-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QMpZB4PBiWyDsnQy9GJLywTKoYz881I22MoaVdGvLqd/DJVtcdt5OwsYBnBpTEQU V+wedssLVNLTyooVle6VAw== 0001104659-04-033988.txt : 20041108 0001104659-04-033988.hdr.sgml : 20041108 20041105183200 ACCESSION NUMBER: 0001104659-04-033988 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041108 DATE AS OF CHANGE: 20041105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABGENIX INC CENTRAL INDEX KEY: 0001052837 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 943248826 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24207 FILM NUMBER: 041123897 BUSINESS ADDRESS: STREET 1: 6701 KAISER DRIVE CITY: FREMONT STATE: CA ZIP: 94555 BUSINESS PHONE: 5106086500 MAIL ADDRESS: STREET 1: 6701 KAISER DRIVE CITY: FREMONT STATE: CA ZIP: 94555 10-Q 1 a04-12711_110q.htm 10-Q

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

ý   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2004

 

OR

 

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                  ..

 

Commission file number:     000-24207

 

ABGENIX, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

94-3248826

(State or other jurisdiction of

 

(IRS employer

incorporation or organization)

 

Identification number)

 

 

 

6701 Kaiser Drive, Fremont, CA

 

94555

(Address of principal executive office)

 

(Zip Code)

 

(510) 284-6500

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding in 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 ý  No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes ý  No o

 

As of October 29, 2004 there were 89,072,158 shares of the Registrant’s Common Stock outstanding.

 

 



 

TABLE OF CONTENTS

 

PART I. Financial Information

 

 

 

 

 

 

ITEM 1. Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2004 and December 31, 2003

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2004 and 2003

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003

 

 

 

Notes to Condensed Consolidated Financial Statements

 

 

 

 

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

 

 

 

 

ITEM 4. Controls and Procedures

 

 

 

 

PART II. Other Information

 

 

 

 

ITEM 1. Legal Proceedings

 

 

 

 

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

 

ITEM 3. Defaults upon Senior Securities

 

 

 

 

 

ITEM 4. Submission of Matters to a Vote of Security Holders

 

 

 

 

 

ITEM 5. Other Information

 

 

 

 

 

ITEM 6. Exhibits

 

 

 

 

SIGNATURES

 

 

 

CERTIFICATIONS

 

 

2



 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  Financial Statements

 

ABGENIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

 

 

September 30,
2004

 

December 31,
2003

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

14,963

 

$

19,141

 

Marketable securities

 

215,705

 

328,622

 

Interest receivable

 

1,436

 

3,096

 

Accounts receivable, net

 

835

 

2,174

 

Inventories

 

370

 

 

Prepaid expenses and other current assets

 

11,144

 

12,546

 

Total current assets

 

244,453

 

365,579

 

Property and equipment, net

 

229,914

 

246,277

 

Long-term investments

 

16,524

 

20,695

 

Goodwill

 

34,780

 

34,780

 

Identified intangible assets, net

 

61,451

 

83,716

 

Deposits and other assets

 

28,268

 

29,146

 

 

 

$

615,390

 

$

780,193

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

10,994

 

$

11,584

 

Deferred revenue

 

7,662

 

10,919

 

Accrued liabilities

 

17,013

 

13,974

 

Contract cancellation obligation

 

 

22,749

 

Accrued interest payable

 

311

 

2,061

 

Total current liabilities

 

35,980

 

61,287

 

Deferred rent

 

7,203

 

6,153

 

Convertible subordinated notes

 

249,876

 

200,000

 

Other long-term liabilities

 

6,370

 

 

Redeemable convertible preferred stock, $0.0001 par value; 5,000,000 shares authorized

 

 

 

 

 

Series A-1 50,000 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively; liquidation preference $50,000 at September 30, 2004 and December 31, 2003, respectively

 

49,869

 

49,869

 

Series A-2 50,000 shares issued and outstanding at December 31, 2003; liquidation preference $50,000 at December 31, 2003; no shares outstanding at September 30, 2004

 

 

49,868

 

Commitments

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001 par value; 220,000,000 shares authorized; 88,858,422 and 88,262,457 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively

 

9

 

9

 

Additional paid-in capital

 

972,240

 

968,922

 

Accumulated other comprehensive income

 

3,228

 

8,861

 

Accumulated deficit

 

(709,385

)

(564,776

)

Total stockholders’ equity

 

266,092

 

413,016

 

 

 

$

615,390

 

$

780,193

 

 

See accompanying notes

 

3



 

ABGENIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Revenues:

 

 

 

 

 

 

 

 

 

Contract revenue

 

$

3,434

 

$

1,957

 

$

10,513

 

$

10,463

 

Contract manufacturing revenue

 

 

 

1,325

 

 

Total revenue

 

3,434

 

1,957

 

11,838

 

10,463

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of goods manufactured

 

 

 

1,857

 

 

Research and development

 

29,978

 

26,008

 

94,583

 

66,500

 

Manufacturing start-up costs

 

6,351

 

10,282

 

16,487

 

63,127

 

Amortization of identified intangible assets, related to research and development

 

1,441

 

1,792

 

5,024

 

5,398

 

General and administrative

 

7,673

 

7,828

 

21,038

 

21,182

 

Impairment of intangible assets

 

 

 

17,241

 

1,443

 

Total operating expenses

 

45,443

 

45,910

 

156,230

 

157,650

 

Loss from operations

 

(42,009

)

(43,953

)

(144,392

)

(147,187

)

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest and other income

 

1,347

 

2,036

 

4,831

 

8,010

 

Interest expense

 

(1,758

)

(1,652

)

(5,048

)

(4,133

)

Total other income (expense)

 

(411

)

384

 

(217

)

3,877

 

 

 

 

 

 

 

 

 

 

 

Loss before income tax expense

 

(42,420

)

(43,569

)

(144,609

)

(143,310

)

Foreign income tax expense

 

 

 

 

84

 

Net loss

 

$

(42,420

)

$

(43,569

)

$

(144,609

)

$

(143,394

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.48

)

$

(0.50

)

$

(1.63

)

$

(1.63

)

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic and diluted net loss per share

 

88,845

 

87,962

 

88,609

 

87,865

 

 

See accompanying notes

 

4



 

ABGENIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2004

 

2003

 

Operating activities

 

 

 

 

 

Net loss

 

$

(144,609

)

$

(143,394

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation

 

22,961

 

20,489

 

Amortization of identified intangible assets

 

5,024

 

5,398

 

Impairment of identified intangible assets

 

17,241

 

1,443

 

Amortization of debt issuance costs

 

943

 

896

 

Loss on sale and disposal of equipment

 

57

 

29

 

Changes for certain assets and liabilities:

 

 

 

 

 

Interest receivable

 

1,660

 

(132

)

Accounts receivable

 

1,339

 

1,499

 

Inventories

 

(370

)

 

Prepaid expenses and other current assets

 

1,402

 

(5,854

)

Deposits and other assets

 

(74

)

1,358

 

Accounts payable

 

(590

)

(15,167

)

Deferred revenue

 

(3,257

)

3,827

 

Accrued liabilities

 

3,266

 

7,832

 

Contract cancellation obligation

 

(22,749

)

21,191

 

Accrued interest payable

 

(1,750

)

(1,765

)

Deferred rent

 

1,050

 

1,297

 

Other long-term liabilities

 

6,370

 

 

Net cash used in operating activities

 

(112,086

)

(101,053

)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Purchases of marketable securities

 

(200,955

)

(255,087

)

Maturities of marketable securities

 

46,719

 

40,533

 

Sales of marketable securities

 

265,708

 

153,361

 

Purchases of property and equipment

 

(6,885

)

(27,636

)

Sale of equipment

 

3

 

11

 

Net cash provided by (used in) investing activities

 

104,590

 

(88,818

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net proceeds from issuances of common stock

 

3,318

 

1,728

 

Net cash provided by financing activities

 

3,318

 

1,728

 

Net decrease in cash and cash equivalents

 

(4,178

)

(188,143

)

Cash and cash equivalents at beginning of period

 

19,141

 

207,974

 

Cash and cash equivalents at end of period

 

$

14,963

 

$

19,831

 

 

See accompanying notes

 

5



 

ABGENIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(unaudited)

 

1.             Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation - The unaudited condensed consolidated financial statements of Abgenix, Inc. (the “Company” or “Abgenix”) included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information or footnote disclosure normally included in annual financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to such rules and regulations.  In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial information included therein.  These financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2003 and accompanying notes included in the Company’s annual report as filed on Form 10-K with the Securities and Exchange Commission.  The results of operations for the three months and nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the full year or for any other future period.

 

Foreign Exchange – Accounts denominated in foreign currency have been remeasured using the U.S. dollar as the functional currency.  The aggregate exchange gain/loss included in determining net loss was an exchange loss of $304,000 and $758,000, respectively, in the three and nine months ended September 30, 2004 compared to an exchange loss of $256,000 and $82,000, respectively, in the three and nine months ended September 30, 2003.

 

Consolidation - In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (the “Interpretation”).  The Interpretation requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity.  The Interpretation was effective immediately for variable interests created after January 31, 2003.  The Company adopted the remaining provision of the Interpretation, pertaining to variable interests existing prior to January 31, 2003, in the quarter ended March 31, 2004.  The adoption of the Interpretation did not have a material impact on the results of operations and the financial position of the Company.  Significant intercompany accounts and transactions have been eliminated.

 

Revenue Recognition – The Company receives payments from customers for license, option, service and milestone fees, as well as for contract manufacturing the Company performs.  These payments, which are generally non-refundable, are recognized as revenue or reported as deferred revenue until they meet the criteria for revenue recognition.  The Company recognizes revenue when (1) persuasive evidence of the arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable and (4) the collectibility is reasonably assured, in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition”.  In addition, the Company has followed the following principles in recognizing revenue:

 

      Abgenix enters into revenue arrangements with multiple deliverables in order to meet its customer’s needs.  For example, the arrangements may include a combination of up-front fees, license payments, joint development revenue, research services, milestone payments, future royalties and manufacturing arrangements.  Multiple element revenue agreements entered into on or July 1, 2003 are evaluated under Emerging Issues Task Force No. 00-21, “Revenue Arrangements with Multiple Deliverables,” to determine whether the delivered

 

6



 

item has value to the customer on a stand-alone basis and whether objective and reliable evidence of the fair value of the undelivered item exists.  Deliverables in an arrangement that do not meet the separation criteria in Issue 00-21 must be treated as one unit of accounting for purposes of revenue recognition.  Generally, the revenue recognition guidance applicable to the last deliverable is followed for the combined unit of accounting.  For certain arrangements, the period of time over which certain deliverables will be provided is not contractually defined.  Accordingly, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

 

      Abgenix has joint development arrangements under which Abgenix and its collaborative partners share the costs of developing and commercializing antibody therapeutic product candidates equally.  In periods where Abgenix incurs more costs under the arrangement than the collaborative partner, Abgenix records contract revenue for the services rendered.  In periods where the collaborative partner incurs more costs under the arrangement than Abgenix, Abgenix records expense for the services received.

 

      Research and product license fees are generally recognized only after both the license period has commenced and the technology has been delivered.

 

      Option fees for granting options to obtain product licenses to develop a product are recognized when the option is exercised or when the option period expires, whichever occurs first.

 

      Fees the Company receives for research services the Company performs under its technology out-licensing agreements are generally recognized ratably over the entire period the Company performs these services.  Research services include process sciences services the Company performs under its production services agreements, such as cell line development.

 

      Incentive milestone payments are recognized as revenue when the specified milestone is achieved.  Incentive milestone payments are triggered either by the results of the Company’s research efforts or by events external to Abgenix, such as regulatory approval to market a product.  Incentive milestone payments are substantially at risk at the inception of the contract, and the values assigned thereto are commensurate with the type of milestone achieved.  The Company has no future performance obligations related to an incentive milestone that has been achieved.

 

      Contract manufacturing fees the Company receives under its production services agreements are recognized when the manufacture of an antibody product candidate is complete, and the antibody product candidate is released and delivered, as defined in the relevant agreement.

 

Stock-Based Compensation - The Company accounts for stock-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, the Company does not recognize compensation expense for employee stock options granted at fair market value. For purposes of disclosures pursuant to Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS 148, the estimated fair value of options is amortized to expense on a straight-line basis over the options’ vesting period. The following table illustrates what the net loss would have been had the Company accounted for its stock-based awards under the provisions of SFAS 123. Pro forma amounts may not be representative of future periods.

 

7



 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(42,420

)

$

(43,569

)

$

(144,609

)

$

(143,394

)

Stock-based employee compensation costs that would have been included in the determination of net loss if the fair value based method had been applied to all awards

 

(10,368

)

(15,058

)

(34,778

)

(46,950

)

Pro forma net loss as if the fair value based method had been applied to all awards

 

$

(52,788

)

$

(58,627

)

$

(179,387

)

$

(190,344

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share as reported

 

$

(0.48

)

$

(0.50

)

$

(1.63

)

$

(1.63

)

 

 

 

 

 

 

 

 

 

 

Pro forma basic and diluted loss per share

 

$

(0.59

)

$

(0.67

)

$

(2.02

)

$

(2.17

)

 

The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the three months and nine months ended September 30, 2004 and 2003:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Risk-free interest rate

 

3.59

%

3.13

%

3.39

%

2.98

%

Dividend yield

 

0.0

%

0.0

%

0.0

%

0.0

%

Volatility factors of the expected market price of our Common Stock

 

0.90

 

0.96

 

0.90

 

1.01

 

Weighted-average expected life of option (years)

 

5.71

 

5.55

 

5.63

 

5.53

 

 

These same assumptions were applied in the determination of the option values related to stock options granted to non-employees, except the option life, for which the term of the consulting contracts, 1 to 5 years, was used. The value has been recorded in the financial statements.

 

Net Loss Per Share - Basic net loss per share is calculated based on the weighted-average number of shares outstanding during the period. The impact of common stock options, warrants and shares issuable upon the conversion of convertible subordinated notes and the redeemable convertible preferred stock was excluded from the computation of diluted net loss per share, as their effect is antidilutive for the periods presented.

 

Reclassifications - - Certain prior period balances may have been reclassified to conform to the current period presentation.

 

2.             Comprehensive Income (Loss)

 

Other comprehensive income/(losses) consist of unrealized gains or losses on available-for-sale securities. The components of comprehensive loss, net of tax, were as follows (in thousands):

 

8



 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Net loss

 

$

(42,420

)

$

(43,569

)

$

(144,609

)

$

(143,394

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Unrealized holding losses arising during period

 

(1,648

)

(1,231

)

(5,633

)

(303

)

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(44,068

)

$

(44,800

)

$

(150,242

)

$

(143,697

)

 

3.             Impairment of Identified Intangible Assets and Balances

 

In the quarter ended June 30, 2004, management determined that an impairment of the Company’s acquired technology in the field of catalytic antibodies had occurred and that the estimated value had declined to zero.  This technology, which includes intellectual property, was acquired in 2001 through the acquisition of Hesed Biomed, Inc.  The Company decided to focus its resources on other research and development projects and decided to wind down its catalytic antibody program.  Additionally, after assessing the associated patent position and the likelihood of sale or license of the technology to a third party, management further determined in the quarter ended June 30, 2004 that the possibility of generating positive future cash flows from the technology was remote.  As a result of this determination, the Company recorded an impairment charge of $17.2 million in the quarter ended June 30, 2004.

 

In the quarter ended March 31, 2003, the Company decided to discontinue the development of anti-properdin antibodies.  As a result, the Company recorded an impairment charge of $1.4 million for previously capitalized costs related to licenses and research funding for the development of therapeutic antibodies to the complement protein properdin, which the Company licensed from Gliatech, Inc.  Such charge is included in the nine month period ended September 30, 2003.

 

Identified intangible assets consisted of the following (in thousands):

 

 

 

Gross
Assets

 

Accumulated
Amortization

 

Net

 

As of September 30, 2004:

 

 

 

 

 

 

 

Acquisition-related developed technology

 

$

85,143

 

$

24,847

 

$

60,296

 

Other intangible assets

 

1,442

 

287

 

1,155

 

Identified intangible assets

 

$

86,585

 

$

25,134

 

$

61,451

 

 

 

 

 

 

 

 

 

As of December 31, 2003:

 

 

 

 

 

 

 

Acquisition-related developed technology

 

$

106,183

 

$

23,689

 

$

82,494

 

Other intangible assets

 

1,442

 

220

 

1,222

 

Identified intangible assets

 

$

107,625

 

$

23,909

 

$

83,716

 

 

Amortization of acquisition-related intangibles was approximately $1.4 million and $5.0 million, respectively, for the three and nine months ended September 30, 2004 and $1.8 million and $5.3 million, respectively, for the three and nine months ended September 30, 2003.  Amortization of other intangible assets was approximately $22,000 and $67,000, respectively, for the three and nine months ended September 30, 2004 and $22,000 and $90,000, respectively, for the three and nine months ended September 30, 2003.

 

 

9



 

Expected amortization expense related to identified intangible assets for the three-month period from October 1, 2004 to December 31, 2004, and each of the fiscal years thereafter is as follows (in thousands):

 

 

 

Periods Ending December 31,

 

 

 

 

 

 

 

2004

 

2005

 

2006

 

2007

 

2008

 

Thereafter

 

Total

 

Acquisition-related intangibles

 

$

1,418

 

$

5,674

 

$

5,674

 

$

5,674

 

$

5,676

 

$

36,180

 

$

60,296

 

Other intangible assets

 

$

23

 

$

90

 

$

90

 

$

90

 

$

90

 

$

772

 

$

1,155

 

 

4.             Convertible Subordinated Note

 

In October 2003, in connection with a collaboration agreement, the Company entered into a securities purchase agreement with AstraZeneca. Pursuant to the agreement, the Company issued to AstraZeneca $50.0 million of Series A-1 convertible preferred stock and $50.0 million of Series A-2 convertible preferred stock.  The net proceeds from the securities were $99.7 million.  Pursuant to its terms, the Series A-2 preferred stock was redeemed at the option of AstraZeneca on February 19, 2004 and the Company issued AstraZeneca a convertible subordinated note with a principal amount of $50.0 million, which matures on October 29, 2013.  No interest is payable on the note except in the event of a payment default by the Company.

