Research and Development Costs |
In conducting our clinical trials of ADVEXIN therapy and other
product candidates, we procure services from numerous
third-party vendors. The cost of these services constitutes a
significant portion of the cost of
F-10
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
these trials and of our research and development expense in
general. These vendors do not necessarily provide us billings
for their services on a regular basis and, accordingly, are
often not a timely source of information to determine the costs
we have incurred relative to their services for any given
accounting period. As a result, we make significant accounting
estimates as to the amount of costs we have incurred relative to
these vendors in each accounting period. These estimates are
based on numerous factors, including, among others, costs set
forth in our contracts with these vendors, the period of time
over which the vendor will render the services and the rate of
enrollment of patients in our clinical trials. Using these
estimates, we record expense and accrued liabilities in each
accounting period that we believe fairly represent our
obligations to these vendors. Actual results could differ from
these estimates, resulting in increases or decreases in the
amount of expense recorded and the related accrual. We have
consistently applied these estimation procedures in the past and
plan to continue applying such procedures in the same manner
during the foreseeable future. Our experience has been that our
estimates have reasonably reflected the expense we actually
incur.
Net loss per share is computed using the weighted average number
of shares of common stock outstanding. Due to losses incurred in
all periods presented, the shares associated with stock options,
warrants and non-voting convertible preferred stock are not
included because they are anti-dilutive.
Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based
Compensation, allows companies to adopt one of two methods
for accounting for stock options. We have elected the method
that requires disclosure only of share-based compensation.
Because of this election, we continue to account for our
employee share-based compensation plans, using the intrinsic
value method, under Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees, as clarified by Interpretation
No. 44, Accounting for Certain Transactions Involving
Stock Compensation. Accordingly, deferred compensation is
recorded for share-based compensation grants based on the excess
of the fair market value of the common stock on the measurement
date over the exercise price. The deferred compensation is
amortized ratably over the vesting period of each unit of
share-based compensation grant, generally four years. If the
exercise price of the share-based compensation grants is equal
to the fair value of our shares on the date of grant, no
compensation expense is recorded.
In December 2004, SFAS No. 123R, Share-Based
Payment, was issued. This statement establishes standards
for the accounting for transactions in which an entity exchanges
its equity investments for goods and services. It also addresses
transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the
entitys equity instruments or that may be settled by the
issuance of those equity instruments. The statement does not
change the accounting guidance for share-based payments with
parties other than employees. The statement requires measurement
of the cost of employee service received in exchange for an
award of equity instruments based on the grant-date fair value
of the award, with limited exceptions. That cost is to be
recognized over the period during which an employee is required
to provide service in exchange for the award, which is usually
the vesting period of the award. A public entity will initially
measure the cost of employee services received in exchange for
an award of a liability instrument based on the
instruments current fair value. The fair value of that
award will be remeasured subsequently at each reporting date
through the settlement date. Changes in fair value during the
requisite service period will be recognized as compensation over
that period. The grant date fair value of employee share options
and similar instruments will be estimated using option pricing
models adjusted for the unique characteristics of these
instruments.
We will be required to comply with SFAS No. 123R for
the annual reporting period beginning January 1, 2006. We
have not yet determined which fair-value method and transitional
provision we will follow. We
F-11
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expect the adoption of SFAS No. 123R will have a
significant impact on our results of operations. We do not
expect such adoption to significantly impact our financial
position or liquidity. See the table in the following paragraph
for the pro forma impact on net loss and net loss per share from
calculating share-based compensation costs under the fair value
alternative of SFAS No. 123. The calculation of
compensation cost for share-based payment transactions after the
effective date of SFAS No. 123R may be different from
the calculation of compensation cost under
SFAS No. 123, but such differences have not yet been
quantified.
The fair value of options granted for all periods presented was
estimated on the applicable grant dates using the Black-Scholes
option pricing model. Significant weighted average assumptions
used to estimate fair value for all years include: risk-free
interest rates ranging from 3% to 6%; expected lives of ten
years; no expected dividends; and volatility factors ranging
from 62% to 107%. Had compensation expense been determined
consistent with the provisions of SFAS No. 123, our
net loss would have been increased to the following pro forma
amounts (in thousands, except per share information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Net loss, as reported
|
|
$ |
(19,326 |
) |
|
$ |
(24,387 |
) |
|
$ |
(26,103 |
) |
Add: Share-based employee compensation expense included in
reported net loss
|
|
|
1,169 |
|
|
|
32 |
|
|
|
1,098 |
|
Deduct: Total share-based employee compensation expense
determined under fair value based method for all awards
|
|
|
(4,126 |
) |
|
|
(2,834 |
) |
|
|
(5,268 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(22,283 |
) |
|
$ |
(27,189 |
) |
|
$ |
(30,273 |
) |
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted as reported
|
|
$ |
(0.84 |
) |
|
$ |
(0.91 |
) |
|
$ |
(0.80 |
) |
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted pro forma
|
|
$ |
(0.97 |
) |
|
$ |
(1.01 |
) |
|
$ |
(0.92 |
) |
|
|
|
|
|
|
|
|
|
|
See Note 6 for a discussion of stock purchase warrants
issued in connection with our sales of common stock in June 2003
and December 2004.