 

Conversion rights

 

The Company, subject to certain conditions, can convert the convertible subordinated note into shares of common stock at a conversion price equal to the lower of (a) the average market price for the 10 days prior to the trading day immediately preceding the conversion date (provided that the average market price shall in no event be higher than 101% of the market price on the trading day immediately preceding the conversion date) or (b) $30.00 per share.

 

AstraZeneca may convert the convertible subordinated note into shares of common stock at a conversion price of $30.00 per share, at any time prior to the repayment of the principal amount of the note.

 

Redemption rights and maturity

 

The convertible subordinated note matures on October 29, 2013, if still outstanding.  The Company can, upon 15 days notice to the holder repay the principal amount of the convertible subordinated note in cash.

 

AstraZeneca has the right to require Abgenix to repay the convertible subordinated note at its face amount, upon the occurrence of a change in control of Abgenix after the completion of a defined research period.  At its option, and subject to certain conditions, Abgenix may deliver shares of its common stock in lieu of cash upon such an event.

 

AstraZeneca has the right to require Abgenix to repay a specified portion of the convertible subordinated note upon the occurrence of (a) a material breach by Abgenix of a material obligation under the Collaboration Agreement between the Company and AstraZeneca or (b) a change in control of Abgenix or an acquisition by Abgenix in which the other party to the change in control or acquisition, as the case may be, is a competitor of AstraZeneca, in each case that occurs during a defined research period and results in AstraZeneca’s termination of all research programs and future programs under the collaboration agreement. The amount that AstraZeneca may require Abgenix to redeem will be based upon the extent of completion of the research programs that are the subject of the collaboration between the Company and AstraZeneca.  At its option, and subject to certain conditions, Abgenix may deliver shares of its common stock in lieu of cash upon such events.

 

Upon the occurrence of certain events of default, (1) the holder of the convertible subordinated note shall have the right to make the entire outstanding principal amount of the note due and payable and (2) if the event of default is a payment default, quarterly interest payments shall begin to accrue on the convertible subordinated note at a default rate equal to the 10-year U.S. treasury rate plus three

 

10



 

percent (3%) compounded annually.  Events of default for purposes of this provision include, but are not limited to, the following (i) a failure to make a required payment, or a breach by the Company of any of the Company’s other obligations under, the Series A-1 preferred stock, the convertible subordinated note or any subordinated promissory note that may be issued by the Company in the circumstances described below under “Aggregate ownership limitation”; (ii) a breach of the Company of specified obligations under the securities purchase agreement with AstraZeneca; (iii) the securities purchase agreement, or any other agreement or instrument contemplated by the securities purchase agreement, is asserted by the Company not to be a legal, valid and binding instrument; (iv) certain bankruptcy and insolvency events involving the Company; and (v) a cross-acceleration of $25 million or more of other indebtedness of the Company.

 

Liquidation and Voting rights

 

The convertible subordinated note has an aggregate principal amount of $50 million.  The convertible note does not have any voting rights unless it is converted into common stock and will not bear any interest unless there is an occurrence of a default that is a payment default.  Upon an event of default that is a payment default, the convertible note will bear interest at a rate equal to the 10-year U.S. treasury rate plus 3% compounded annually.

 

The convertible subordinated note is senior to the preferred stock and the common stock and is junior to all senior indebtedness and to the Company’s 3.5% convertible subordinated notes due in 2007.

 

Aggregate ownership limitation

 

At no time may any holder of the convertible subordinated note beneficially own, following the conversion of the convertible subordinated note, more than 19.9% of the Company’s common stock then outstanding.  If any shares of common stock are issuable to a holder upon conversion of the convertible subordinated note that would result in any holder (together with its affiliates) owning common stock in excess of the ownership threshold described above, then the Company will be required to redeem the shares in excess of the ownership threshold for a price equal to (1) the number of such excess shares times (2) the average market price of the common stock for the 30 consecutive days ending on the 15th trading day prior to the conversion date (such price, the “Excess Shares Redemption Price”).  Upon such a redemption of the shares issuable upon conversion of the convertible subordinated note, the Company will have the right, upon delivery of notice to the holder, to receive a loan from the holder in the form of interest-free subordinated promissory note.  The face amount of the promissory note shall be the Excess Shares Redemption Price.

 

5.             Inventories

 

Inventories consist of materials related to a production service agreement with a collaborator.  Inventory cost is computed on a weighted-average cost basis and stated at lower of cost or market.  Inventories at period end were as follows (in thousands):

 

 

 

September 30,
2004

 

December 31,
2003

 

 

 

 

 

 

 

Raw material

 

$

42

 

$

 

Finished goods

 

328

 

 

 

 

$

370

 

$

 

 

11



 

6.             Other Long-Term Liabilities

 

In 2000, the Company entered into a joint development and commercialization agreement with Immunex Corporation, a wholly-owned subsidiary of Amgen Inc., for the co-development of ABX-EGF, now known as panitumumab, a fully human antibody directed against epidermal growth factor receptor (EGFr) the Company created.  The parties amended this agreement in October 2003.  Under the amended agreement, Immunex has decision-making authority for development and commercialization activities.  As under the original agreement, the Company is obligated to pay 50% of the development and commercialization costs and is entitled to receive 50% of any profits from sales of panitumumab.  Under the amended agreement, Immunex is required to make available up to $60.0 million in advances that the Company may use to fund a portion of its share of development and commercialization costs for panitumumab after the Company has contributed $20.0 million toward development costs in 2004.  As of September 30, 2004, the Company has a carrying balance of $6.4 million under this facility consisting of $6.3 million in advances and $104,000 of interest accrued at the contract rate of 12% per annum.  The Company has notified Immunex of its intent to draw a cash advance of an additional $13.3 million.  The Company expects to continue to make use of this credit facility in 2004 and thereafter up to the $60.0 million limit.  The amount and timing of the use of the facility is dependent on the development and related activities directed by Immunex and their cost.  The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales; however, the Company is not obligated to repay any portion of the outstanding balance if panitumumab does not reach commercialization.

 

7.             Segment Information

 

The operations of the Company and its wholly owned subsidiaries constitute one business segment.

 

Information about customers who provided 10% or more of contract revenues for the period is as follows:

 

Period

 

Number of Customers and Percentage of
Contract Revenues for each of the Customers

 

Three months ended September 30, 2004

 

2 customers, 69% and 10%, respectively

 

Nine months ended September 30, 2004

 

4 customers, 26%, 26%, 24% and 14%, respectively

 

Three months ended September 30, 2003

 

2 customers, 71% and 13%, respectively

 

Nine months ended September 30, 2003

 

3 customers, 29%, 26% and 12%, respectively

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements based upon current expectations that involve risks and uncertainties. In this quarterly report on Form 10-Q, the words “intend,” “anticipate,” “believe,” “estimate,” “plan” and “expect” and similar expressions as they relate to Abgenix are included to identify forward-looking statements. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below and under the heading “Additional Factors that Might Affect Future Results”.  In this quarterly report on Form 10-Q, references to “Abgenix,” we,” “us,” and “our” are to Abgenix, Inc. and its subsidiaries.

 

Overview
 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand our company.

 

Our Business

 

We are a biopharmaceutical company that is focused on the discovery, development and manufacture of human therapeutic antibodies for the treatment of a variety of diseases.   We intend to use our proprietary technologies to build a large and diversified product portfolio that we expect to develop and commercialize largely through joint development and commercialization arrangements with pharmaceutical companies and others.

 

We are co-developing our most advanced proprietary product candidate, panitumumab (formerly known as ABX-EGF), with Immunex Corporation, a wholly-owned subsidiary of Amgen Inc.  Panitumumab is in pivotal trials, and we have two product candidates in early stage clinical trials.  In addition, we have entered into a variety of contractual arrangements with pharmaceutical, biotechnology and genomics companies involving our technologies. We use our closely integrated process sciences and manufacturing capabilities for the manufacture of our own proprietary product candidates and also offer these services to our collaborators and others.

 

We intend to enter into co-development agreements in addition to our agreement for panitumumab and our other co-development arrangements discussed below.  We generally expect to self-fund preclinical and clinical activities to determine preliminary safety and efficacy before entering into joint development and commercialization agreements.  In some cases we may conduct product development entirely on our own.  We are implementing our collaboration strategy through co-development arrangements with companies such as Chugai Pharmaceuticals Co., Ltd., U3 Pharma AG and Dendreon Corporation, and through a broad collaboration in oncology with AstraZeneca UK Limited.  Our strategy is designed to diversify the risks associated with our research and development spending and to continue to focus our activities on product development and commercialization.

 

Under our collaboration agreement with AstraZeneca, we are obligated to provide preclinical and clinical research support for the development of up to 36 product candidates by AstraZeneca and have the opportunity to co-develop products with AstraZeneca.

 

Our Financial Position and Liquidity

 

We derive our revenues from our technology out-licensing contracts, our proprietary product development agreements, our target sourcing contracts and our production services contracts. We expect that substantially all of our revenues for the foreseeable future will result from payments under these and similar arrangements and that payments we receive under these arrangements will continue to be subject to significant fluctuation in both timing and amount.

 

We have incurred and expect to continue to incur substantial expenses in connection with our

 

13



 

product development activities, both under contractual arrangements with third parties and related to our independent research and development efforts.  Regulatory and business factors will require us to expend substantial funds in the course of completing required additional research on, preclinical testing and clinical trials of, and attaining regulatory approvals for, product candidates. The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources.

 

We have incurred net losses since we were organized as an independent company, including a net loss of $144.6 million for the nine months ended September 30, 2004.  We expect to incur additional losses for the foreseeable future as a result of our research and development costs and manufacturing start-up costs, including costs associated with conducting preclinical development and clinical trials, and charges related to purchases of technology or other assets.  We expect that the amount of our operating losses will fluctuate significantly from quarter to quarter.

 

As of September 30, 2004, we had cash, cash equivalents and marketable securities of $230.7 million.  The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources to a significant extent.  We plan to continue to make significant expenditures to staff and operate our own manufacturing facility and support our research and development activities, including preclinical product development and clinical trials.  These activities may result in increases in our operating expenses over the next few years.

 

Summary of Contractual Arrangements

 

We have entered into a variety of contractual arrangements covering numerous antigens with more than thirty customers to use our XenoMouse® and XenoMax™ technologies to generate and/or develop the resulting fully human antibodies.  Pursuant to our XenoMouse contracts, we and our customers intend to generate antibodies for development as product candidates for the treatment of cancer, inflammation, autoimmune diseases, cardiovascular disease, growth factor modulation, neurological diseases, metabolic diseases and infectious diseases.  We have also entered into contracts with two customers to provide process sciences and manufacturing services.  We expect that substantially all of our revenues for the foreseeable future will result from payments under these and other contracts. We have also licensed technology from third parties for use in conjunction with our proprietary technologies.  The terms of our current contractual arrangements vary, but can generally be categorized as follows:

 

              Proprietary Product Development—In 2000, we entered into a joint development and commercialization agreement with Immunex for the co-development of ABX-EGF, now known as panitumumab, a fully human antibody directed against EGFr we created.  We amended this agreement in October 2003.  Under the amended agreement, Immunex has decision-making authority for development and commercialization activities.  As under the original agreement, we are obligated to pay 50% of the development and commercialization costs and are entitled to receive 50% of any profits from sales of panitumumab.  Under the amended agreement, Immunex is required to make available up to $60.0 million in advances that we may use to fund a portion of our share of development and commercialization costs for panitumumab after we have contributed $20.0 million toward development costs in 2004.  As of September 30, 2004, we had a carrying balance of $6.4 million under this facility consisting of $6.3 million in advances and $104,000 of interest accrued at the contract rate of 12% per annum.  We have notified Immunex of our intent to draw a cash advance of an additional $13.3 million and we intend to continue to make use of this credit facility in 2004 and thereafter up to the $60.0 million limit.  The amount and timing of our use of the facility is dependent on the development and related activities directed by Immunex and their cost.  The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales; however, we are not obligated to repay any portion of the outstanding balance if panitumumab does not reach commercialization. Under a separate agreement with Immunex, we are

 

14



 

manufacturing clinical supplies for the collaboration and will manufacture commercial supplies for the first five years after commercial launch, with Immunex’s support and assistance.  The costs of manufacturing clinical and commercial supplies are also shared.  We have entered into co-development and commercialization arrangements for the development of proprietary products that are in various early stages with other collaborators, including U3 Pharma, Microscience Limited, Sosei Co., Ltd., Dendreon and Chugai.  Development activities under these agreements are in various early stages.

 

              Oncology Alliance—We entered into a collaboration and license agreement with AstraZeneca in October 2003 for the discovery, development and commercialization of fully human monoclonal antibodies to treat cancer.  This alliance involves the joint discovery and development of therapeutic antibodies for up to 36 cancer targets to be commercialized exclusively worldwide by AstraZeneca.  We will conduct early stage preclinical research on behalf of AstraZeneca with respect to some or all of these targets, and have initiated research programs for several of them.  To date, we and AstraZeneca have selected twelve targets for inclusion in the collaboration, including several for which we had pre-existing preclinical programs.  For any resulting products, we may receive milestone payments at various stages of development and royalties on future product sales.  AstraZeneca may make milestone payments to us of up to $51 million per candidate drug that is developed under the agreement, and for any drug we choose to develop to a target that is discontinued from the collaboration, we may pay AstraZeneca up to $15 million.  Under the agreement, we also may conduct early clinical trials, process development and clinical manufacturing, as well as commercial manufacturing during the first five years of commercial sales, and would be compensated for those activities at competitive market rates.  The collaboration also gives us the right to select and develop an additional pool of antibodies against up to 18 targets, which the companies may elect to further develop on an equal cost and profit sharing basis.  Subject to a number of exceptions, we will work exclusively with AstraZeneca to generate and develop antibodies for therapeutic use in the field of oncology during a three-year target selection period.  These exceptions include among others, work on antibodies directed at antigens that are or become subject to existing collaborations and antigens that we and AstraZeneca decide not to pursue in the collaboration, and certain process development and manufacturing services.  In connection with this collaboration, AstraZeneca made a $100.0 million investment in Abgenix securities.  Upon the achievement of certain milestones, we may also require AstraZeneca to invest up to an additional $60.0 million in our convertible preferred stock.  In addition, AstraZeneca has the first right to review the clinical data from our Phase 1 clinical trial of ABX-MA1 and to negotiate terms for the development of this product candidate.

 

              Antigen Sourcing Contracts—We have entered into several target sourcing contracts with genomics and biopharmaceutical companies that may enable us to generate a pipeline of proprietary fully human antibody therapeutic product candidates. Typically, pursuant to these contracts we generate fully human antibodies to the antigens provided or identified by our collaborators. The contracts typically contain provisions that allow either us or our collaborator to evaluate and select particular antibodies from the pool of generated antibodies for further development and commercialization. The party selecting an antibody for further development or commercialization will generally pay to the other party license fees, milestone payments and royalty payments on any eventual product sales, in exchange for rights to develop and commercialize the product. In connection with these arrangements, we may also agree to make an equity investment in collaborators for strategic reasons. For example, we have made equity investments in CuraGen Corporation in connection with our collaboration with CuraGen.

 

              Technology Out-Licensing—We have licensed our XenoMouse technology to third parties for the purpose of generating antibody product candidates to one or more specific antigens provided by the customer.  Pursuant to these contracts, we and our customers intend to generate antibody product candidates for the treatment of cancer, inflammation, autoimmune

 

15



 

diseases, cardiovascular disease, growth factor modulation, neurological diseases, metabolic diseases and infectious diseases.  In some cases in which we license XenoMouse technology, we provide our mice to the customer, which then carries out immunizations with its specific antigens. In other cases, we immunize the mice with the customer’s antigens for additional compensation.  We may also use our XenoMax technology on the customer’s behalf.  The customer generally has an option for a period of time to acquire a product license for any antibody identified using XenoMouse technology that the customer wishes to develop and commercialize. The financial terms of these agreements may include license fees, option fees and milestone payments paid to us by the customers. Based on our agreements, these payments and fees would average from approximately $7.0 million to $10.0 million per antigen if our customer takes the antibody into development and ultimately to commercialization. Additionally, our license agreements entitle us to receive royalties on any future product sales by the customer.  We also have the right of first offer with regard to production services for antibodies developed pursuant to certain of these agreements.  We may also agree to make equity investments in some of our customers, or they may agree to make equity investments in us, in connection with these licensing arrangements. As of September 30, 2004, we had entered into one agreement in which we licensed our SLAM technology to one party on a non-exclusive basis for the purpose of generating and using antibodies other than antibodies derived from XenoMouse technology or other technology that involves the use of non-human animals, and on a co-exclusive basis for the purpose of antigen discovery.  We currently do not intend to license our SLAM technology for use by any other parties.  We have also entered into an agreement in which we exclusively licensed to one party rights under patent applications and patents held by us to develop and commercialize therapeutic antibodies to parathyroid hormone-related protein.