|
|
|
Accumulated Other Comprehensive Loss |
Accumulated other comprehensive loss is included as a component
of stockholders equity and is composed of foreign currency
translation adjustments and unrealized gains and losses on
investments designated as available-for-sale securities.
Accumulated comprehensive loss is calculated as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Net loss
|
|
$ |
(19,326 |
) |
|
$ |
(24,387 |
) |
|
$ |
(26,103 |
) |
Foreign currency translation loss
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$ |
(19,326 |
) |
|
$ |
(24,387 |
) |
|
$ |
(26,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
3. |
Acquisition of Magnum Therapeutics Corporation |
In October 2004, we acquired all of the outstanding capital
stock of Magnum, a company owned prior to this acquisition by
one of our executive officers. We paid approximately
$1.75 million for the Magnum stock by (1) issuing
approximately 252,000 shares of our common stock valued at
approximately $1.48 million at the acquisition date and
(2) assuming liabilities of approximately $272,000. With
respect to the common
F-12
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stock we issued for the acquisition, 50% of the shares were held
by an independent escrow agent for a period of approximately one
year subsequent to the acquisition date to satisfy the
indemnification obligations of the selling shareholder under
terms of the purchase agreement. Such shares were released from
escrow in January 2006.
Magnums primary asset is the funding it receives under a
research grant from the NIH, which supplements our ongoing
research and development programs. During the years ended
December 31, 2005 and 2004, we earned $1.0 million and
$1.1 million of revenue under this grant. In the event
certain of Magnums technologies result in commercial
products, we may be obligated to pay royalties related to the
sales of those products to certain third parties.
The results of Magnums operations have been included with
ours for the period subsequent to the October 2004 acquisition
date. Since Magnum was a development stage company at the time
we acquired it, this acquisition has been accounted for as an
asset acquisition and not as a business combination.
The total purchase consideration has been allocated to the
assets acquired based on their respective fair values at the
date of acquisition. The following presents the fair value of
the net assets acquired (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
9 |
|
Acquired grant rights
|
|
$ |
1,741 |
|
|
|
|
Intangible Assets With Definite Lives |
Our intangible assets with definite lives that are subject to
amortization, all of which arose from our acquisition of Magnum
in October 2004 described in Note 3, are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Net | |
|
Gross | |
|
|
|
Net | |
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Asset Acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Grant Rights
|
|
$ |
1,741 |
|
|
$ |
(159 |
) |
|
$ |
1,582 |
|
|
$ |
1,741 |
|
|
$ |
(1,578 |
) |
|
$ |
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$ |
1,741 |
|
|
$ |
(159 |
) |
|
$ |
1,582 |
|
|
$ |
1,741 |
|
|
$ |
(1,578 |
) |
|
$ |
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense includes amortization of
intangibles of $1,419,000 for the year ended December 31,
2005 and $159,000 for the year ended December 31, 2004. We
had no intangibles on our balance sheet in years prior to 2004,
such that there was no amortization expense in those years.
Amortization of intangibles for the year ended December 31,
2005 reflects a change in the estimated useful life of the
acquired grant rights from 22 months to 17 months. The
effect of this change was to increase amortization expense in
2005 and decrease amortization expense in 2006 by $470,000 or
$0.01 per share. Estimated annual amortization expense for
fiscal year 2006 is $163,000 and zero thereafter.
|
|
5. |
Investment in SR Pharma plc |
In July 2005, we purchased approximately 8.3% of the issued
share capital of SR Pharma for approximately $3.0 million.
SR Pharma is a European biotechnology company publicly traded on
the Alternative Investment Market of the LSE that is developing
oncology and other products. This investment is classified as
marketable securities on our balance sheet. Marketable
securities are classified as available-for-sale and
are presented at estimated fair value with any unrealized gains
or losses included in other
F-13
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
comprehensive income (loss). At December 31, 2005, these
marketable securities had a fair market value of
$2.9 million.
In November 2005, we sold approximately 3.6 million shares
of our common stock in a direct equity sale to Colgate-Palmolive
pursuant to a shelf registration statement for an aggregate
purchase price of approximately $20.0 million. Our net
proceeds from this transaction, after related fees and expense,
were approximately $19.6 million. See Note 9 for
further discussion of our agreement with Colgate-Palmolive.
In December 2004, we sold approximately 3.5 million shares
of our common stock in a direct equity offering pursuant to a
shelf registration statement for an aggregate purchase price of
approximately $24.3 million. Our net proceeds from this
transaction, after related fees and expense, were approximately
$22.9 million. In connection with this transaction, we have
issued or will issue warrants to the placement agents
representing us in this stock sale to purchase up to
225,238 shares of our common stock at a price of
$6.65 per share and to purchase up to 88,707 shares of
our common stock at a price of $8.00 per share. These
warrants are exercisable beginning in December 2005 and expire
in December 2009.
In December 2003, we sold 2,859,427 newly-issued shares of our
common stock in a registered direct offering for an aggregate
purchase price of approximately $20.0 million. Our net
proceeds from this transaction, after related fees and expense,
were approximately $18.5 million.
In June 2003, we sold 2.0 million newly-issued shares of
our common stock to selected institutional investors through a
private placement for an aggregate purchase price of
$11.5 million. Our net proceeds from this transaction,
after related fees and expense, were $10.8 million. In
connection with this sale, we issued warrants to
purchase 400,000 shares of our common stock at
$7.89 per share. These warrants are exercisable at any time
by the warrant holders through June 2008. Beginning in June
2005, we may force the exercise of these warrants if the average
closing market price of our common stock during any 20
consecutive trading days is greater than $15.78 per share.
|
|
|
Common Stock Grant to Officers |
Options to purchase 191,200 shares of our common stock
held by certain of our officers reached the end of their stated
contractual ten year life during the 2005 period, resulting in
the expiration of the right to exercise those options. To
provide those officers an economic equivalent to those expired
options, we granted them an aggregate of 178,362 shares of
our common stock during the 2005 period, of which
113,349 shares were issued to those officers and
65,013 shares were withheld by us in consideration for our
payment on their behalf of approximately $411,000 of federal
income taxes. This expense related to employee federal income
taxes, plus compensation expense not requiring cash of $687,000,
resulted in total share-based compensation expense of
$1.1 million related to these transactions.
Our insider trading policy restricts sales of our common stock
by our officers and employees. Accordingly, the expiring options
described above could not be exercised pursuant to a cashless
exercise program prior to their respective expiration dates due
to these insider trading restrictions.
|
|
|
Conversion of Series A Non-Voting Convertible
Preferred Stock to Common Stock |
In 2001, we sold 100,000 shares of $0.001 par value,
Series A Non-Voting Convertible Preferred Stock to Aventis
for $25.0 million. In June 2005, these shares were
converted into 2,343,721 shares of our common stock. The
preferred shares were cancelled and replaced by newly issued
shares of our common stock. The
F-14
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
preferred shares cancelled are no longer issuable. We received
no cash or other consideration in connection with this
conversion.
Under a voting agreement related to these shares, Aventis must
vote these shares in the same manner as the shares voted by a
majority of the other stockholders on any corporate action put
to a vote of our stockholders. This voting requirement
terminates at the earliest of June 2011 or the sale of these
shares pursuant to an effective registration statement on the
open market or to an Aventis non-affiliate, as defined in the
voting agreement. A registration rights agreement related to
these shares grants the holder of a majority of the common stock
issuable upon conversion of the Series A Non-Voting
Convertible Preferred Stock three demand registrations and three
piggyback registrations.
After this conversion, we have 5.0 million shares of
authorized and unissued preferred shares, of which
100,000 shares have been cancelled and 4.9 million
shares are undesignated and issuable.
The 2000 Stock Option Plan (Stock Option Plan) was initiated in
October 2000 and all stock option grants since that time have
been under this plan. The Stock Option Plan provides for the
granting of options, either incentive or non-statutory, or stock
purchase rights to our employees, directors and consultants to
purchase shares of our common stock. This plan provides for
annual increases each January 1 in the number of shares
available for issuance in an amount equal to the lesser of
1.6 million shares, 5% of the outstanding shares on the
date of the annual increase, or a lesser amount as may be
determined by the Board of Directors. After this latest annual
increase and at January 1, 2006, there were
2,652,000 shares of common stock reserved for future option
grants under this plan. In the event of a merger, reorganization
or change in our controlling ownership, all options outstanding
under the Stock Option Plan become fully vested and immediately
exercisable unless the successor corporation assumes or
substitutes other options in their place. The Stock Option Plan
will terminate in 2010 and may be amended or terminated by the
Board of Directors.
Prior to October 2000, stock options were granted under our 1995
Stock Plan. We no longer issue options under this plan. The
terms of this plan are substantially the same as the Stock
Option Plan. No shares of common stock were reserved for future
option grants under this plan at December 31, 2005.