 

              Production Services Contracts—We have entered into contracts with two customers for process sciences and manufacturing services.  One of these contracts is related to an antibody product candidate that we developed with the customer pursuant to an existing antigen sourcing contract.  Under this contract we are delivering a variety of process development, cell banking and manufacturing services for selected antibody product candidates.  The other contract related to an antibody the customer developed under a XenoMouse license agreement. The agreements provide for the customer to pay us certain fees for production services.  Under one of these agreements we will be entitled to royalties on the sale of products subject to the agreement.  We also have the right of first offer with regard to production services for additional antibodies developed by one of these customers.  We are seeking to enter into agreements to provide process sciences and manufacturing services to other existing and new customers to absorb production services capacity we are not using for our proprietary product candidates; however, we do not expect to enter into any such agreements in the near term.

 

              Technology In-Licensing—We also license technology from other parties that we use in conjunction with our proprietary technology to develop, manufacture and commercialize therapeutic antibody candidates. The other party may also agree to produce antibody therapeutic candidates for us using its own technology.  For example, we have entered into license and option agreements with ImmunoGen, Inc. pursuant to which we may develop and commercialize products based upon certain proprietary immunotoxins.  These agreements often obligate us to pay license fees, and milestone payments and royalty fees to the counterparty upon the occurrence of specified conditions, including upon our sale of products derived from use of the licensed technology. We may also agree to make an equity investment in the other party for strategic reasons in connection with these arrangements. For example, we purchased shares of common stock of ImmunoGen in connection with our agreement with that company.

 

16



 

Summary of Product Development

 

As of September 30, 2004, three of our antibody therapeutic product candidates were in ongoing clinical trials.

 

              Panitumumab (ABX-EGF).  Our leading proprietary antibody therapeutic product candidate is panitumumab.  Generated using our technology, panitumumab is a fully human antibody therapeutic product directed against EGFr and a candidate for the treatment of a variety of solid tumors. We are co-developing this candidate with Immunex under a development and commercialization agreement.  The status of clinical trials of panitumumab is as follows:

 

              Various cancers—We initiated a Phase 1 clinical trial for panitumumab in various solid tumors in July 1999.  In 2003, we expanded enrollment to investigate additional panitumumab dose levels and schedules of administration.  Enrollment is closed and treatment is ongoing.

 

              Renal cell cancer—We initiated a Phase 2 clinical trial evaluating the effect of panitumumab as monotherapy in patients with renal cell cancer in April 2001 and enrollment is closed and treatment is ongoing.

 

              Non-small cell lung cancer— Immunex initiated a Phase 2 clinical trial for panitumumab in advanced non-small cell lung cancer in combination with standard chemotherapy, compared to standard chemotherapy alone, in July 2001.  Enrollment is closed and treatment is ongoing.  Interim data from Part 1 of this Phase 2 study were presented at the conference of the American Society of Clinical Oncology on June 5, 2004 and demonstrated that frontline therapy with panitumumab was generally well-tolerated in combination with paclitaxel and carboplatin in patients with advanced non-small cell lung cancer.  Nineteen patients were enrolled into three groups and were administered panitumumab weekly for up to eight 6-week cycles, in combination with paclitaxel and carboplatin administered every three weeks, for up to six 3-week cycles:  six subjects were administered panitumumab at a dose of 1.0 mg/kg/week, seven subjects were administered panitumumab at a dose of 2.0 mg/kg/week, and six subjects were administered panitumumab at a dose of 2.5 mg/kg/week.  Five of 19 patients had objective responses (one complete, four partial).  In this small study of 19 patients, the observed median time to progression was six months and the observed median overall survival was 17 months.  The most common adverse event seen in this study was skin rash, but the incidence of grade 3 skin rash did not appear to increase with panitumumab dose.  Part 2 of this study, which is fully enrolled with 175 patients, compares time to progression for patients receiving panitumumab plus chemotherapy to that for patients receiving chemotherapy alone as frontline therapy for advanced non-small cell lung cancer.

 

              Colorectal cancer— Immunex initiated a Phase 2 clinical trial evaluating the effect of panitumumab as monotherapy in patients with metastatic colorectal cancer who have previously failed chemotherapy in December 2001.  Enrollment is closed and treatment is ongoing.  Interim data from this Phase 2 study were presented at the annual conference of the American Society for Clinical Oncology on June 6, 2004 and demonstrated that panitumumab has antitumor activity when administered as a single-agent treatment to patients with metastatic colorectal cancer who have failed chemotherapy.  The interim analysis, which was an update of results announced in June 2003, showed that patients with measurable metastatic colorectal cancer which expressed the epidermal growth factor receptor experienced partial responses.  The study included 148 patients who were previously treated with fluoropyrimidine (with or without leucovorin), and either irinotecan or oxaliplatin, or both.  Patients received 2.5 mg/kg of panitumumab by weekly intravenous infusion in 8-week treatment cycles until disease progression or unacceptable toxicity.  Tumor responses were confirmed at least four weeks after the initial response was observed.

 

Treatment with panitumumab resulted in a partial response in 15 of the 148 patients (10%) with a median duration of response of 5.2 months, and no complete responses.  Stabilization of disease was observed in 56 of the 148 patients (38%) with a median duration of stable disease of 3.8 months.  Median overall

 

17



 

time to progression was two months and median overall survival time was 7.9 months.  Exploratory subgroup analyses comparing patients who had received two prior chemotherapy agents, (80 patients), versus those who had received three prior chemotherapy agents (68 patients), demonstrated similar response rates of 11% and 9%, respectively.

 

In the interim analysis, panitumumab was generally well-tolerated, with skin rash as the most common side effect: 95% experienced a skin rash and 4% experienced a grade 3 skin rash.  Other side effects experienced by some patients were fatigue, nausea and diarrhea.  One patient had a grade 3 infusion-related reaction related to panitumumab, which did not result in discontinuation of panitumumab.  There were no instances of anaphylaxis.  In the 110 patients for which samples were available for testing, no human antihuman antibodies (HAHAs) were observed.

 

              Immunex initiated a separate Phase 2 clinical trial in January 2002 evaluating the effect of panitumumab in combination with irinotecan-containing regimens, as first-line treatment in patients with metastatic colorectal cancer. Enrollment is closed and treatment is ongoing.

 

In January 2004, Immunex initiated a pivotal study of panitumumab as third-line monotherapy in patients with metastatic colorectal cancer.  The trial initiation followed the receipt of a Special Protocol Assessment letter from the U.S. Food and Drug Administration, or FDA, endorsing the design of the trial to support a regulatory submission for potential accelerated approval.  Enrollment in this trial, which has begun, is proceeding more slowly than originally anticipated.  Immunex also initiated a second pivotal study in Europe in support of a global registration program.  Enrollment in this study is proceeding as anticipated.

 

              Prostate cancer—We initiated a Phase 2 clinical trial evaluating the effect of panitumumab in patients with hormone resistant prostate cancer in January 2002, in which treatment is ongoing.  Based on a preliminary analysis, we have closed enrollment in this trial.  The preliminary findings did not meet our planned threshold to support pursuing the drug as a monotherapy in this indication.

 

              Immunex has initiated an additional study to evaluate panitumumab in various sub-populations, including metastatic colorectal cancer patients with tumors having low or undetectable levels of EGFr.  Enrollment is ongoing.

 

              ABX-MA1.  Generated using our technology, ABX-MA1 is a fully human antibody therapeutic product candidate for the treatment of a variety of cancers.  We filed an investigational new drug application, or IND, in December 2001 and initiated a Phase 1 clinical trial evaluating the safety and pharmacokinetics of ABX-MA1 in patients with metastatic melanoma in February 2002.  Enrollment is closed and treatment is complete.

 

              ABX-PTH.  Generated using our technology, ABX-PTH, or ABX-10241, is a fully human antibody therapeutic product candidate for the treatment of a secondary hyperparathyroidism.  We filed an IND in December 2003 and initiated a Phase 1 clinical trial evaluating the safety and pharmacokinetics of ABX-PTH in patients with secondary hyperparathyroidism in February 2004.  Enrollment is ongoing.

 

Preliminary results from an interim analysis of this ongoing study were presented during a poster presentation at the 26th Annual Meeting of the American Society for Bone and Mineral Research on October 3, 2004.  In the Phase 1 study, five patients received a single dose of placebo, four patients received 30 mg of ABX-PTH and eight patients received 100 mg of ABX-PTH by intravenous bolus injection.  At the 100 mg dose, suppression of parathyroid hormone was sustained below 300 pg/mL in 88 percent of patients one week after dosing.  ABX-PTH treatment resulted in dose dependent suppression of parathyroid

 

18



 

hormone and a dose dependent reduction in serum calcium.  Intravenous bolus administration was well tolerated and no drug-related adverse events were reported.  We expect to launch a multiple dose phase 1 study of ABX-PTH by the first quarter of 2005.

 

“Phase 1” indicates safety and pharmacokinetics testing in a limited patient population. “Phase 2” indicates safety, dosing and efficacy testing in a limited patient population. “Phase 3” indicates efficacy and safety testing in a larger patient population.  A “pivotal study” is designed to meet registration requirements.  Phase 3 studies designed for registration purposes are considered pivotal studies.  Certain Phase 2 studies can be pivotal studies.

 

We have entered into a broad collaboration with AstraZeneca for the development of antibody therapeutics for the treatment of oncology pursuant to which we have an opportunity to co-develop products with AstraZeneca, as well as provide preclinical and clinical research support for the development of product candidates by AstraZeneca.  In addition, we have entered into co-development agreements for the joint development of antibody product candidates with a variety of companies including U3, Microscience, Dendreon, Chugai and Sosei.  We intend to enter into additional joint development agreements for other product candidates.

 

We will expend significant capital to conduct clinical trials or share in the costs of conducting clinical trials for our proprietary product candidates.  These activities may result in increases in our operating expenses over the next few years.

 

In addition to our proprietary antibody therapeutic product candidates in clinical trials, there are four customer-developed antibodies generated with XenoMouse technology in clinical trials as follows:

 

              Pfizer Inc.—We generated three XenoMouse-derived fully human antibody therapeutic product candidates that Pfizer has advanced into clinical trials, including one that targets cytotoxic T lymphocyte-associated antigen 4 (CTLA-4) and one that targets activated type 1 insulin-like growth factor receptors (IGF-1R).  The indication for the third product candidate has not been disclosed.  Two of the product candidates are currently in phase 1 evaluation and one has advanced to phase 2 evaluation.

 

              Amgen—We generated a XenoMouse-derived fully human antibody therapeutic product candidate that binds to the receptor activator of nuclear factor kappa B ligand (RANKL) that Amgen has advanced into a pivotal clinical trial as AMG162 as a potential treatment for bone loss.

 

Results of Operations

 

Three Months and Nine Months Ended September 30, 2004 and 2003

 

Contract Revenues.

 

Contract revenues totaled $3.4 million and $10.5 million, respectively, in the three months and nine months ended September 30, 2004, compared to $2.0 million and $10.5 million, respectively, in the comparable 2003 periods. Because contract revenues depend to a large extent on the success or failure of research and development efforts undertaken by our collaborators and licensees, our period-to-period contract revenues can fluctuate significantly and are inherently difficult to predict.

 

The primary components of contract revenues for both periods were as follows:

 

              Technology Licensing

 

19



 

We recognized a total of $2.8 million and $8.8 million, respectively, in the three and nine months ended September 30, 2004, compared to $2.0 million and $9.7 million, respectively, in the comparable 2003 periods, from licensing our proprietary technologies.  Technology licensing included various fees, such as research license and service fees, product license fees, product development and research milestone payments and option fees.  Revenue consisted primarily of the following:

 

              Chugai – In the nine months ended September 30, 2003, we recognized $3.0 million under an agreement with Chugai in which we exclusively licensed to Chugai rights to methods of treatment of certain diseases with an antibody.

 

              Additionally, in the three and nine months ended September 30, 2004 and 2003, we recognized various fees, such as research milestone payments, research license and services fees, product license fees, product development and option fees, under technology license agreements.  We recognized fees from several collaborators, primarily from: Amgen and Pfizer in the three months ended September 30, 2004; Pfizer, Amgen and Abbott in the nine months ended September 30, 2004; and Pfizer and Amgen in the three and nine months ended September 30, 2003.

 

              Proprietary Product Development

 

We recognized $318,000 in the three and nine months ended September 30, 2004, compared to $38,000 and $723,000, respectively, in the comparable 2003 periods, pursuant to our joint development and commercialization agreements.  In the three and nine months ended September 30, 2004, the revenues consisted of reimbursement of development costs for the panitumumab program.  The revenue increase in the three months ended September 30, 2004 as compared to the same period in 2003, was due to our development costs exceeding the development costs of our collaborator, Immunex.  In the three and nine months ended September 30, 2003, the revenues consisted of reimbursement of development costs from the development of ABX-CBL.  Revenue decreased in the nine months ended September 30, 2004 as compared to the same period in 2003 primarily due to the discontinuation of the ABX-CBL program in 2003.  We expect revenues pursuant to our joint development and commercialization agreements will continue to be less in 2004 as compared to 2003 as we expect our collaborator’s costs for the panitumumab development program to exceed our costs and because of the discontinuance of the ABX-CBL development program.

 

              Non-manufacturing Production Services

 

We recognized a total of $326,000 and $1.4 million, respectively, in revenues during the three and nine months ended September 30, 2004 for production services.  These revenues consisted primarily of process sciences services and were generated from one of our product services agreements.  We did not recognize any revenues from production services during the three and nine months ended September 30, 2003.

 

Contract Manufacturing Revenues.

 

Contract manufacturing revenues totaled zero and $1.3 million, respectively, in the three and nine months ended September 30, 2004.  These revenues consisted primarily of manufacturing services for the manufacture of an antibody product for a customer under a production services agreement.  In the three and nine months ended September 30, 2003, we did not recognize any revenues from manufacturing services.

 

20



 

Cost of Goods Manufactured.

 

Cost of goods manufactured was zero and $1.9 million in the three and nine months ended September 30, 2004.  Cost of goods manufactured included material, direct labor, outside testing and overhead costs associated with manufacturing an antibody product for a customer under a production services agreement.  In the three and nine months ended September 30, 2003, we did not have any cost of goods manufactured.

 

Research and Development Expenses.

 

Research and development expenses were $30.0 million and $94.6 million, respectively, in the three and nine months ended September 30, 2004, compared to $26.0 million and $66.5 million, respectively, in the comparable 2003 periods. The major components of research and development expenses were as follows (in thousands):

 

Research and Development:

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Product development

 

$

21,961

 

$

18,223

 

$

67,112

 

$

39,534

 

Research

 

7,939

 

7,593

 

25,086

 

24,542

 

In-licensing

 

78

 

192

 

2,385

 

2,424

 

Total research and development costs

 

$

29,978

 

$

26,008

 

$

94,583

 

$

66,500

 

 

Product development costs include costs of preclinical development, cell line development, manufacturing and conducting clinical trials for our proprietary product candidates.  Additionally, product development includes costs related to cell line development activities we perform under our production services contracts.  The primary components of product development include the costs of Abgenix personnel, drug supply costs, research fees charged by outside contractors, co-development costs, and facility expenses, including depreciation.  In the three and nine months ended September 30, 2004, our product development costs increased in comparison to the same periods in 2003, primarily due to a significant increase in the development costs for the panitumumab program.  To a lesser extent the increase was due to costs related to new preclinical and clinical product candidates including ABX-PTH.  Product development costs can vary from period to period significantly depending on the development activities in the period.  Overall, we expect costs associated with product development in 2004 to be higher than 2003 as we and our co-developer Immunex initiate new trials and add patients to our existing panitumumab clinical trials.

 

Research costs include costs associated with research and testing of antibodies we generate, whether for ourselves or for our customers, prior to the development stage which begins with the commencement of preclinical activities.  Research costs also include the costs of research relating to proprietary technologies, including enhancements to those technologies.  The primary components of research costs include the costs of Abgenix personnel, facilities, including depreciation, and lab supplies.  Our research costs have generally remained at the same levels in the three and nine months ended September 30, 2004 as compared to the same periods in 2003.

 

In-licensing costs include costs to acquire licenses to develop and commercialize various technologies and molecules.  In the three months ended September 30, 2004, in-licensing costs decreased as compared to the same period in 2003.  In-licensing cost can vary from period to period.  In-licensing costs in the nine months ended September 30, 2004 were comparable to the same period in 2003.

 

Major components of research and development costs for the three and nine months ended September 30, 2004 and 2003 were as follows:

 

21



 

              Costs of Abgenix Personnel—Costs of Abgenix personnel to support research and development activities increased 37% and 24%, respectively, in the three and nine months ended September 30, 2004 as compared to the same periods in 2003.  Personnel costs primarily include salary, fringe benefits, recruiting and relocation costs.  The increase was primarily due to increased personnel costs for process sciences and preclinical research, and increased use of our manufacturing facility for development activities, including process validation for the manufacture of our conformance lots.

 

              Consulting and Outside Contractors—Costs of consulting and outside contractors to support research and development activities decreased 36% and 12%, respectively, in the three and nine months ended September 30, 2004 as compared to the same periods in 2003.  The decrease was primarily due to a reduction of activities performed by outside contractors related to toxicology studies.  The decrease was offset in part by increased clinical trial activities for panitumumab.

 

              Clinical Research Fees—Clinical research fees, including clinical investigator site fees, monitoring costs and data management costs, increased 27% and 34%, respectively, in the three and nine months ended September 30, 2004 as compared to the same periods in 2003.  The increase was primarily due to increased clinical trial activities for panitumumab and ABX-PTH.

 

              Drug Supply Costs—Drug supply costs increased 53% and 197%, respectively, in the three and nine months ended September 30, 2004 as compared to the same period in 2003.  The increase was primarily due to the increased production of panitumumab resulting from the expansion of the panitumumab clinical program.

 

              Co-development costs—Co-development costs, which primarily consist of reimbursement to Immunex for our share of panitumumab development costs, decreased 100% in the three months ended September 30, 2004 and increased 14% in the nine months ended September 30, 2004 as compared to the same periods in 2003.  In the three months ended September 30, 2004, we did not incur co-development costs associated with reimbursement to Immunex because our costs related to development of panitumumab exceeded the development costs incurred by Immunex.  The increase in the nine months ended September 30, 2004 was primarily related to cost sharing for activities performed by Immunex associated with the co-development of panitumumab.  The increase was also due to our increased activities for clinical trials related to the development of panitumumab.

 

              Facility and Other Overhead Related Costs—These costs, which primarily consist of depreciation, rent and other facility related costs, increased 50% and 52%, respectively, in the three and nine months ended September 30, 2004 as compared to the same periods in 2003.  The increase was primarily related to increased use of our manufacturing facility for development activities, including process validation activities related to the manufacture of panitumumab conformance lots.

 

The clinical trial status of product candidates included in product development costs is as follows as of September 30 for each of the years indicated:

 

Proprietary Product
Candidate

 

 

 

Clinical Trial Status as of
September 30,

 

 

Indication

 

2004

 

2003

 

 

 

 

 

 

 

 

 

Panitumumab (ABX-EGF)

 

Various cancers

 

Phase 1

 

Phase 1

 

 

 

Renal cell cancer

 

Phase 2

 

Phase 2

 

 

 

Non-small cell lung cancer

 

Phase 2(1)

 

Phase 2(1)

 

 

 

Metastatic Colorectal cancer

 

Phase 2(1)

 

Phase 2(1)

 

 

 

Metastatic Colorectal cancer (with chemotherapy)

 

Phase 2(1)

 

Phase 2(1)

 

 

 

Prostate cancer

 

Phase 2

 

Phase 2

 

 

 

Metastatic Colorectal cancer (outside the US)

 

Pivotal(1)

 

 

 

 

 

Metastatic Colorectal cancer

 

Pivotal(1)

 

 

 

ABX-MA1

 

Metastatic melanoma

 

Phase 1

 

Phase 1

 

ABX-PTH

 

Secondary hyperparathyroidism

 

Phase 1

 

 

 


(1)           Clinical trial managed by Immunex.

 

22



 

Manufacturing Start-Up Costs.

 

Manufacturing start-up costs were $6.4 million and $16.5 million, respectively, in the three and nine months ended September 30, 2004, compared to the $10.3 million and $63.1 million, respectively, in the comparable 2003 periods.  Manufacturing start-up costs include certain costs associated with our new manufacturing facility, including depreciation, outside contractor costs and personnel costs for activities such as quality assurance and quality control.  The primary component of this cost in the three and nine months ended September 30, 2003 was a fee of approximately $28.0 million for the negotiated cancellation of a manufacturing supply agreement with an outside contractor, Lonza Biologics plc.  The manufacturing agreement was for a production suite held exclusively for us, which we were not using.  In addition to the absence of the cancellation fee in 2004, the decrease in the three and nine months ended September 30, 2004 as compared to the same periods in 2003 was primarily due to the increased use of our manufacturing facility for the manufacture of panitumumab and other development activities, including process validation for the manufacture of panitumumab conformance lots.

 

We expect to continue to incur manufacturing start-up costs until the facility is operating closer to full utilization.  For the year ending December 31, 2004, we expect manufacturing start-up costs to decrease compared to 2003 as a result of expensing the Lonza cancellation fee in 2003 and the increased utilization of the facility in 2004.

 

Amortization of Identified Intangible Assets.

 

Our identified intangible assets consist primarily of existing technology (including patents and certain royalty rights) we acquired through the acquisitions of Abgenix Biopharma and IntraImmune in 2000 and JT America’s interest in Xenotech in 1999.  Amortization of intangible assets totaled $1.4 million and $5.0 million, respectively, for the three and nine months ended September 30, 2004 and $1.8 million and $5.4 million for the three and nine months ended September 30, 2003.  The decrease in the three and nine months ended September 30, 2004 as compared to the same periods in 2003 was due to a reduction in intangible assets due to the write-off in the second quarter of 2004 of the remaining value of the catalytic antibody technology that we acquired through the acquisition of Hesed Biomed Inc. in 2001.

 

General and Administrative Expenses.

 

General and administrative expenses include compensation, professional services, consulting, facilities, including depreciation, and other expenses related to legal, finance and information systems.  General and administrative expenses totaled $7.7 million and $21.0 million, respectively, in the three and nine months ended September 30, 2004 and $7.8 million and $21.2 million, respectively, in the three and nine months ended September 30, 2003.  We expect general and administrative costs in the fourth quarter of 2004 to remain at similar levels as compared to the first three quarters in 2004.

 

Impairment of Intangible Assets

 

In the second quarter of 2004, we determined that an impairment of the Company’s acquired technology in the field of catalytic antibodies had occurred and that the estimated value had declined to zero.  This technology, which includes intellectual property, was acquired in 2001 through the acquisition of Hesed Biomed, Inc.  We decided to focus our resources on other research and

 

23



 

development projects and decided to wind down our catalytic antibody program.  Additionally, after assessing the associated patent position and the likelihood of sale or license of the technology to a third party, we further determined in the quarter ended June 30, 2004 that the possibility of generating positive future cash flows from the technology was remote.  As a result of this determination, we recorded an impairment charge of $17.2 million.

 

In the first quarter of 2003, we decided to discontinue the development of anti-properdin antibodies.  As a result, we recorded an impairment charge of $1.4 million for previously capitalized costs related to licenses and research funding for the development of therapeutic antibodies to the complement protein properdin, which we licensed from Gliatech, Inc.

 

Interest and Other Income.

 

Interest and other income consist primarily of interest from cash, cash equivalents and marketable securities. Interest and other income decreased to $1.3 million and $4.8 million, respectively, in the three and nine months ended September 30, 2004, compared to $2.0 million and $8.0 million, respectively, in the comparable 2003 periods.  The decrease was primarily the result of lower interest rates, and lower average cash, marketable securities and cash equivalent balances.

 

Interest Expense.

 

Interest expense was primarily related to interest and amortization of issuance costs on our convertible subordinated notes due 2007.  In the three and nine months ended September 30, 2004, interest expense increased to $1.8 million and $5.0 million, respectively, as compared to $1.7 million and $4.1 million in the same period in 2003, as a result of a decrease in the amount of capitalized interest.  The amount of interest capitalized decreased in the three and nine months ended September 30, 2004 compared to the same periods in 2003 because we placed into service a portion of our manufacturing facility in the second quarter of 2003 when we began manufacturing antibody therapeutic candidates in that portion of the facility.  Interest expense was capitalized in the amount of $0.4 million and $1.3 million, respectively, in the three and nine months ended September 30, 2004, compared to $0.4 million and $2.1 million, respectively, in the comparable 2003 periods.  For each future quarterly period, we expect to record approximately $1.8 million of interest expense related to our convertible subordinated notes due 2007 until the debt matures, until we redeem or repurchase the debt or until all or part of the debt is converted into shares of our common stock.  Additionally, we will record interest at 12% on the amounts we draw on our credit facility with Immunex until we repay the balance in full.  For the quarter ended September 30, 2004, the amount of interest expense recorded was $104,000.  The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales; however, we are not obligated to repay any portion of the outstanding balance if panitumumab does not reach commercialization.

 

Foreign Income Tax Expense.

 

Foreign income tax expense was recorded reflecting an income tax provision on foreign contract research projects of zero in both the three and nine months ended September 30, 2004, compared to zero and $84,000, respectively, in comparable 2003 periods.

 

Liquidity and Capital Resources

 

At September 30, 2004, we had cash, cash equivalents and marketable securities of approximately $230.7 million. We invest our cash equivalents and marketable securities primarily in highly liquid, interest bearing, investment grade and government securities in order to preserve principal. We have also invested in certain marketable equity securities of ImmunoGen and CuraGen for strategic reasons. These securities had an aggregate fair value of $16.5 million at September 30, 2004.

 

24



 

Cash Used in Operating Activities.  Net cash used in operating activities was $112.1 million and $101.1 million in the nine months ended September 30, 2004, and 2003, respectively. The major components of the change in cash used in operating activities in the nine months ended September 30, 2004, compared to the same period in 2003, were primarily the following:

 

      An increase of $16.4 million in payments pursuant to the Lonza contract cancellation obligation.  As of September 30, 2004, we had no remaining obligations to Lonza.

 

      An increase of $6.4 million in research and development and manufacturing start-up costs, not including the Lonza contract cancellation charge in 2003, amortization of identified intangible assets and depreciation related to the development of new products.

 

      A decrease of $5.9 million in customer payments due primarily to the timing of payments received under our contracts.

 

      An increase in our liability to Immunex of $6.4 million under the joint development agreement.

 

      Accounts payable decreased $14.6 million less during the first nine months of 2004 than during the same period in 2003.

 

      Prepaid expenses and other current assets, net decreased $7.3 million more during the first nine months of 2004 than during the same period in 2003.

 

Cash Provided by and Used in Investing Activities.  Net cash provided by investing activities was $104.6 million in the nine months ended September 30, 2004, compared to $88.8 million of net cash used in investing activities in the nine months ended September 30, 2003. Net cash provided by and used in investing activities consisted primarily of the following:

 

      Capital expenditures of $6.9 million and $27.6 million in the nine months ended September 30, 2004 and 2003, respectively. The investments in 2004 reflect primarily investment in construction in progress and equipment for our manufacturing facility and investments in lab equipment.  The investments in 2003 reflect primarily investment in construction in progress and equipment for our new manufacturing facility.

 

      Sales and maturities, net of purchases, of marketable securities of $111.5 million during the nine months ended September 30, 2004, compared to purchases, net of sales and maturities of marketable securities of $61.2 million during the same period in 2003.

 

Cash Provided by Financing Activities.  During the nine months ended September 30, 2004 and 2003, net cash provided by financing activities was $3.3 million and $1.7 million, respectively, consisting of proceeds from the issuance of our common stock upon exercise of stock options and pursuant to our employee stock purchase plan.

 

In October 2003, in connection with a collaboration agreement, we entered into a securities purchase agreement with AstraZeneca. Pursuant to the agreement, we issued to AstraZeneca $50.0 million of Series A-1 convertible preferred stock and $50.0 million of Series A-2 convertible preferred stock.  The net proceeds from the securities were $99.7 million.  Pursuant to its terms, the Series A-2 preferred stock was redeemed at the option of AstraZeneca in February 2004 and we issued AstraZeneca a convertible subordinated note with a principal amount of $50.0 million, which matures on October 29, 2013.  No interest is payable on the note except in the event of a payment default by us.  The Series A-1 preferred stock matures seven years from the date of issuance.  Due to the redemption feature, we do not record the redeemable convertible preferred stock in stockholders’ equity on our consolidated balance sheet.  Subject to various terms and conditions, if a certain milestone event is reached, we will have the option to issue to AstraZeneca up to $30.0 million of Series A-3 preferred

 

25



 

stock and if a further milestone event is reached, we will have the option to issue to AstraZeneca up to $30.0 million of Series A-4 preferred stock.  Each of the Series A-3 preferred stock and the Series A-4 preferred stock will have a maturity date that is five years from issuance.

 

Subject to certain conditions, we can convert the preferred stock and can convert the convertible subordinated note into shares of our common stock at a conversion price equal to the lower of (a) the average market price for the 10 days prior to the trading day immediately preceding the conversion date (provided that the average market price shall in no event be higher than 101% of the market price on the trading day immediately preceding the conversion date) or (b) $30.00 per share.  AstraZeneca may convert the preferred stock into shares of common stock at a conversion price of $30.00 per share, at any time prior to the earlier of (a) the redemption date or (b) the maturity date.  AstraZeneca may convert the convertible subordinated note into shares of common stock at a conversion price of $30.00 per share, at any time prior to the repayment of the principal amount of the note.  We must redeem all outstanding shares of the Series A-1 preferred stock, if any, at a cash redemption price per share equal to the liquidation preference by October 29, 2010, the mandatory redemption date. The note matures on October 29, 2013, if still outstanding.  In addition, we can, upon at least 15 days’ notice to the holder, redeem the shares of Series A-1 preferred stock for cash in an amount equal to its liquidation preference at any time prior to maturity.  We can, upon at least 15 days’ notice to the holder, repay the principal amount of the convertible subordinated note in cash, at any time prior to maturity.  In addition to the mandatory redemption and maturity dates of these securities, certain events can give rise to an earlier redemption.  In certain circumstances, we have certain rights to convert the securities into common stock instead of redeeming the securities for cash.

 

In March 2002, we issued $200.0 million principal amount of convertible subordinated notes in a private placement. The notes are convertible into shares of our common stock at a conversion price of $27.58 per share subject to certain adjustments.  The notes accrue interest at an annual rate of 3.5% and we are obligated to pay interest on March 15 and September 15 of each year.  The notes will mature on March 15, 2007 and are redeemable at our option on or after March 20, 2005, or earlier if the price of our common stock exceeds specified levels.  In addition, the holders of the notes may require us to repurchase the notes if we undergo a change in control.  Proceeds from the sale of the notes, net of commissions payable to the initial purchasers of the notes but before subtracting other offering expenses payable by us, were $194.0 million.

 

In March 2000 and February 2001, we obtained stand-by letters of credit for $2.0 million and $3.0 million, respectively, from a commercial bank as security for our obligations under two facility leases. These were increased in January 2002 to $2.5 and $3.2 million, respectively, in connection with amendments to our facility leases. In 2003, the $3.2 million stand-by letter of credit increased to $3.5 million.  The outstanding stand-by letters of credit are secured by an investment account, in which we must maintain a balance of approximately $7.0 million.

 

Financing Uncertainties Related to Our Business Plan.  We plan to continue to make significant expenditures to staff and operate our own manufacturing facility and support our research and development activities, including preclinical product development and clinical trials. We also intend to look for opportunities to acquire new technology through in-licensing, collaborations or acquisitions.  For the full year 2004 we estimate that we will spend no more than $12 million on leasehold improvements, equipment, computer hardware and software for our new manufacturing and our research and development facilities.  Additionally, we may spend additional amounts to support new production services contracts.

 

We currently intend to use our available cash on hand to finance these projects and business developments, but we might also pursue other financing alternatives, such as equity, equity-linked debt or debt financing, a bank line of credit, sale-lease back financing, asset sales, funding by one or more collaborators or a mortgage financing, that may become available to us.  We have a currently effective shelf registration that allows us to issue from time to time up to $250 million in equity or debt securities.  Whether we use cash on hand or choose to obtain financing will depend on, among other

 

26



 

things, the future success of our business, the prevailing interest rate environment and the condition of financial markets generally.

 

The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources to a significant extent. As of September 30, 2004, three of our proprietary product candidates, panitumumab, ABX-MA1 and ABX-PTH were in various stages of clinical trials.  The clinical trials of panitumumab, ABX-MA1 and ABX-PTH are expected to require significant expenditures for the foreseeable future.  In October 2003, we entered into an amendment of our joint development and commercialization agreement with Immunex for the co-development of panitumumab.  Under the amended agreement, Immunex is obligated to make available up to $60.0 million in advances that we may use to fund a portion of our share of development and commercialization costs after we have contributed $20.0 million toward development costs in 2004.  We have drawn $6.3 million under this credit facility and have notified Immunex of our intent to draw a cash advance of an additional $13.3 million.  We expect to continue to make use of this credit facility in 2004 and thereafter up to the $60.0 million limit.  The amount and timing of our use of the facility is dependent on the development and related activities directed by Immunex and their cost.

 

Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate. We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:

 

Clinical Phase

 

Estimated
Completion Period

Phase 1

 

1-2 Years

Phase 2

 

1-2 Years

Phase 3

 

2-4 Years

 

However, the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trials, including, among others, the following:

 

              the number of patients that ultimately participate in the trial, which may be affected by the availability of competing therapeutic alternatives;

 

              the duration of patient follow-up that seems appropriate in view of the results;

 

              the number of clinical sites included in the trials; and

 

              the length of time required to enroll suitable patient subjects.

 

We test our potential product candidates in numerous preclinical studies to identify disease indications for which they may be product candidates. We may conduct multiple clinical trials on our own or with our collaborators to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product candidates or for one or more indications for a given product candidate in order to focus our resources on more promising product candidates or indications. For example, in January 2002 and May 2002, we announced that clinical trials of our proprietary product candidate ABX-IL8 as a treatment for rheumatoid arthritis and psoriasis, respectively, did not support further clinical studies of that product candidate.  Additionally in February 2003, we announced that the clinical trial of our proprietary product candidate ABX-CBL as a treatment for graft versus host disease, did not support further clinical studies of that product candidate.

 

27



 

An important element of our business strategy is to pursue the research and development of a diverse range of product candidates for a variety of disease indications. We may enter co-development agreements, similar to our agreement with Immunex for panitumumab, and may enter into additional joint development agreements earlier in the development life cycle of product candidates. We are implementing our collaboration strategy through co-development arrangements with companies such as Chugai, U3 and Dendreon. Our strategy is designed to diversify the risks associated with our research and development spending. The decisions to terminate or wind down our clinical programs for developing ABX-IL8 and ABX-CBL have reduced the diversity of our product portfolio. We believe that this effect is temporary in view of the number and diversity of potential product candidates we have in preclinical development.  For example, we advanced ABX-PTH from the preclinical stage into a clinical study in patients with secondary hyperparathyrodism.  To the extent, however, that we are unable to maintain a diverse and broad range of product candidates, our success would depend to a greater extent on the success of one or a few product candidates.