For options issued to persons other than our employees or
members of our board of directors, we compute compensation
expense based on the fair value of the options. For options
issued to our employees or members of our board of directors, if
the option exercise price is less than the quoted market price
of our common stock on the date the option is granted, we
compute compensation expense based on the intrinsic value of the
options. For options issued to our employees or members of our
board of directors for which the option exercise price is equal
to or greater than the quoted market price of our common stock
on the date the option is granted, we compute no compensation
expense. We record compensation expense in our financial
statements ratably over the vesting period of each option.
Additional deferred compensation and paid-in capital recorded in
stockholders equity related to stock options was $39,000,
($297,000) and ($142,000) during the years ended
December 31, 2003, 2004 and 2005, respectively.
Expense recorded from the amortization of deferred compensation
related to stock options was $891,000, $180,000 and $235,000
during the years ended December 31, 2003, 2004 and 2005,
respectively.
Reversals of deferred compensation and additional paid-in
capital for unamortized deferred compensation related to the
forfeiture of non-vested options by terminated employees was
zero during the years ended December 31, 2005 and 2004 and
$93,000 during the year ended December 31, 2003.
In addition to share-based compensation expense resulting from
the amortization of deferred compensation, we also have incurred
share-based compensation expense for which there is no related
deferred
F-15
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
compensation. In 2005, we recorded compensation expense of
$1.1 million as a result of granting shares to certain of
our officers in connection with expiring stock options (see
Common Stock Grant to Officers above). In 2004, we
recorded compensation expense of (1) $35,000 resulting from
the acceleration of vesting of options previously granted to a
certain member of the Board of Directors upon his resignation
from the Board of Directors and (2) $38,000 as a result of
granting stock options fully vested upon issuance to a
non-employee consultant for whom options granted are subject to
fair value accounting. In 2003, we recorded compensation expense
of $471,000 as a result of granting stock options fully vested
upon issuance to (1) certain members of our Board of
Directors for which some of the options have exercise prices
below the market value of our common stock at the date of grant
and (2) our corporate secretary, who is not a director or
employee and for whom options granted are subject to fair value
accounting.
The following is a summary of option activity under these plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average | |
|
|
Options | |
|
Exercise Price | |
|
|
Outstanding | |
|
per Share | |
|
|
| |
|
| |
Balance, December 31, 2002
|
|
|
3,986,093 |
|
|
$ |
2.18 |
|
|
Granted
|
|
|
1,269,890 |
|
|
|
4.91 |
|
|
Exercised
|
|
|
(193,488 |
) |
|
|
1.46 |
|
|
Cancelled
|
|
|
(306,094 |
) |
|
|
3.20 |
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
4,756,401 |
|
|
|
2.91 |
|
|
Granted
|
|
|
1,472,551 |
|
|
|
6.03 |
|
|
Exercised
|
|
|
(380,294 |
) |
|
|
1.72 |
|
|
Cancelled
|
|
|
(290,384 |
) |
|
|
6.02 |
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
5,558,274 |
|
|
|
3.65 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,256,138 |
|
|
|
6.55 |
|
|
Exercised
|
|
|
(456,714 |
) |
|
|
1.35 |
|
|
Cancelled
|
|
|
(379,329 |
) |
|
|
2.81 |
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
5,978,369 |
|
|
|
4.49 |
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
3,583,200 |
|
|
$ |
3.65 |
|
|
|
|
|
|
|
|
The weighted average fair value of options granted during the
years ended December 31, 2003, 2004 and 2005 were $4.63,
$5.43 and $5.71, respectively.
All options granted during the periods set forth in the table
above have an exercise price equal to the fair value of our
common stock as of the date of grant, with the exception of
265,000 options granted in 2003 to certain members of our Board
of Directors and our corporate secretary at exercise prices of
$4.00 and $5.00 per share. These exercise prices were below
the quoted market value of our common stock of $5.58 per
share on the date these options were granted.