 

Our proprietary product candidates also have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. The number, size and type of clinical trials we conduct for a particular product candidate are also affected by the policies of the FDA and European regulatory agencies, including their policies regarding clinical trial design and the availability of possible expedited approval procedures, which we may seek to utilize.  These policies may change from time to time.  As we conduct clinical trials for a given product candidate, we may decide or the FDA may require us to make changes in our plans and protocols.  Such changes may relate to, for example, changes in the standard of care for a particular disease indication, comparability of efficacy and toxicity of materials where a change in materials is proposed, or competitive developments foreclosing the availability of expedited approval procedures.  We may be required to support proposed changes with additional preclinical or clinical testing, which could delay the expected time line for concluding clinical trials.  In addition, the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

 

Furthermore, our business strategy includes the option of entering into arrangements with third parties to collaborate in the development and commercialization of our products. In the event that third parties take over the clinical trial process for one of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, or the extent to which third parties may control clinical trials pursuant to such arrangements, and how such arrangements would affect our capital requirements.

 

As a result of the uncertainties discussed above, among others, the duration and completion costs of our research and development projects are difficult to estimate and are subject to considerable variation. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional sources of financing from time to time in order to continue with our business strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

 

We also may be required to make further substantial expenditures if unforeseen difficulties arise in other parts of our business. In particular, our future liquidity and capital requirements also will depend on many factors including:

 

              the scope and results of preclinical development and clinical trials;

 

28



 

              the retention of existing and establishment of further co-development, licensing, manufacturing and other agreements, if any;

 

              continued scientific progress in our research and development programs;

 

              the size and complexity of these programs;

 

              the cost of operating our manufacturing facility and complying with good manufacturing practice regulations;

 

              the cost of conducting commercialization activities and arrangements;

 

              the time and expense involved in seeking regulatory approvals;

 

              competing technological and market developments;

 

              the time and expense of filing and prosecuting patent applications, and enforcing and defending against patent claims;

 

              our investment in, or acquisition of, other companies;

 

              the amount of product or technology in-licensing in which we engage; and

 

              other factors not within our control.

 

We believe that our current cash balances, cash equivalents, marketable securities, and the cash generated from our licensing and other agreements will be sufficient to meet our operating and capital requirements for at least one year. However, because of the uncertainties in our business discussed above, among others, we cannot assure you that this will be the case. In addition, we may choose to, or prevailing business conditions may require us to, obtain additional financing from time to time. We may choose to raise additional funds through public or private financing, licensing and other agreements, asset sales or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt financing, if available, may subject us to restrictive covenants and significant interest costs. We may also choose to obtain funding through collaborations, licensing and other contractual arrangements. Such agreements may require us to relinquish our rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed would harm our business, financial condition and results of operations.

 

History of Net Losses.  We have incurred net losses since our organization as an independent company, including in the last five years net losses of $20.5 million in 1999, $8.8 million in 2000, $60.9 million in 2001, $208.9 million in 2002, $196.4 million in 2003 and $144.6 million in the nine months ended September 30, 2004. As of September 30, 2004, our accumulated deficit was $709.4 million. Our losses to date have resulted principally from:

 

      research and development costs relating to the development of our XenoMouse and XenoMax technologies and antibody therapeutic product candidates;

 

      general and administrative costs relating to our operations;

 

      impairment charges relating to our strategic investments in CuraGen, ImmunoGen and MDS Proteomics;

 

29



 

      impairment charges relating to technology in the field of catalytic antibodies, which includes intellectual property that was acquired through the acquisition of Hesed Biomed; and

 

      manufacturing start-up costs relating to our new manufacturing facility including depreciation, outside contractor costs and personnel costs for activities such as quality assurance and quality control.

 

We expect to incur additional losses for the foreseeable future as a result of our research and development costs, including costs associated with conducting preclinical development and clinical trials, which will continue to be substantial, charges related to purchases of technology or other assets, and costs associated with operating our manufacturing facilities. We intend to invest significantly in our products prior to entering into licensing agreements. This will increase our need for capital and will result in losses for at least the next several years. We expect that the amount of operating losses will fluctuate significantly from quarter to quarter as a result of increases or decreases in our research and development efforts, the execution or termination of licensing and other agreements, and the initiation, and success or failure, of clinical trials.

 

Net Operating Loss Carryforwards.  As of December 31, 2003, we had net operating loss carryforwards for federal and state income tax purposes of approximately $469.0 million and $102.0 million, respectively.  Our net operating loss carryforwards exclude losses incurred prior to our formation in July 1996. Further, we have capitalized the amounts associated with a 1997 settlement and cross-license with GenPharm International, Inc. that we have expensed for financial statement accounting purposes and we are amortizing those amounts over a period of approximately 15 years for tax purposes. The federal and state net operating loss and credit carryforwards will expire in the years 2006 through 2023, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

 

Critical Accounting Estimates

 

Several estimates and judgments involved in the application of accounting principles impacts the financial results that we report. We are required to estimate the effect of matters that are inherently uncertain. Changes in our estimates or judgments could materially impact our results of operations, financial condition and cash flows in future years. We believe our most critical accounting estimates include revenue recognition, accounting for our equity investments, and accounting for goodwill, intangible assets and income taxes.  There have been no significant changes to our critical accounting estimates as reported in our annual report on Form 10-K for the year ended December 31, 2003 with respect to the accounting for revenue recognition, equity investments, goodwill or income taxes.  We have made a significant change to our estimate of the value of certain intangible assets as described below.

 

Accounting for Intangible Assets

 

As a result of the adoption of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, intangible assets held and used must be tested for impairment when events or changes in circumstances indicate that its carrying amount may not be recoverable.  Factors that are considered important in determining whether impairment might exist include a significant change in the manner in which an asset is being used, a significant adverse change in legal factors or the business climate that could affect the value of an asset, including an adverse action or assessment by a regulator, and a current expectation that, more likely that not, an asset will be sold or otherwise disposed of before the end of its previously estimated useful life.

 

In the quarter ended June 30, 2004, we determined that an impairment of the Company’s acquired technology in the field of catalytic antibodies had occurred and that the estimated value had

 

30



 

declined to zero.  This technology, which includes intellectual property, was acquired in 2001 through the acquisition of Hesed Biomed, Inc.  We decided to focus our resources on other research and development projects and decided to wind down our catalytic antibody program.  Additionally, after assessing the associated patent position and the likelihood of sale or license of the technology to a third party, we further determined in the quarter ended June 30, 2004 that the possibility of generating positive future cash flows from the technology was remote.  As a result of this determination, we recorded an impairment charge of $17.2 million.

 

Contractual Obligations and Commercial Commitments

 

As of September 30, 2004, future minimum payments for certain contractual obligations for years subsequent to December 31, 2003 were as follows:

 

 

 

Total

 

Less than
1 year
(3)

 

1 – 3
years

 

3 – 5
years

 

After 5
years
(1)

 

 

 

(in thousands)

 

Contractual Obligations

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

$

132,624

 

$

3,332

 

$

27,782

 

$

29,793

 

$

71,717

 

Convertible subordinated notes due 2007 & interest

 

217,519

 

 

14,000

 

203,519

 

 

Convertible subordinated note due 2013

 

50,000

 

 

 

 

50,000

 

Redeemable convertible preferred stock

 

50,000

 

 

 

 

50,000

 

Immunex

 

6,370

(2)

 

 

 

 

Purchase orders

 

1,851

 

1,851

 

 

 

 

Total

 

$

458,364

(2)

$

5,183

 

$

41,782

 

$

233,312

 

$

171,717

 

 


(1)  Amounts represent total of minimum payments for the entire period.

(2)  The $6.4 million long term obligation to Immunex consists of $6.3 million in advances under the credit facility and $104,000 of interest accrued at the rate of 12% compounded annually and is repayable out of profits resulting from future sales of panitumumab, the timing of which are uncertain. We are not obligated to repay any portion of the loan if panitumumab does not reach commercialization.

(3)  This represents the period of October 1, 2004 through December 31, 2004.

 

In March 2002, we issued $200.0 million principal amount of convertible subordinated notes in a private placement. The notes are convertible into shares of our common stock at a conversion price of $27.58 per share subject to certain adjustments. The notes accrue interest at an annual rate of 3.5%.  We are obligated to pay interest on March 15 and September 15 of each year. We expect to make interest payments on the notes of $7.0 million per year, for years 2003 through 2006, and $3.5 million in 2007, assuming all the notes remain outstanding until their maturity date. The notes will mature on March 15, 2007 and are redeemable at our option on or after March 20, 2005, or earlier if the price of our common stock exceeds specified levels. In addition, the holders of the notes may require us to repurchase the notes if we undergo a change in control.  Therefore, in March 2007, or earlier if we undergo a change in control, we may use a significant portion of our cash, cash equivalents and marketable securities to repay the $200.0 million principal amount of our convertible debt. If our balance of cash, cash equivalents and marketable securities at any time is insufficient to meet our obligations under the notes, we would have to seek additional financing, if available, to support our obligations under the notes.

 

In connection with a collaboration agreement, we have issued to AstraZeneca $50.0 million of Series A-1 convertible preferred stock and a convertible subordinated note with a principal amount of $50.0 million. The total net proceeds were $99.7 million.  The Company, subject to certain conditions,

 

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can convert the Series A-1 convertible preferred stock and can convert the convertible note into shares of common stock at a conversion price equal to the lower of (a) the average market price for the 10 days prior to the trading day immediately preceding the conversion date (provided that the average market price shall in no event be higher than 101% of the market price on the trading day immediately preceding the conversion date) or (b) $30.00 per share.  AstraZeneca may convert the Series A-1 convertible preferred stock and the convertible note into shares of common stock at a conversion price of $30.00 per share, at any time prior to the earlier of (a) the redemption date or (b) the maturity date, as applicable. The Company must redeem all outstanding shares, if any, at a cash redemption price per share equal to the liquidation preference by October 29, 2010, the mandatory redemption date. The note matures on October 29, 2013, if still outstanding. In addition, we can, upon at least 15 days’ notice to the holder, redeem the Series A-1 convertible preferred stock for cash in an amount equal to its liquidation preference and pre-pay the convertible note for its face amount, at any time prior to maturity. In addition to the mandatory redemption and maturity dates of these securities, certain events can give rise to an earlier redemption.  In such circumstances, we have certain rights to convert the securities into common stock instead of redeeming the securities for cash.

 

Effective June 30, 2003, we canceled our agreement with Lonza for the exclusive use of a cell culture production suite.  Upon canceling the agreement, we became obligated to pay Lonza four equal installments of 4,250,000 British pounds on October 1, 2003, February 1, 2004, May 1, 2004 and August 1, 2004, which eliminated our commitment to pay approximately $46.0 million in total monthly fees through August 2006.  The value of the cancellation fee obligation on the effective date of June 30, 2003 was approximately $28.0 million.  In July 2004, we made the final installment payment to Lonza.  As of September 30, 2004 we had no remaining obligations to Lonza.

 

We have a commitment to share equally all development and commercialization costs for panitumumab pursuant to our development and commercialization agreement with Immunex.  As amended in October 2003, that agreement provides that Immunex will have decision-making authority for development and commercialization activities and will make available to us $60.0 million in advances that we may use to fund our share of development and commercialization costs for panitumumab after we have contributed $20.0 million toward development costs in 2004.  As of September 30, 2004, we have a carrying balance of $6.4 million under this facility consisting of $6.3 million in advances and $104,000 of interest accrued at the contract rate of 12% per annum.  We have notified Immunex of our intent to draw a cash advance of an additional $13.3 million.  We expect to continue to make use of this credit facility in 2004 and thereafter up to the $60.0 million limit.  The amount and timing of our use of the facility is dependent on the development and related activities directed by Immunex and their cost.  The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales and we are not obligated to repay any portion of the loan if panitumumab does not reach commercialization.

 

We have outstanding purchase orders totaling $1.9 million to contractors related to the purchase of equipment and design and construction of our new manufacturing facility.

 

Additional Factors That Might Affect Future Results

 

Risks Related to our Finances

 

We are an early stage company without commercial therapeutic products, and we cannot assure you that we will develop sufficient revenues in the future to sustain our business.

 

You must evaluate us in light of the uncertainties and complexities present in an early stage biopharmaceutical company. Our product candidates are in early stages of development. We will need to make significant additional investments in research and development, preclinical testing and clinical trials, and in regulatory and sales and marketing activities, to commercialize current and future product candidates. Our product candidates, if successfully developed, may not generate sufficient or sustainable

 

32



 

revenues to enable us to be profitable.

 

We have a history of losses and we expect to continue to incur losses for the foreseeable future.

 

We have incurred net losses since we were organized as an independent company, including in the last five years net losses of $20.5 million in 1999, $8.8 million in 2000, $60.9 million in 2001, $208.9 million in 2002, $196.4 million in 2003 and $144.6 million in the nine months ended September 30, 2004. As of September 30, 2004, our accumulated deficit was $709.4 million.  Our losses to date have resulted principally from:

 

              research and development costs relating to the development of our XenoMouse and XenoMax technologies and antibody product candidates;

 

              general and administrative costs relating to our operations;

 

              impairment charges related to our strategic investments in CuraGen, ImmunoGen, and MDS Proteomics;

 

              impairment charges relating to technology in the field of catalytic antibodies, which includes intellectual property that was acquired through the acquisition of Hesed Biomed; and

 

              manufacturing start-up costs related to our new manufacturing facility including depreciation, outside contractor costs and personnel costs for activities such as quality assurance and quality control.

 

We expect to incur additional losses for the foreseeable future as a result of our research and development costs and manufacturing start-up costs, including costs associated with conducting preclinical development and clinical trials, which will continue to be substantial, and charges related to purchases of technology or other assets. We intend to invest significantly in our products prior to entering into licensing agreements. This will increase our need for capital and will result in losses for at least the next several years. We expect that the amount of operating losses will fluctuate significantly from quarter to quarter as a result of increases or decreases in our research and development efforts, the execution or termination of licensing, manufacturing and other contractual arrangements, the progress or lack of progress of product development candidates in our collaboration with AstraZeneca and the initiation, success or failure of clinical trials.

 

We are currently unprofitable and may never be profitable, and our future revenues could fluctuate significantly.

 

Since our founding, we have funded our research and development activities primarily from private placements and public offerings of our securities and from revenues generated by our licensing and other contractual arrangements.

 

We expect that substantially all of our revenues for the foreseeable future will result from payments under licensing and other contractual arrangements.  To date, payments under licensing and other agreements have been in the form of license fees, milestone payments, reimbursement for research and development expenses, option fees, and payments for manufacturing services.  Payments under our existing and any future customer agreements will be subject to significant fluctuation in both timing and amount.  Our revenues may not be indicative of our future performance or of our ability to continue to achieve contractual milestones. Our revenues and results of operations for any period may also not be comparable to the revenues or results of operations for any other period.  Our revenues for any period may not be sufficient to cover our operating costs, including the costs of operating our manufacturing plant.  We may not be able to:

 

33



 

              enter into further co-development, licensing, manufacturing or other agreements;

 

              successfully complete preclinical development or clinical trials;

 

              obtain required regulatory approvals;

 

              successfully manufacture or market product candidates; or

 

              generate additional revenues or profitability.

 

Our failure to achieve any of the above goals would materially harm our business, financial condition and results of operations.

 

We may require additional financing, and an inability to raise the necessary capital or to do so on acceptable terms would threaten the continued success of our business.

 

We will continue to expend substantial resources to support research and development and operate our manufacturing facility, including costs associated with preclinical development and clinical trials. In the years ended December 31, 2003, 2002, and 2001, we incurred expenses of $99.6 million, $128.5 million and $96.2 million, respectively, on research and development.  For the nine months ended September 30, 2004, we incurred $94.6 million of research and development expenses.  Regulatory and business factors will require us to expend substantial funds in the course of completing required additional development, preclinical testing and clinical trials of, and attaining regulatory approvals for, product candidates. The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources. Our future liquidity and capital requirements will depend on many factors, including:

 

              the scope and results of preclinical development and clinical trials;

 

              the retention of existing and establishment of further co-development, licensing, manufacturing and other agreements, if any;

 

              the decisions of our collaborator, Immunex, under our co-development agreement for panitumumab, which provides Immunex decision-making authority for development and commercialization activities and obligates us to share 50% of the development and commercialization costs;

 

              continued scientific progress in our research and development programs;

 

              the size and complexity of these programs;

 

              the cost of operating our manufacturing facility, validating our processes and complying with good manufacturing practice regulations;

 

              the cost of conducting commercialization activities and arrangements;

 

              the time and expense involved in seeking regulatory approvals;

 

              competing technological and market developments;

 

              the time and expense of filing and prosecuting patent applications, and enforcing and defending against patent claims;

 

              our investment in, or acquisition of, other companies;

 

34



 

              the amount of product or technology in-licensing in which we engage; and

 

              other factors not within our control.

 

We believe that our current cash balances, cash equivalents, marketable securities, and the cash generated from our licensing and other contractual arrangements, will be sufficient to meet our operating and capital requirements for at least one year. However, because of the uncertainties in our business, including the uncertainties listed above, we cannot assure you that this will be the case. In addition, we may choose to obtain additional financing from time to time. We may choose to raise additional funds through public or private equity or debt financing, licensing and other agreements, a bank line of credit, sale-lease back financing, mortgage financing, asset sales or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt financing, if available, may subject us to restrictive covenants and significant interest costs. We may also choose to obtain funding through licensing and other contractual arrangements. Such agreements may require us to relinquish our rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed would harm our business, financial condition and results of operations.

 

Our indebtedness may harm our financial condition and results of operations.

 

We have $200 million of convertible subordinated notes due March 15, 2007 and debt service obligations related thereto.  In February 2004, we incurred an additional $50.0 million of indebtedness to AstraZeneca, in the form of a convertible subordinated note due 2013, which we issued to AstraZeneca in connection with our redemption of the shares of our Series A-2 preferred stock we issued to AstraZeneca in October 2003.  There is no interest payable on the note except in the event of a payment default.  Our level of indebtedness will have several important effects on our future operations, including, without limitation:

 

              we will have additional cash requirements to support the payment of any interest or amortization required with respect to outstanding indebtedness;

 

              increases in our outstanding indebtedness and leverage will increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressure; and

 

              depending on the levels of our outstanding debt, our ability to obtain additional financing for working capital, capital expenditures, general corporate and other purposes may be limited.

 

Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required, among other things:

 

              to seek additional financing in the debt or equity markets;

 

              to refinance or restructure all or a portion of our indebtedness, including our convertible subordinated notes due 2007;

 

              to sell selected assets; or

 

              to reduce or delay planned capital expenditures.

 

35



 

Such measures might not be sufficient to enable us to service our debt. In addition, any such financing, refinancing or sale of assets might not be available on economically favorable terms.

 

Our strategic investments expose us to equity price risk and our investments in those companies may be deemed impaired, which would affect our results of operations.

 

We are exposed to equity price risk on our strategic investments in CuraGen and ImmunoGen and we may elect to make additional similar investments in the future. In 1999 and 2000, we purchased an aggregate amount of $80.0 million of the common stock of CuraGen and ImmunoGen as strategic investments. In 2002, declines in the fair value of the CuraGen and ImmunoGen common stock were deemed to be other than temporary, primarily because the stock of each company traded below our cost basis for more than six months. Accordingly, we recorded a total impairment charge for the year ended December 31, 2002 of $67.3 million. The public trading prices of the shares of both companies have fluctuated significantly since we purchased them and could continue to do so. If these shares trade below their new cost bases in future periods, we may incur additional impairment charges relating to these investments. As of September 30, 2004, these investments were recorded at fair value in long-term investments on the balance sheet, and any net unrealized holding gains and losses are reported as a component of stockholders’ equity.

 

Risks Related to the Development and Commercialization of our Products

 

Our XenoMouse and XenoMax technologies may not produce safe, efficacious or commercially viable products, which will be critical to our ability to generate revenues from our products.

 

Our XenoMouse and XenoMax technologies are new approaches to developing antibodies as products for the treatment of diseases and medical disorders. We have not commercialized any antibody therapeutic products based on our technologies. Moreover, we are not aware of any commercialized, fully human antibody therapeutic products that have been generated from any technologies similar to ours. Our antibody therapeutic product candidates are still in various stages of development and many are in an early development stage. We have initiated clinical trials with respect to four proprietary fully human antibody therapeutic product candidates, and our collaborators have initiated clinical trials with respect to four other fully human antibody therapeutic product candidates generated by XenoMouse technology. We cannot be certain that either XenoMouse technology or XenoMax technology will generate antibodies against every antigen to which they are exposed in an efficient and timely manner, if at all. Furthermore, XenoMouse technology and XenoMax technology may not result in any meaningful benefits to our current or potential customers or in product candidates that are safe and efficacious for patients. Our failure to generate antibody therapeutic product candidates that lead to the successful commercialization of products would materially harm our business, financial condition and results of operations.

 

If we do not successfully develop our products, or if they do not achieve commercial success, our business will be materially harmed.

 

Our development of current and future product candidates, either alone or in conjunction with collaborators, is subject to the risks of failure inherent in the development of new pharmaceutical products and products based on new technologies. These risks include:

 

              delays in product development, clinical testing or manufacturing;

 

              unplanned expenditures in product development, clinical testing or manufacturing;

 

              failure in clinical trials or failure to receive regulatory approvals;

 

              emergence of superior or equivalent product development technologies or products;

 

36



 

              inability to manufacture on our own, or through others, product candidates on a clinical or commercial scale;

 

              inability to market products due to third-party proprietary rights;

 

              election by our customers not to pursue product development;

 

              failure by our customers to develop products successfully; and

 

              failure to achieve market acceptance.

 

Because of these risks, our research and development efforts and those of our customers and collaborators may not result in any commercially viable products. Our failure to successfully complete a significant portion of these development efforts, to obtain required regulatory approvals or to achieve commercial success with any approved products would materially harm our business, financial condition and results of operations.

 

In addition, our decisions to terminate our clinical programs for developing ABX-IL8, a fully human antibody product candidate for inflammatory disorders, and ABX-CBL, an in-licensed antibody product candidate for graft versus host disease, have reduced the diversity of our product portfolio. We hope to be able to make up for this loss of diversity through the number and variety of potential new product candidates we have in preclinical development. For example, ABX-PTH, which targets the action of parathyroid hormone in patients with chronic renal disease, is a new product candidate that we moved from the preclinical stage into a clinical study in 2004 in patients with secondary hyperparathyroidism. However, to the extent that we are unable to maintain a broad and diverse range of product candidates, our success would depend more heavily on one or a few product candidates.

 

Before we commercialize and sell any of our product candidates, we must conduct clinical trials, which are expensive and have uncertain outcomes.

 

Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective for use in humans. We have incurred and will continue to incur substantial expense for, and we have devoted and expect to continue to devote a significant amount of time to, preclinical testing and clinical trials.

 

Historically, the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from preclinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may encounter regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of product development.

 

Completion of clinical trials may take several years or more. The length of time generally varies substantially according to the type, complexity, novelty and intended use of the product candidate. However, we estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:

 

Clinical Phase

 

Estimated
Completion Period

 

Phase 1

 

1-2 Years

 

Phase 2

 

1-2 Years

 

Phase 3

 

2-4 Years

 

 

37



 

Many factors may delay our commencement and rate of completion of clinical trials, including:

 

              the number of patients that ultimately participate in the trial, which may be affected by the availability of competing therapeutic alternatives;

 

              the duration of patient follow-up that seems appropriate in view of the results;

 

              the number of clinical sites included in the trials;

 

              the length of time required to enroll suitable patient subjects; and

 

              the availability of adequate supplies of the product candidate being tested.

 

We have limited experience in conducting and managing clinical trials. We rely on third parties, including our collaborators, to assist us in managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or in failure to complete, these trials if the third parties fail to perform under our agreements with them.

 

In addition, we have ongoing research projects that may lead to product candidates, but we have not submitted INDs nor begun clinical trials for these projects.  Our ability to file additional INDs, and to build diversity and scale in our product portfolio, depends to a significant extent on our ability to identify additional potential product candidates through our preclinical research and to conduct preclinical research efficiently.  Our preclinical or clinical development efforts may not be successfully completed, we may not file further INDs and clinical trials may not commence as planned.

 

Three of our proprietary product candidates, panitumumab, ABX-MA1 and ABX-PTH, are in various stages of clinical trials. We have discontinued development of two proprietary product candidates, ABX-CBL and ABX-IL8. To date, data obtained from these clinical trials have been insufficient to demonstrate safety and efficacy under applicable FDA guidelines. As a result, these data will not support an application for regulatory approval without further clinical trials. Clinical trials that we conduct or that third parties conduct on our behalf may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for any of our product candidates. We expect to commence new clinical trials from time to time in the course of our business as our product development work continues. However, regulatory authorities may not permit us to undertake any additional clinical trials for our product candidates.

 

Our product candidates may fail to demonstrate safety or efficacy in clinical trials. For example, in 2002 we completed analysis of a Phase 2b clinical trial of ABX-IL8 in psoriasis, concluded that the results did not warrant continued development in psoriasis and decided not to proceed with studies in other disease indications. Similarly, in February 2003, we completed a preliminary analysis of the results from the Phase 2/3 clinical trial of ABX-CBL and concluded that the study did not meet its primary endpoint. Therefore, we and our co-developer, SangStat (now a subsidiary of Genzyme Corporation) do not plan any further development of ABX-CBL. Failures of clinical trials of any product candidate could delay the development of other product candidates or hinder our ability to obtain additional financing. In addition, failures in our clinical trials can lead to additional research and development charges. Any delays in, or termination of, our clinical trials could materially harm our business, financial condition and results of operations.

 

Our own ability to manufacture is uncertain, which may make it more difficult for us to develop and sell our products.

 

We have limited experience manufacturing antibody therapeutic product candidates in our manufacturing facility. We intend to use our manufacturing facility for the manufacture of product candidates for clinical trials and to support the potential early commercial launch of a limited number of products, in each case, in compliance with FDA and European good manufacturing practices. In

 

38



 

May 2000, we signed a long-term lease for the building that contains this manufacturing facility. Construction has been completed and portions of the facility are operational and validated.  In October 2003, following an inspection by the California State Department of Health Services, we received a State Drug Manufacturing License. The license permits us to manufacture and ship clinical material from our manufacturing facility.  The total cost of the facility to date, including design fees, permits, validation, construction, leasehold improvements and equipment, is approximately $150 million.  The costs of completing validation of this facility, making the remaining portions of the facility operational and qualifying the facility for regulatory compliance may be higher than expected.  We currently have excess production services capacity and this condition may persist for an extended period.  However, if the commercial launch of one or more of our product candidates proves successful, we will likely experience capacity shortages and may need to use one or more third-party facilities to produce these products in sufficient quantities.

 

The process of manufacturing antibody therapeutic products is complex. While the managers of the facility have gained extensive manufacturing experience in prior positions with other companies, we have limited experience in the clinical or commercial scale manufacturing of our existing product candidates, or any other antibody therapeutic products.  We will need to hire, train and retain additional qualified manufacturing, quality control and quality assurance personnel. Also, we will need to manufacture such antibody therapeutic products in a facility and by an appropriately validated process that comply with FDA, European and other regulations. Our manufacturing operations will be subject to ongoing, periodic unannounced inspection by the FDA and state agencies to ensure compliance with good manufacturing practices.  Our inability to manufacture in accordance with FDA and European good manufacturing practices could affect our ability to obtain regulatory approval for our products and to supply our clinical trial needs.  Any significant manufacturing changes for the production of our product candidates could result in delays in development or regulatory approval or in the reduction or interruption of commercial sales of our product candidates.  Our inability to maintain our manufacturing operations in compliance with applicable regulations within our planned time and cost parameters could materially harm our business, financial condition and results of operations.

 

We also may encounter problems with the following:

 

              production yields;

 

              quality control and assurance;

 

              availability of qualified personnel;

 

              availability of raw materials;

 

              adequate training of new and existing personnel;

 

              on-going compliance with our standard operating procedures;

 

              on-going compliance with FDA regulations;

 

              production costs; and

 

              development of advanced manufacturing techniques and process controls.

 

In addition, the FDA and other regulatory authorities will require us to register any manufacturing facilities in which our antibody therapeutic products are manufactured and subject the facilities to inspections to confirm compliance with FDA good manufacturing practices or other equivalent regulations.  The FDA or foreign regulatory bodies will not grant pre-market approval of our product candidates if our facilities cannot pass a pre-approval plant inspection.  In complying with these regulations and foreign regulatory requirements, we will be obligated to expend time, money and effort

 

39



 

in production, record keeping and quality control in an effort to ensure that our product candidates meet applicable specifications and other requirements.  Our failure to maintain regulatory compliance would materially harm our business, financial condition and results of operations.

 

We may rely on third-party manufacturers, and we may have difficulty conducting clinical trials or commercializing product candidates if a manufacturer does not perform in accordance with our expectations.

 

Previously, we relied on contract manufacturers to produce candidates under good manufacturing practice regulations for use in our clinical trials.  While we have established our own manufacturing facility, we cannot assure you that we will be able to qualify this facility for compliance with FDA and European good manufacturing practices or manufacture sufficient quantities of our product candidates for clinical trials or a potential early commercial launch.

 

We continually evaluate our options for commercial production of our product candidates, including use of third-party manufacturers or entering into a manufacturing joint venture relationship with a collaborator or other third party.  We are aware of only a limited number of companies on a worldwide basis that operate manufacturing facilities in which our product candidates can be manufactured under good manufacturing practice regulations, a requirement for all pharmaceutical products.  It may take a substantial period of time for a contract manufacturing facility that has not been producing antibodies to begin producing antibodies under good manufacturing practice regulations.  We may not be able to contract with any of these companies on acceptable terms, if at all.

 

Third-party manufacturers may encounter difficulties in scaling up production, including problems involving production yields, quality control and assurance, shortage of qualified personnel, shortage of capacity, compliance with FDA and other applicable regulations, production costs, and development of advanced manufacturing techniques and process controls.  They may not perform as agreed or may not remain in the contract manufacturing business for the time required by us to successfully produce and market our product candidates.  Also, third-party manufacturers may have difficulty maintaining compliance with FDA good manufacturing practices or equivalent regulations, or having their facilities pass a pre-approval inspection.  Any failure of third-party manufacturers to deliver the required quantities of our product candidates for clinical use on a timely basis and at commercially reasonable prices, and our failure to find replacement manufacturers or successfully implement our own manufacturing capabilities, would materially harm our business, financial condition and results of operations.

 

The successful growth of revenues from our manufacturing services depends to a large extent on our ability to find third parties who agree to use our services and our ability to provide those services successfully.

 

Enhancing our contract revenues depends to a significant extent on entering into agreements to provide antibody production services to third parties. Potential third parties include our existing collaborators, as well as other pharmaceutical and biotechnology companies, technology companies, academic institutions and other entities. We must enter into these agreements to successfully develop this aspect of our business. To date, we have entered into two production services agreements and we cannot assure you that we will be able to enter into additional agreements.

 

We may not be able to secure manufacturing agreements on favorable terms. If we do obtain such agreements, we may encounter difficulties in performing as agreed. We may encounter difficulties in scaling up production, including problems involving production yields, quality control and assurance, shortage of qualified personnel, training of personnel, compliance with FDA and other applicable regulations, production costs, and development of advanced manufacturing techniques and process controls. The failure to deliver required quantities of product on a timely basis and at commercially reasonable prices could materially harm our business, financial condition and results of operations.

 

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The successful growth of our business depends to a large extent on our ability to find third-party collaborators to develop and commercialize many of our product candidates.

 

Our strategy for the development and commercialization of antibody therapeutic products depends, in large part, upon the formation of collaboration agreements with third parties. Potential third parties include pharmaceutical and biotechnology companies, technology companies, academic institutions and other entities. We must enter into these agreements to successfully develop and commercialize product candidates. These agreements are necessary in order for us to:

 

              access proprietary antigens for which we can generate fully human antibody products;

 

              fund research, preclinical development, clinical trials and manufacturing;

 

              seek and obtain regulatory approvals; and

 

              successfully commercialize existing and future product candidates.

 

Our ability to continue our current collaborations and to enter into additional third party collaborations is dependent in large part on our ability to successfully demonstrate that our XenoMouse technology is an attractive method of developing antibody therapeutic products. We have generated only a limited number of fully human antibody therapeutic product candidates pursuant to our collaboration agreements and only eight fully human antibody therapeutic product candidates generated with XenoMouse technology have entered the clinical stage. We have announced that one of these product candidates has not met our expectations. Our failure to maintain our existing collaboration agreements or to enter into additional agreements could materially harm our business, financial condition and results of operations.

 

Our dependence on licensing, collaboration, manufacturing and other agreements with third parties subjects us to a number of risks. These agreements may not be on terms that prove favorable to us, and we typically afford our collaborators significant discretion in electing whether to pursue any of the planned activities. Licensing and other contractual arrangements may require us to relinquish our rights to certain of our technologies, products or marketing territories. To the extent we agree to work exclusively with one collaborator in a given therapeutic area, our opportunities to collaborate with other entities could be curtailed.  For example, our collaboration with AstraZeneca for the identification and development of therapeutic antibodies in oncology contains exclusivity provisions that significantly restrict our ability to enter into arrangements with third parties in the field of oncology as well as our ability to conduct research and development activities in that field.  To the extent that our collaboration with AstraZeneca is not successful, our ability to develop antibodies for use in oncology applications through other collaborations will be severely curtailed.  Our collaboration with AstraZeneca also limits our ability to develop such antibodies through our own independent development.

 

We cannot control the amount or timing of resources our collaborators may devote to a collaboration, and collaborators may not perform their obligations as expected. Additionally, business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under the arrangement. Even if we fulfill our obligations under an agreement, typically our collaborators can terminate the agreement at any time following proper written notice. The termination or breach of agreements by our collaborators, or the failure of our collaborators to complete their obligations in a timely manner, could materially harm our business, financial condition and results of operations. If we are not able to establish further collaboration agreements or any or all of our existing agreements are terminated, we may be required to seek new collaborators or to undertake product development and commercialization at our own expense. Such an undertaking may:

 

              limit the number of product candidates that we will be able to develop and commercialize;

 

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              reduce the likelihood of successful product introduction;

 

              significantly increase our capital requirements; and

 

              place additional strain on our management’s time.

 

Existing or potential collaborators may pursue alternative technologies, including those of our competitors, or enter into other transactions that could make a collaboration with us less attractive to them. For example, if an existing collaborator purchases a company that is one of our competitors, that company could be less willing to continue its collaboration with us. In addition, a company that has a strategy of purchasing companies with attractive technologies might have less incentive to enter into a collaboration agreement with us. Moreover, disputes may arise with respect to the ownership of rights to any technology or products developed with any current or future collaborator. Lengthy negotiations with potential new collaborators or disagreements between us and our collaborators may lead to delays in or termination of the research, development or commercialization of product candidates or result in time-consuming and expensive litigation or arbitration. The decision by our collaborators to pursue alternative technologies or the failure of our collaborators to develop or commercialize successfully any product candidate to which they have obtained rights from us could materially harm our business, financial condition and results of operations.