F-16
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about stock options
outstanding as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
|
Weighted Average | |
|
|
|
|
|
|
Outstanding as of | |
|
Remaining | |
|
|
|
Exercisable as of | |
|
|
Range of | |
|
December 31, | |
|
Contractual Life | |
|
Weighted Average | |
|
December 31, | |
|
Weighted Average | |
Exercise Price | |
|
2005 | |
|
(In years) | |
|
Exercise Price | |
|
2005 | |
|
Exercise Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$0.39-$3.50 |
|
|
|
1,490,913 |
|
|
|
3.75 |
|
|
$ |
1.08 |
|
|
|
1,349,863 |
|
|
$ |
1.03 |
|
|
$3.75-$4.92 |
|
|
|
1,139,775 |
|
|
|
6.58 |
|
|
|
4.43 |
|
|
|
903,775 |
|
|
|
4.49 |
|
|
$5.00-$6.18 |
|
|
|
1,691,461 |
|
|
|
7.60 |
|
|
|
5.21 |
|
|
|
912,781 |
|
|
|
5.14 |
|
|
$6.25-$9.65 |
|
|
|
1,656,220 |
|
|
|
9.02 |
|
|
|
6.87 |
|
|
|
416,781 |
|
|
|
7.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,978,369 |
|
|
|
6.84 |
|
|
|
4.49 |
|
|
|
3,583,200 |
|
|
|
3.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan |
Under our 2000 Employee Stock Purchase Plan (Stock Purchase
Plan), 780,000 shares of common stock are reserved for
purchase by eligible employees, at 85% of the appropriate market
price. The Stock Purchase Plan provides for an increase on each
January 1 in the number of shares available for issuance, in an
amount equal to the lesser of 480,000 shares, 1.5% of the
outstanding shares of common stock on the date of the annual
increase or such lesser amount as may be determined by the Board
of Directors. The Stock Purchase Plan provides that eligible
employees may authorize payroll deductions of up to 10% of their
qualified compensation. The maximum number of shares that an
employee may purchase in a single offering period is
10,000 shares. The Stock Purchase Plan will terminate in
2010 and may be amended or terminated by the Board of Directors.
During the year ended June 30, 2001, 22,561 shares of
common stock were purchased by employees under this plan. There
have been no common stock purchases since that time, as we have
suspended operation of the Stock Purchase Plan until further
notice by the Board of Directors.
|
|
|
Shares Reserved For Future Issuance |
We have reserved a total of 10,123,979 shares of our common
stock for issuance in the future with respect to (1) our
Stock Option Plan, (2) our Stock Purchase Plan and
(3) stock purchase warrants issued in connection with our
sales of common stock in June 2003 and December 2004.
|
|
|
Common Stock Purchase Warrant |
We previously had an agreement with a third party under which
they were to perform investor relations services on our behalf
focusing on the sophisticated, global financial community. The
agreement provided for us to issue this third party a warrant to
purchase up to 500,000 shares of our common stock under
certain circumstances. We have cancelled this agreement in
accordance with its terms and have no obligation to issue this
stock purchase warrant.
As of December 31, 2005, we have generated federal net
operating loss carryforwards of approximately $111 million,
orphan drug credits of approximately $9.9 million and
research and development credits of approximately $978,000
available to reduce future income taxes. These carryforwards
begin to expire in 2007. A change in ownership, as defined by
federal income tax regulations, could significantly limit our
ability to utilize these carryforwards. Additionally, because
United States tax laws limit the time during which these
carryforwards may be applied against future taxes, we may not be
able to take full advantage of these attributes for federal
income tax purposes.
F-17
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of our
deferred taxes as of December 31 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$ |
601 |
|
|
$ |
799 |
|
|
|
Unrealized gains and losses
|
|
|
|
|
|
|
64 |
|
|
|
Other
|
|
|
33 |
|
|
|
|
|
|
Valuation allowance for current deferred tax assets
|
|
|
(625 |
) |
|
|
(862 |
) |
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
|
9 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
33,261 |
|
|
|
40,242 |
|
|
|
Research and development tax credits
|
|
|
1,448 |
|
|
|
1,625 |
|
|
|
Orphan drug tax credits
|
|
|
7,908 |
|
|
|
9,878 |
|
|
|
Tax basis of property and equipment in excess of book basis
|
|
|
2,477 |
|
|
|
2,949 |
|
|
|
Stock compensation
|
|
|
1,662 |
|
|
|
1,380 |
|
|
|
Deferred rent
|
|
|
419 |
|
|
|
520 |
|
|
|
Investments
|
|
|
|
|
|
|
860 |
|
|
|
Other
|
|
|
|
|
|
|
62 |
|
|
Valuation allowance for noncurrent deferred tax assets
|
|
|
(46,510 |
) |
|
|
(57,377 |
) |
|
|
|
|
|
|
|
|
Net noncurrent deferred tax assets
|
|
|
665 |
|
|
|
139 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
(89 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
|
Total current deferred tax liabilities
|
|
|
(89 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
|
Noncurrent deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
Acquired grant rights
|
|
|
(585 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
Total noncurrent deferred tax liabilities
|
|
|
(585 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
Net current deferred tax asset (liability)
|
|
|
(80 |
) |
|
|
(79 |
) |
|
|
|
|
|
|
|
Net noncurrent deferred tax asset (liability)
|
|
$ |
80 |
|
|
$ |
79 |
|
|
|
|
|
|
|
|
As we have had cumulative losses and there is no assurance of
future taxable income, a valuation allowance has been
established to fully offset the net deferred tax asset. During
the year ended December 31, 2004, the valuation allowance
increased $16.1 million primarily due to losses from
operations and decreased by $644,000 due to the difference
between book and tax basis of acquired Magnum assets and assumed
liabilities. During the year ended December 31, 2005, the
valuation allowance increased by $11.1 million due
primarily to losses from operations. Approximately $407,000 of
the valuation allowance relates to tax benefits for stock option
deductions included in the net operating loss carryforward,
which when realized, will be allocated directly to contributed
capital to the extent the benefits exceed amounts attributable
to deferred compensation expense.
F-18
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Undistributed earnings of our foreign subsidiaries are
considered permanently reinvested and, accordingly, no provision
for U.S. federal or state income taxes has been provided
thereon.
Our provision for income taxes differs from the expected tax
expense (benefit) amount computed by applying the statutory
federal income tax rate of 34% to income from continuing
operations before taxes due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Federal statutory rate
|
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
State taxes, net of federal benefit
|
|
|
(2.8 |
) |
|
|
(2.6 |
) |
|
|
(2.8 |
) |
Increase in deferred tax valuation allowance
|
|
|
39.5 |
|
|
|
66.0 |
|
|
|
42.5 |
|
Stock option compensation
|
|
|
2.4 |
|
|
|
(7.4 |
) |
|
|
1.1 |
|
Orphan drug tax credits
|
|
|
|
|
|
|
(20.9 |
) |
|
|
(5.0 |
) |
Research and development tax credits
|
|
|
(2.9 |
) |
|
|
(2.5 |
) |
|
|
(0.7 |
) |
Other
|
|
|
(2.2 |
) |
|
|
1.4 |
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
In May 2004, we amended the mortgage note payable to a bank
related to our facilities. The original $6.0 million
principal balance of our mortgage note payable was increased to
$7.8 million. The proceeds from this increase were used to
pay in full the principal and interest outstanding on a second
mortgage note payable with an original principal balance of
approximately $3.3 million, which resulted in that second
mortgage note being retired. In addition to this note
retirement, the proceeds from this loan amendment were used to
pay the costs related to this transaction of $96,000 and to add
$668,000 to our cash and cash equivalents.
The amended mortgage note payable bears interest at 6.25%. The
note is payable in monthly installments of $56,400 until May
2006. At that time, we may, at our option, extend the note to a
November 2009 maturity date. Upon such extension, the interest
rate is modified to the lesser of (a) 2.5% above the
five-year U.S. Treasury Bond Note rate or (b) 8.5%,
and principal and interest on the note become payable in equal
monthly installments based on a
225-month amortization
period. The principal balance outstanding on the notes
extended maturity date is payable in full at that time. The note
payable had an outstanding balance of $7,482,000 and $7,675,000
at December 31, 2005 and 2004, respectively. The second
mortgage note payable that was retired using the proceeds from
the amendment of the mortgage note payable had an outstanding
balance of zero at December 31, 2005 and December 31,
2004. Our facilities are pledged as security for the mortgage
note payable.
We financed $655,000 and $560,000 of equipment acquisitions
under notes payable to commercial finance companies during the
years ended December 31, 2005 and 2004, respectively. The
notes are payable monthly over terms of 36 to 60 months
from the time of the draw and bear interest at fixed interest
rates ranging from zero to 10.6% at December 31, 2005.
These notes payable are secured by the equipment being financed.
In connection with our construction of facilities, we
capitalized interest of $6,000 as a cost of those facilities
during the year ended December 31, 2004. No such
construction occurred during the years ended December 31,
2005 and 2003 for which interest capitalization was required.
F-19
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Aggregate annual maturities on notes payable as of
December 31, 2005, are as follows (in thousands):
|
|
|
|
|
|
|
Year ending December 31, 2006
|
|
$ |
756 |
|
|
2007
|
|
|
623 |
|
|
2008
|
|
|
340 |
|
|
2009
|
|
|
257 |
|
|
2010
|
|
|
267 |
|
|
Thereafter
|
|
|
6,297 |
|
|
|
|
|
|
|
Total
|
|
$ |
8,540 |
|
|
|
|
|
We believe the fair market value of our debt approximates its
carrying value as of all balance sheet dates presented herein.
At December 31, 2003, the current portion of notes payable
and capital lease obligations included $125,000 of capital lease
obligations retired in full in 2004.
|
|
9. |
License and Research Agreements |
|
|
|
Patent and Technology License Agreement With The
University of Texas System |
We have a license agreement with The Board of Regents of The
University of Texas System (the System) and M. D. Anderson
Cancer Center, a component institution of the System, whereby we
have an exclusive, worldwide license to use certain technology.