 

We are subject to extensive government regulation, which will require us to spend significant amounts of money, and we may not be able to obtain regulatory approvals, which are required for us to conduct clinical testing and commercialize our products.

 

Our product candidates under development are subject to extensive and rigorous domestic government regulation. The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of biopharmaceutical products. If we market our products abroad, they will also be subject to extensive regulation by foreign governments. Neither the FDA nor any other regulatory agency has approved any of our product candidates for sale in the United States or any foreign market. The regulatory review and approval process, which includes preclinical studies and clinical trials of each product candidate, is lengthy, expensive and uncertain. Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish the product candidate’s safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, and may involve post-marketing surveillance and requirements for post-marketing studies. As we conduct clinical trials for a given product candidate, we may decide or the FDA may require us to make changes in our plans and protocols. Such changes may relate to, for example, changes in the standard of care for a particular disease indication, comparability of efficacy and toxicity of materials where a change in materials is proposed, or competitive developments foreclosing the availability of expedited approval procedures. We may be required to support proposed changes with additional preclinical or clinical testing, which could delay the expected time line for concluding clinical trials.  The approval of a product candidate may depend on the acceptability to the FDA of data from clinical trials conducted outside the United States.  Regulatory requirements are subject to frequent change. Delays in obtaining regulatory approvals may:

 

              adversely affect the successful commercialization of any drugs that we or our customers develop;

 

              impose costly procedures on us or our customers;

 

              diminish any competitive advantages that we or our customers may attain; and

 

              adversely affect our receipt of revenues or royalties.

 

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Our product candidates may not be approved or may be approved with limitations or for indications that differ from those we initially target. If approved, certain material changes affecting a product such as manufacturing changes or additional labeling claims are subject to further FDA review and approval. The FDA may withdraw any required approvals after we obtain them. We may not maintain compliance with other regulatory requirements. Further, if we fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process, we or our third-party manufacturers may be subject to sanctions, including:

 

              delays;

 

              warning letters;

 

              fines;

 

              clinical holds;

 

              product recalls or seizures;

 

              injunctions;

 

              refusal of the FDA to review pending market approval applications or supplements to approval applications;

 

              total or partial suspension of production;

 

              civil penalties;

 

              withdrawals of previously approved marketing applications; and

 

              criminal prosecutions.

 

In many instances we expect to rely on our customers and co-developers to file INDs and generally direct the regulatory approval process for products derived from our technologies. These customers and co-developers may not be able to or may choose not to conduct clinical testing or obtain necessary approvals from the FDA or other regulatory authorities for any product candidates. If they fail to obtain required governmental approvals, we will experience delays in or be precluded from marketing or realizing the commercial benefits from the marketing of products derived from our technologies. In addition, our failure to obtain the required approvals would preclude the commercial use of our products. Any such delays and limitations may materially harm our business, financial condition and results of operations.

 

We and our third-party manufacturers also are required to comply with the applicable FDA current good manufacturing practice regulations and other regulatory requirements. Good manufacturing practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA and the facilities must pass an inspection by the FDA before we can use them in commercial manufacturing of any product. Manufacturing facilities in California, including our facility, are also subject to the licensing requirements of and inspection by the State of California Department of Health Services. In October 2003, following an inspection, we received a Drug Manufacturing License from the State of California. The license, which must be renewed annually, permits us to manufacture and ship clinical material. We or our third-party manufacturers may not be able to comply with the applicable good manufacturing practice requirements and other regulatory requirements. The failure of us or our third-party manufacturers to comply with these requirements would materially harm our business, financial condition and results of operations.

 

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If our products do not gain market acceptance among the medical community, our revenues would greatly decline and might not be sufficient to support our operations.

 

Our product candidates may not gain market acceptance among physicians, patients, third-party payors and the medical community. We may not achieve market acceptance even if clinical trials demonstrate safety and efficacy, and the necessary regulatory and reimbursement approvals are obtained. The degree of market acceptance of any product candidates that we develop will depend on a number of factors, including:

 

              establishment and demonstration of clinical efficacy and safety;

 

              cost-effectiveness of our product candidates;

 

              their potential advantage over alternative treatment methods;

 

              reimbursement policies of government and third-party payors; and

 

              marketing and distribution support for our product candidates, including the efforts of our collaborators where they have marketing and distribution responsibilities.

 

Physicians will not recommend therapies using our products until such time as clinical data or other factors demonstrate the safety and efficacy of such procedures as compared to conventional drug and other treatments. Even if we establish the clinical safety and efficacy of therapies using our antibody product candidates, physicians may elect not to recommend the therapies for any number of other reasons, including whether the mode of administration of our antibody products is effective for certain indications. Antibody products, including our product candidates as they would be used for certain disease indications, are typically administered by infusion or injection, which requires substantial cost and inconvenience to patients. Our product candidates, if successfully developed, will compete with a number of drugs and therapies manufactured and marketed by major pharmaceutical and other biotechnology companies. Our products may also compete with new products currently under development by others. Physicians, patients, third-party payers and the medical community may not accept or utilize any product candidates that we or our customers develop. The failure of our products to achieve significant market acceptance would materially harm our business, financial condition and results of operations.

 

We do not have marketing and sales experience, which may require us to rely on others to market and sell our products and may make it more challenging for us to commercialize our product candidates.

 

Although we have been marketing our XenoMouse technology to potential customers and collaborators for several years, we do not have marketing, sales or distribution experience or capability with respect to our therapeutic product candidates. We intend to enter into arrangements with third parties to market and sell most of our therapeutic product candidates when we commercialize them, which may be as early as 2005.  For example, pursuant to our amended joint development agreement with Immunex, we have granted to Immunex decision-making authority for development and commercialization activities relating to any products developed under the collaboration.  We may not be able to enter into these marketing and sales arrangements with others on acceptable terms, if at all. To the extent that we enter into marketing and sales arrangements with other companies, our revenues, if any, will depend on the efforts of others. These efforts may not be successful. If we are unable to enter into third-party arrangements, we will need to develop a marketing and sales force, which may need to be substantial in size, in order to achieve commercial success for any product candidate approved by the FDA. We may not successfully develop marketing and sales capabilities or have sufficient resources to do so. If we do develop such capabilities, we will compete with other companies that have experienced and well-funded marketing and sales operations. Our failure to enter into successful marketing arrangements with third parties and our inability to conduct such activities ourselves would materially harm our business, financial condition and results of operations.

 

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Risks Related to Intellectual Property

 

Our ability to protect our intellectual property rights will be critically important to the success of our business, and we may not be able to protect these rights in the United States or abroad.

 

Our success depends in part on our ability to:

 

              obtain patents;

 

              protect trade secrets;

 

              operate without infringing the proprietary rights of others; and

 

              prevent others from infringing our proprietary rights.

 

We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. We attempt to protect our proprietary position by filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. However, the patent position of biopharmaceutical companies involves complex legal and factual questions, and, therefore, we cannot predict with certainty whether our patent applications will be approved or any resulting patents will be enforced. In addition, third parties may challenge, seek to invalidate or circumvent any of our patents, once they are issued. Thus, any patents that we own or license from third parties may not provide any protection against competitors. Our pending patent applications, those we may file in the future, or those we may license from third parties, may not result in patents being issued. Also, patent rights may not provide us with adequate proprietary protection or competitive advantages against competitors with similar technologies. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States.

 

In addition to patents, we rely on trade secrets and proprietary know-how. We seek protection, in part, through confidentiality and proprietary information agreements. These agreements may not provide meaningful protection for our technology or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary information, and, in addition, the parties may breach such agreements. Also, our trade secrets may otherwise become known to, or be independently developed by, our competitors. Furthermore, others may independently develop similar technologies or duplicate any technology that we have developed.

 

We may face challenges from third parties regarding the validity of our patents and proprietary rights, or from third parties asserting that we are infringing their patents or proprietary rights, which could result in litigation that would be costly to defend and could deprive us of valuable rights.

 

Parties have conducted research for many years in the antibody and transgenic animal fields. The term “transgenic”, when applied to an animal, such as a mouse, refers to an animal that has chromosomes into which human genes have been incorporated. This research has resulted in a substantial number of issued patents and an even larger number of pending patent applications. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Our technologies may unintentionally infringe the patents or violate other proprietary rights of third parties. Such infringement or violation may prevent us and our customers from pursuing product development or commercialization. Such a result could materially harm our business, financial condition and results of operations.

 

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In March 1997, we entered into a cross-license and settlement agreement with GenPharm to avoid protracted litigation. Under the cross-license, we licensed on a non-exclusive basis certain patents, patent applications, third-party licenses and inventions pertaining to the development and use of certain transgenic rodents, including mice, that produce fully human antibodies that are integral to our products and business. Our business, financial condition and results of operations could be materially harmed if any of the parties breaches the cross-license agreement.

 

GlaxoSmithKline, plc, or Glaxo, has a family of patents relating to certain methods for generating monoclonal antibodies that Glaxo is asserting against Genentech, Inc. in litigation that was commenced in 1999. On May 4, 2001, Genentech announced that a jury had determined that Genentech had not infringed Glaxo’s patents and that all of the patent claims asserted against Genentech are invalid. We understand that Glaxo has filed a notice of appeal with the Court of Appeals for the Federal Circuit. If any of the claims of these patents are finally determined in the litigation to be valid, and if we were to use manufacturing processes covered by the patents to make our products, we may then need to obtain a license should one be available. Should a license be denied or unavailable on commercially reasonable terms, we may have difficulty commercializing one or more of our products in any territories in which these claims were in force.

 

Genentech, Johnson & Johnson, Glaxo, Transkaryotic Therapies, Inc. and the Trustees of Columbia University in the City of New York each owns or controls a U.S. patent that relates to recombinant cell lines or methods of generating recombinant cell lines for the production of antibodies. If we were to use a production system covered by any of these patents, we may then need to obtain a license should one be available. Under these circumstances, our failure to obtain a license at all or on commercially reasonable terms could impede commercialization of one or more of our products in any territories in which these patent claims were in force.

 

Genentech owns a U.S. patent that issued in June 1998 relating to inhibiting the growth of tumor cells that involves an antibody that binds to an epidermal growth factor receptor, or an anti-EGF receptor antibody, in combination with a cytotoxic factor, which is a substance having a toxic effect on cells. ImClone Systems, Inc. owns or is licensed under a U.S. patent that issued in April 2001, relating to inhibiting the growth of tumor cells that involves an anti-EGF receptor antibody in combination with an anti-neoplastic, or anti-tumor, agent.  A corresponding European patent was published for grant in March 2002 and Abgenix and others are opposing that patent in the European Patent Office.  A corresponding patent has also been issued in Canada.  We do not believe based on our review that either the Genentech patent or any of the ImClone patents would be successfully asserted against any of our current or planned activities relating to panitumumab or future commercial sales of panitumumab. If a court determines that the claims of either the Genentech patent or the ImClone patents cover our activities with panitumumab and are valid, such a decision may require us to obtain a license to Genentech’s patent or ImClone’s patents, as the case may be, to label and sell panitumumab for certain combination therapies. Our failure to obtain a license, or to obtain a license on commercially reasonable terms, could impede our commercialization of panitumumab.

 

In 2000, the Japan Patent Office granted a patent to Kirin Beer Kabushiki Kaisha, one of our competitors, relating to non-human transgenic mammals.  In October 2003, the United States Patent and Trademark Office issued a corresponding patent to Kirin.  Kirin has filed corresponding patent applications in Europe and Australia. Our licensee, Japan Tobacco, has filed opposition proceedings against the Kirin patent. We cannot predict the outcome of those opposition proceedings, which may take years to be resolved.

 

Extensive litigation regarding patents and other intellectual property rights has been common in the biotechnology and pharmaceutical industries. The defense and prosecution of intellectual property suits, United States Patent and Trademark Office 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. Litigation may be necessary to:

 

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              enforce patents that we own or license;

 

              protect trade secrets or know-how that we own or license; or

 

              determine the enforceability, scope and validity of the proprietary rights of others.

 

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 loss of our proprietary position or to significant liabilities, or require us to seek licenses that may not be available from third parties. An adverse determination in a judicial or administrative proceeding, or a failure to obtain necessary licenses, may restrict or prevent us from manufacturing and selling our products, if any. Costs associated with these arrangements may be substantial and may include ongoing royalties. Furthermore, we may not be able to obtain the necessary licenses on satisfactory terms, if at all. These outcomes could materially harm our business, financial condition and results of operations.

 

Risks Related to Our Industry

 

We face intense competition and rapid technological change, and if we fail to develop products that keep pace with new technologies and that gain market acceptance, our product candidates or technologies could become obsolete.

 

The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. We are aware of several pharmaceutical and biotechnology companies that are actively engaged in research and development in areas related to antibody therapy. These companies have commenced clinical trials of antibody therapeutic product candidates or have successfully commercialized antibody therapeutic products for use on their own or in combination therapies. Many of these companies are addressing the same diseases and disease indications as we or our customers are. Also, we compete with companies that offer antibody generation services to companies that have antigens. These competitors have specific expertise or technology related to antibody development and introduce new or modified technologies from time to time. These companies include GenPharm, a wholly owned subsidiary of Medarex, Inc., Medarex’s collaborator, Kirin Brewing Co. Ltd.; GenMab A/S; Cambridge Antibody Technology Group plc; Genentech; Protein Design Labs, Inc.; MorphoSys AG; Xenerex Biosciences Inc., a subsidiary of Avanir Pharmaceuticals; XLT Biopharmaceuticals Ltd.; and Alexion Pharmaceuticals, Inc. Finally, we compete with companies that currently offer antibody production services, and may compete with companies that currently only manufacture their own antibodies but could offer antibody production services to third parties.

 

Some of our competitors have received regulatory approval of or are developing or testing product candidates that may compete directly with our product candidates. ImClone, in collaborations with Bristol-Meyers Squib Company and Merck KgAa; AstraZeneca, plc; Glaxo; and a collaboration of OSI Pharmaceuticals, Inc., Genentech and Roche have potential antibody and small molecule product candidates in clinical development that may compete with panitumumab, which is also in clinical trials.

 

ImClone and Bristol-Myers Squibb have received approval to market Erbitux, ImClone’s antibody product candidate for the treatment of metastatic colorectal cancer, in the United States.  ImClone and Bristol-Myers Squibb have also announced the submission of an application for approval to market Erbitux in Canada.  Merck KgAa has announced that it has received approval to market Erbitux for the treatment of metastatic colorectal cancer in the European Union and that it has received approval to market Erbitux in Switzerland for treatment of metastatic colorectal cancer.

 

Genentech has received approval to market Avastin for use with chemotherapy as a first-line treatment for colorectal cancer.

 

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AstraZeneca has received approval to market Iressa, a small molecule product candidate that may compete with panitumumab, in many markets in the world, including the United States, Japan, Australia and Canada, for the treatment of advanced non-small cell lung cancer.

 

The FDA has accepted an NDA submitted by Genentech and OSI for Tarceva for the treatment of advanced non-small cell lung cancer.

 

In addition, Amgen has received approval to market Sensipar, or cinacalcet HCI, a small molecule product candidate for the treatment of secondary hyperparathyroidism, which may compete with ABX-PTH.

 

Many of these companies and institutions, either alone or together with their customers or collaborators, have substantially greater financial resources and larger research and development staffs than we do. In addition, many of these competitors, either alone or together with their customers or collaborators, have significantly greater experience than we do in:

 

              developing products;

 

              undertaking preclinical testing and human clinical trials;

 

              obtaining FDA and other regulatory approvals of products; and

 

              manufacturing and marketing products.

 

Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or commercializing products before we do. If we commence commercial product sales, we will be competing against companies with greater marketing and manufacturing capabilities, areas in which we have limited or no experience.

 

We also face, and will continue to face, competition from academic institutions, government agencies and research institutions. There are numerous competitors working on products to treat each of the diseases for which we are seeking to develop therapeutic products. In addition, any product candidate that we successfully develop may compete with existing therapies that have long histories of safe and effective use. Competition may also arise from:

 

              other drug development technologies and methods of preventing or reducing the incidence of disease;

 

              new small molecules; or

 

              other classes of therapeutic agents.

 

Developments by competitors may render our product candidates or technologies obsolete or non-competitive. We face and will continue to face intense competition from other companies for agreements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions, and for licenses to proprietary technology. These competitors, either alone or with their customers, may succeed in developing technologies or products that are more effective than ours.

 

We also face competition from companies that provide production services.  These include contract manufacturers, such as Lonza, Avid Bioservices, Inc., Diosynth Biotechnology, DSM N.V., Cangene Corporation and Goodwin Biotechnology Inc., and other pharmaceutical and biotechnology companies that manufacture their own product candidates but can make extra capacity available to collaborators and customers, such as Boehringer Ingelheim GmbH, Biogen Idec Inc., ICOS Corporation, Abbott and Novartis AG.

 

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We face uncertainty over reimbursement and healthcare reform, which, if determined adversely to us, could seriously hinder the market acceptance of our products.

 

In both domestic and foreign markets, sales of our product candidates will depend in part upon the availability of reimbursement from third-party payors, such as government health administration authorities, managed care providers and private health insurers. Third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In addition, domestic and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare, which could further limit reimbursement for pharmaceuticals. The failure of the government and third-party payors to provide adequate coverage and reimbursement rates for our product candidates could adversely affect the market acceptance of our products. The failure of our products to receive market acceptance would materially harm our business, financial condition and results of operations.

 

Other Risks Related to Our Company

 

The future growth and success of our business will depend on our ability to continue to attract and retain our employees and consultants.