Beginning with the first commercial sale of a product
incorporating the licensed technologies, we will pay M. D.
Anderson Cancer Center, for the longer of fifteen years or the
life of the patent, a royalty based on net sales by us or our
affiliates or by sublicense agreement of products incorporating
any of such technologies. We are obligated by the agreement to
reimburse any of M. D. Anderson Cancer Centers costs that
may be incurred in connection with obtaining patents related to
the licensed technologies.
We are working with VirRx to investigate other vector
technologies, specifically replication-competent viral
therapies, for delivering products into targeted cells. These
technologies form the basis for our INGN 007 product candidate.
We have an agreement with VirRx, which began in 2002, to
purchase shares of VirRxs Series A Preferred Stock
for $150,000 on the first day of each fiscal quarter through
January 1, 2006. From inception of this agreement through
December 31, 2005, and during the year ended
December 31, 2005, we have purchased $2,325,000 and
$600,000, respectively, of this stock for cash. We record these
purchases as research and development expense. VirRx is required
to use the proceeds from these stock sales in accordance with
the terms of a collaboration and license agreement between VirRx
and us for the development of VirRxs technologies. We may
unilaterally terminate this collaboration and license agreement
with 90 days prior notice.
Provided the collaboration and license agreement remains in
place, we are required to make additional milestone stock
purchases, either for cash or through the issuance of our common
stock, upon the completion of Phase 1, 2 and 3 clinical
trials involving technologies licensed under this agreement. We
are required to make a $5.0 million cash milestone payment
to VirRx, for which we receive no VirRx stock, upon approval by
the FDA of a Biologics License Application for the first
collaboration product based on these technologies. To the extent
we have already made cash milestone payments, we may receive a
credit of 50% of the Phase 2 clinical trial milestone
payments and 25% of the Phase 3 clinical trial milestone
payments against this $5.0 million cash milestone payment.
The additional milestone stock purchases and cash payment are not
F-20
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
anticipated to be required in the near future. We have an option
to purchase all outstanding shares of VirRx at any time until
March 2007.
In accordance with the provisions of Financial Accounting
Standards Board Interpretation 46(R), Consolidation of
Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51, VirRx is not
consolidated in our financial statements.
|
|
|
Alliance Agreement with Colgate-Palmolive Company |
In November 2005, we entered into an alliance agreement with
Colgate-Palmolive to develop and potentially market oral
healthcare products. In connection with the alliance agreement
and pursuant to a common stock purchase agreement,
Colgate-Palmolive purchased 3,610,760 shares of our common
stock at a purchase price of $5.539 per share for a total
of approximately $20.0 million. These shares are subject to
trading and transfer restrictions for one year from the date of
purchase. Under the common stock purchase agreement,
Colgate-Palmolive also agreed to vote these shares and any other
shares of our capital stock owned by it in favor of corporate
actions approved by our Board of Directors. This voting
agreement is subject to suspension or termination upon certain
events specified in the common stock purchase agreement.
Pursuant to the alliance agreement, we will conduct research and
development activities involving specialized formulations of our
molecular therapies (such as p53, mda-7 and
FUS-1) targeted at
precancerous conditions of the oral cavity and at oral cancer.
The objective is to market these formulations as oral healthcare
products. Excluded from the alliance agreement is our current
portfolio of cancer product candidates, including ADVEXIN
therapy, INGN 241, INGN 225 and INGN 401.
Under the alliance agreement, Colgate-Palmolive has a first
right to negotiate development, manufacturing, marketing and
distribution rights with us for specifically designed oral
healthcare products for use in the human oral cavity that may
result from these research and development activities. In
addition, we agreed to use commercially reasonable efforts to
develop one or more specialized oral formulations through
completion of Phase 2 clinical trials within the seven-year
term of the alliance agreement. We can terminate our development
efforts earlier under certain circumstances, including if the
prospects for these products do not warrant further investment,
or if we expend $15.0 million in this effort. In
calculating the amount of our expenditures on these efforts, we
may include grant funding received by us or our collaborators
for work performed by third parties (e.g., universities and
other institutions) that is directly related to program
activities, as specified in the alliance agreement. The term of
the alliance agreement continues to November 2012, unless
earlier terminated by the parties as provided in the alliance
agreement.
|
|
|
Other Technology Option and License Agreements |
We have various other technology option and license agreements
with various third parties related to certain molecular
therapies or delivery systems that are part of other product
candidates we are developing. These agreements require us to
make milestone and license payments to these parties if and when
we achieve certain prescribed clinical trial and product
development milestones. We also license certain enabling
technologies under technology option and license agreements with
other third parties, which require annual payments aggregating
$40,000 until cancelled at our option.
|
|
10. |
Commitments and Contingencies |
We are obligated under various operating leases for land, office
and laboratory space that expire at various dates through
September 2026. Rent expense was $365,000, $316,000 and $301,000
for the years ended
F-21
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2005, 2004 and 2003, respectively. Future
minimum lease payments under non-cancelable operating leases as
of December 31, 2005, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Operating | |
|
|
Leases | |
|
|
| |
Year ending December 31, 2006
|
|
$ |
428 |
|
|
2007
|
|
|
344 |
|
|
2008
|
|
|
325 |
|
|
2009
|
|
|
225 |
|
|
2010
|
|
|
156 |
|
|
Thereafter
|
|
|
2,459 |
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$ |
3,937 |
|
|
|
|
|
We are subject to numerous risks and uncertainties because of
the nature and status of our operations, and to claims and legal
actions arising in the normal course of business. We maintain
insurance coverage for events and in amounts that we deem
appropriate. Management believes that uninsured losses, if any,
would not be materially adverse to our financial position or
results of operations.
We have an employment agreement with our President and Chief
Executive Officer that provides for a base salary and bonuses
through July 31, 2006.
The Chairman of our Board of Directors, who is also one of our
stockholders, owns a company to which we pay consulting fees of
approximately $175,000 per year. We are obligated to
continue paying this fee until such time as we, at our option,
terminate the services of that company. As of December 31,
2005, this person held options to
purchase 142,200 shares of our common stock.
We have a consulting agreement with an individual primarily
responsible for the creation of the technology upon which
ADVEXIN therapy is based, who is also a stockholder. Under this
consulting agreement, we paid this individual fees of $202,000,
$200,000 and $188,000 during the years ended December 31,
2005, 2004 and 2003 respectively. This consulting agreement
provides for payments of $205,000 per annum through the end
of its term on September 30, 2009, with such future
payments subject to adjustment for inflation. We may terminate
this agreement at our option upon one years advance notice.
We have a consulting agreement with the placement agent and
investment advisor who assisted us with the sale of our common
stock in December 2004. We intend to pay them a fee of
$25,000 per month on a
month-to-month basis in
consideration for their ongoing assistance with business
development and financial matters.
We sublease a portion of our facilities to M. D. Anderson Cancer
Center under a lease with a non-cancelable term that expires in
2009. M. D. Anderson Cancer Center is obligated to pay us rent
of approximately $94,000 per month until January 2006 and
approximately $28,000 per month thereafter for a total of
$405,000 in 2006, $340,000 in 2007 and 2008 and $170,000 in
2009. Rental income was $1,068,000, $1,045,000 and $1,012,000
for the years ended December 31, 2005, 2004 and 2003,
respectively.
We fund certain research performed by M. D. Anderson Cancer
Center to further the development of technologies that could
have potential commercial viability. By sponsoring and funding
this research, we have
F-22
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the right to include certain patentable inventions arising
therefrom under our patent and technology license agreement with
The University of Texas System described in Note 9. The
expense for this research was approximately $243,000, $581,000
and $885,000 for the years ended December 31, 2005, 2004
and 2003, respectively.
We received funding from Aventis for a Phase 2 clinical
trial for breast cancer conducted under our supervision. We
recorded revenue of zero, $13,000 and $56,000 for the years
ended December 31, 2005, 2004 and 2003, respectively,
related to this work.
In October 2004, we acquired all of the outstanding capital
stock of Magnum, a company owned prior to this acquisition by
one of our executive officers. See Note 3 for further
discussion.
|
|
12. |
London Stock Exchange |
We are evaluating the feasibility of listing our common stock on
the LSE, which would be in addition to the listing of our common
stock on the NASDAQ National Market System in the United States.
We believe an LSE listing may allow us to better leverage our
assets on a global basis and, specifically, in Europe and Asia.
F-23
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description of Document |
|
|
|
|
|
|
10 |
.53 |
|
|
|
Oral Healthcare Alliance Agreement dated November 4, 2005,
by and between Introgen and Colgate-Palmolive Company |
|
10 |
.54 |
|
|
|
Common Stock Purchase Agreement dated November 4, 2005, by
and between Introgen and Colgate-Palmolive Company |
|
21 |
.1 |
|
|
|
List of subsidiaries of Introgen |
|
23 |
.1 |
|
|
|
Consent of Independent Registered Public Accounting Firm |
|
24 |
.1 |
|
|
|
Power of Attorney (See page 65) |
|
31 |
.1 |
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended |
|
32 |
.1 |
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Confidential treatment has been requested for portions of this
exhibit. |