 

For us to pursue product development, manufacturing, marketing and commercialization plans, we will need to hire additional qualified scientific, manufacturing, quality control, quality assurance, and key management personnel, including a vice president of quality and a vice president of process science.  We may also need to hire personnel with expertise in clinical testing, government regulation, marketing, law and finance.  Attracting and retaining qualified personnel will be critical to our success.  We may not be able to attract and retain personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions.  In addition, we experienced increased attrition rates in 2003.  Further attrition could materially harm our business, financial condition and results of operations.

 

We grant stock options as a method of attracting and retaining employees, to motivate performance and to align the interests of management with those of our stockholders. Due to the decline in the trading price of our common stock during 2001, 2002 and in recent months, a substantial portion of the stock options held by our employees have an exercise price that is higher than the current trading price of our common stock. We may elect to grant additional stock options at the current lower market price, pay higher cash compensation, or provide some combination of these alternatives to retain and attract qualified employees, but we cannot be sure that any of these actions would be successful. If we issue additional stock options, this would dilute existing stockholders.

 

As a result of these factors, we may have difficulty attracting and retaining qualified personnel, which could materially harm our business, financial condition and results of operations.

 

We may experience difficulty in the integration of any future acquisition with the operations of our business.

 

We may from time to time seek to expand our business through corporate acquisitions. Our acquisition of companies and businesses and expansion of operations, involve risks such as the following:

 

              the potential inability to identify target companies best suited to our business plan;

 

              the potential inability to successfully integrate acquired operations and businesses and to realize anticipated synergies, economies of scale or other expected value;

 

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              incurrence of expenses attendant to transactions that may or may not be consummated; and

 

              difficulties in managing and coordinating operations at multiple venues, which, among other things, could divert our management’s attention from other important business matters.

 

In addition, our past and future acquisitions of companies and businesses and expansion of operations may result in dilutive issuances of equity securities, the incurrence of additional debt, U.S. or foreign tax liabilities, large one-time write-offs and the creation of goodwill or other intangible assets that could result in amortization expense or other charges to expense.  For example, we recorded a one-time charge of $17.2 million in the quarter ended June 30, 2004, as a result of our determination that an impairment of our acquired technology in the field of catalytic antibodies had occurred and that the estimated value had declined to zero.  This technology was acquired in 2001 through the acquisition of Hesed Biomed, Inc.  After assessing the associated patent position and the likelihood of sale or license of the technology to a third party, we further determined that the possibility of generating positive future cash flows from the technology was remote.  We continue to evaluate our internal programs and assets.  Further changes in our plans or strategy could result in additional one-time charges.

 

We have implemented a stockholder rights plan and are subject to other anti-takeover provisions, which could deter a party from effecting a takeover of us at a premium to our then-current stock price.

 

In June 1999, our board of directors adopted a stockholder rights plan, which we amended and restated in November 1999 and May 2002, and amended in October 2003. The stockholder rights plan and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. This could limit the price that certain investors might be willing to pay in the future for our common stock. Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws allow us to:

 

              issue preferred stock without any vote or further action by the stockholders;

 

              eliminate the right of stockholders to act by written consent without a meeting;

 

              specify procedures for director nominations by stockholders and submission of other proposals for consideration at stockholder meetings; and

 

              eliminate cumulative voting in the election of directors.

 

In October 2003, we entered into a collaboration and license agreement with AstraZeneca for the purpose of identifying and developing antibody products for use in oncology therapeutics.  The collaboration agreement includes provisions that would allow AstraZeneca to accelerate its selection of target antigens and, in certain situations, terminate the collaboration agreement, or specific programs or activities conducted under it, in the event of a change in control in us, particularly if we were acquired by a competitor of AstraZeneca.  In the event of a change in control of us, AstraZeneca could also acquire control over the development programs and various intellectual property rights in respect of antigens that are the subject of the collaboration agreement.  This would result in a reduction in the royalties and milestones to be paid by AstraZeneca to us under the collaboration agreement and the release of AstraZeneca from certain exclusivity provisions.  In addition, certain exclusivity provisions contained in the collaboration agreement would apply to an acquirer of our company and would restrict the acquirer’s ability to operate its business in the oncology field after the acquisition, except with respect to pre-existing development programs.  These and other provisions of the collaboration agreement could make our company less attractive to a potential acquirer, particularly an acquirer that conducts or expects to conduct significant operations in the field of oncology therapeutics.

 

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We are also subject to certain provisions of Delaware law which could also delay or make more difficult a merger, tender offer or proxy contest involving us. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless the transaction meets certain conditions. The stockholder rights plan, the possible issuance of preferred stock, the procedures required for director nominations and stockholder proposals, our collaboration agreement with AstraZeneca and Delaware law could have the effect of delaying, deferring or preventing a change in control of us, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock. The provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock.

 

We face product liability risks and may not be able to obtain adequate insurance, and if we are held liable for an uninsured claim or a claim in excess of our insurance limits, our business, financial condition and results of operations may be harmed.

 

The use of any of our product candidates, or of any products manufactured in our facility, in clinical trials, and the sale of any approved products, may expose us to liability claims resulting from such use or sale. Consumers, healthcare providers, pharmaceutical companies or others selling such products might make claims of this kind. We may experience financial losses in the future due to product liability claims. We have obtained limited product liability insurance coverage for our clinical trials and production services activities, under which the coverage limits are $15.0 million per occurrence and $15.0 million in the aggregate. We may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If third parties bring a successful product liability claim or series of claims against us for uninsured liabilities or in excess of insured liabilities, our business, financial condition and results of operations may be materially harmed.

 

Our operations involve hazardous materials, and we could be held responsible for any damages caused by such materials.

 

Our research and manufacturing activities involve the controlled use of hazardous materials. In addition, although we maintain insurance for harm to employees and to our facilities caused by hazardous materials, we do not insure against any other harm (including harm to the environment) caused by the use of hazardous materials on our premises. We cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may exceed our financial resources and may materially harm our business, financial condition and results of operations.

 

We do not intend to pay cash dividends on our common stock.

 

We intend to retain any future earnings to finance the growth and development of our business and we do not plan to pay cash dividends on our common stock in the foreseeable future.

 

Our stock price is highly volatile, and you may not be able to sell your shares of our common stock at a price greater than or equal to the price you paid for them.

 

The market price and trading volume of our common stock are volatile, and we expect such volatility to continue for the foreseeable future. For example, during the period between September 30, 2003 and September 30, 2004, our common stock closed as high as $18.55 per share and as low as $7.77 per share.  This may impact your decision to buy or sell our common stock. Factors affecting our stock price include:

 

              our financial results;

 

              fluctuations in our operating results;

 

51



 

              announcements of technological innovations or new commercial therapeutic products by us or our competitors;

 

              published reports by securities analysts;

 

              developments in our clinical trials and in clinical trials for potentially competitive product candidates;

 

              government regulation;

 

              changes in reimbursement policies;

 

              developments in patent or other proprietary rights;

 

              announcements that we have entered into new collaboration, licensing or similar arrangements with new collaborators, or amendments of the terms of our existing collaborations;

 

              developments in our relationship with customers;

 

              public concern as to the safety and efficacy of our products; and

 

              general market conditions.

 

If we were deemed to be an investment company, we would become subject to provisions of the Investment Company Act that likely would have a material adverse impact on our business.

 

A company is required to register as an investment company under the Investment Company Act of 1940, or the 1940 Act, if, among other things, and subject to various exceptions:

 

              it is or holds itself out to be engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or

 

              it is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 percent of the value of such company’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis.

 

A major portion of our assets has been invested in investment grade interest-bearing securities. Such investments could in some circumstances require us to register as an investment company under the 1940 Act. Registration under the 1940 Act, or a determination that we failed to register when required to do so, could have a material adverse impact on us. We believe that we are and will remain exempt from the registration requirements, but absent interpretation by the courts or the SEC of the relevant exemption as applied to companies engaged in research and development, this result cannot be assured. In addition, a change in our allocation of assets on account of 1940 Act concerns could reduce the rate of return on our liquid assets.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk
 

Interest Rate Risk.  We are exposed to interest rate sensitivity on our investments in debt securities and our outstanding fixed rate debt. The objective of our investment activities is to preserve principal, while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid, investment grade and government debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an

 

52



 

adverse shift in interest rates, we invest in short-term securities and our goal is to maintain an average maturity of approximately one year. In addition, as of September 30, 2004, we had $200.0 million of outstanding 3.5% convertible subordinated notes due in 2007. The fair value of these convertible subordinated notes may fluctuate with changes in market interest rates, as well as changes in the market price of our common stock.  A hypothetical 1.0% per annum decrease in interest rates would result in an adverse net change in the fair value of our interest rate sensitive assets and liabilities of approximately $2.6 million at September 30, 2004 and December 31, 2003.

 

Equity Price Risk.  We are exposed to equity price risk on strategic investments, such as those we have made in CuraGen and ImmunoGen. We typically do not attempt to reduce or eliminate our market exposure on these securities. With respect to CuraGen and ImmunoGen, each of whose common stock is publicly traded, the aggregate market value of our investments in these securities was approximately $16.5 million and $20.7 million as of September 30, 2004 and December 31, 2003, respectively. Due to decreases in the market prices of the shares of CuraGen and ImmunoGen, we recorded impairment charges of $67.3 million in 2002 related to these investments. The trading prices of shares of CuraGen and ImmunoGen have fluctuated significantly since we purchased these securities. Each additional 10% decrease in market value of these securities would result in a decrease in value of approximately $1.7 million and $2.1 million from the fair value of those investments at September 30, 2004 and December 31, 2003, respectively.  Additional price declines could cause us to record additional impairment charges in future periods.

 

Foreign Currency Risk. A substantial majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, we did enter into transactions in other currencies, primarily the British pound.  As of December 31, 2003, we had a contract cancellation obligation to Lonza of $22.7 million, which was payable in British pounds.  As of September 30, 2004, we had no remaining obligations to Lonza.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

                Based on their evaluation of our disclosure controls and procedures, as that term is defined by Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as of the end of the period covered by this report, our chief executive officer and our chief financial officer, have concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be included in this quarterly report on Form 10-Q has been made known to them in a timely fashion.

 

Changes in Internal Controls Over Financial Reporting

 

There has been no change in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II.  OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

Not applicable.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Not applicable.

 

53



 

ITEM 3. Defaults upon Senior Securities

 

Not applicable.

 

ITEM 4. Submission of Matters to a Vote of Security Holders

 

Not applicable.

 

ITEM 5. Other Information

 

Not applicable.

 

ITEM 6. Exhibits

 

Number
 

Description

 

 

 

3.1(1)

 

Amended and Restated Certificate of Incorporation of Abgenix, as currently in effect.

3.2(2)

 

Amended and Restated Bylaws of Abgenix, as currently in effect.

10.88

 

Employment Agreement, dated July 20, 2004, between Abgenix, Inc. and William R. Ringo.

10.89

 

Change of Control Severance Agreement, dated August 30, 2004, between Abgenix, Inc. and William R. Ringo.

10.90

 

Resignation and Transition Agreement, dated August 30, 2004, between Abgenix, Inc. and Raymond M. Withy, Ph.D.

31.1

 

Certification of William R. Ringo Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of H. Ward Wolff Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

 

Certification of William R. Ringo Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

 

Certification of H. Ward Wolff Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 


(1)           Incorporated by reference to the same exhibit filed with Abgenix’s Annual Report on Form 10-K for the year ended December 31, 2002.

 

(2)           Incorporated by reference to the same exhibit filed with Abgenix’s Annual Report on Form 10-K for the year ended December 31, 2001.

 

54



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Dated: November 5, 2004

 

 

 

 

ABGENIX, INC.

 

(Registrant)

 

 

 

 

 

  /s/ WILLIAM R. RINGO

 

 

William R. Ringo

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

 

 

  /s/ H. WARD WOLFF

 

 

H. Ward Wolff

 

Chief Financial Officer and Senior Vice President, Finance

 

(Principal Financial and Accounting Officer)

 

55


EX-10.88 2 a04-12711_1ex10d88.htm EX-10.88

Exhibit 10.88

 

EMPLOYMENT AGREEMENT

 

On behalf of Abgenix, Inc., a Delaware corporation, (the “Company”) and the Company’s Board of Directors (“Board”), we are pleased to offer you the position of President and Chief Executive Officer reporting to the Board.  You will work at the Company’s headquarters in Fremont, California.  Except as otherwise expressly provided below, this Agreement, by and between the Company and William R. Ringo, will become effective on your start date of employment as the Company’s President and Chief Executive Officer, August 30, 2004 (the “Effective Date”), and sets forth the terms and conditions of your employment with the Company.

 

The terms of your employment are as follows:

 

1.

Salary:

Your base salary is $20,834 semi-monthly ($500,000 annualized) for fiscal year 2004 and is subject to all standard withholding of taxes. Fiscal year 2004 ends on December 31, 2004. In subsequent years, your base salary will be reviewed by the Compensation Committee of the Board (the “Committee”) on an annual basis. The annualized base salary to be paid, together with any subsequent adjustments thereto, shall be referred to herein as the “Base Salary.”

 

2.

Equity:

Subject to the approval of the Committee, the Company will grant you as of the first date on which you become an employee of Abgenix as set forth in paragraph 12 below (“Commencement of Employment”), nonstatutory stock options under the Company’s 1999 Nonstatutory Stock Option Plan, as amended (the “Plan”) to purchase 500,000 shares of Abgenix common stock. The per-share exercise price will be equal to the “Fair Market Value” (as defined in the Plan) of a Company common share as of your Commencement of Employment. The stock option vesting schedule is as follows: Vesting will begin on the Effective Date. At the end of twelve months following the Effective Date, 12/48 (25%) will vest and thereafter 1/48 of the total grant will vest per month (so that if you remain continuously in the Company’s employ, at the end of four years your option would be fully vested). In the event of termination of your employment with the Company for any reason, all vested options must be exercised within 90 days of your termination date and all unvested options shall be canceled and forfeited without consideration. Subject to such stockholder approval of additional shares to be used for stock option awards under the Plan (or other Company stock option plans) as may be required by law, the Committee will review your Company stock position annually for the purposes of granting future stock options to you on a basis no less favorable than those granted to other senior executives of the Company. Such a review normally takes place in January of each year. The terms and conditions of any stock option grants shall be governed by a separate agreement you will be required to sign as a condition of the grant (a “Stock Option Agreement”). A copy of the form of that Agreement is attached for your review.

 



 

3.

Sign-On Bonus:

You will receive a sign-on bonus of $280,000. This payment is considered compensation and as such is subject to all standard withholding taxes. Should you terminate employment other than through an Involuntary Termination (as defined below) within 12 months of the Effective Date, this payment will be repayable to the Company on a pro-rated basis. The amount of such repayment is determined by multiplying $280,000 times a percentage; where such percentage is equal to: (i) one minus (ii) the number of days you were employed by the Company divided by 365.

 

4.

Bonus:

For fiscal year 2004, you will be eligible to participate in the Company’s annual management incentive bonus program. Under this program, which is based on the Company attaining certain annual corporate goals and you attaining personal objectives approved by the Committee, you will be eligible, subject to Committee approval, for an annual target bonus of 50% of your fiscal year-end Base Salary which is based upon attaining 100% of plan achievement (the “Target Bonus”). Based on the Effective Date, your Target Bonus for fiscal 2004 is pro-rated to $83,333. Thereafter, you will be eligible for an annual bonus based on the attainment of corporate and personal goals established by the Committee with input from you. The Committee shall, in its sole and absolute discretion, determine the amount of bonus, if any, that is actually paid to you.

 

5.

Review Period:

Your formal performance review by the Committee will take place in January of 2005 and annually thereafter.

 

6.

Benefits:

The Company provides benefit programs for all regular full-time employees including senior executives. The details of these programs, as well as enrollment forms and other pertinent literature, will be available during your orientation with Human Resources. Enclosed for your review is a summary of the plans. Term life insurance up to $500,000 is provided to you. Supplemental life insurance for you or your family is available according to the plan documents.

 

7.

Relocation:

The Company will reimburse you for (1) the cost of moving your household goods to your new residence in the Bay Area; (2) hotel and car rental expenses for up to one month; (3) expenses incurred for your final move air travel; up to a maximum of $100,000 for (1) through (3) combined. The Company will make arrangements for items (1) and (2) directly through the vendor(s) of its choice, and may do so as well for item (3). Under no circumstances will substitutions be made for any of the above-mentioned covered items.

 

In connection with these costs, the Company will provide you with additional compensation in the form of a one-time “tax gross up” in accordance with standard Company policy. This is intended to offset the majority of your non-deductible, tax-related costs for the

 

2



 

 

 

above-mentioned relocation package.

 

This relocation expense coverage is intended to assist in getting you established in your new residence in the local area as quickly as possible. Therefore, it is required that all relocation assistance provided for in this Agreement and all expense reimbursements for this assistance be completed within one year from the Effective Date. Should you terminate your employment within 12 months of the Effective Date other than through an Involuntary Termination (as defined below), all relocation expenses already reimbursed will be repayable to the Company on a pro-rated basis (pursuant to the repayment methodology described in Section 3 above).

 

8.

Mortgage Differential:

In addition to the aforementioned relocation assistance, the Company is prepared to offer you a mortgage differential allowance. From September 2004 through August 2006 the amount of this allowance will be $9,000 per month; from September 2006 through August 2009 the amount of this allowance will be $6,000 per month. This mortgage differential allowance will be subject to standard tax withholding and will terminate no later than August 31, 2009. These payments will be made on a monthly basis. Should your employment with the Company terminate at any time and for any reason prior to August 31, 2009, the mortgage differential payments will also then immediately terminate.

 

9.

Termination of Employment and Severance Payments

A.           In addition to the terms set forth herein, severance of your employment in the event of a change of control is subject to the terms of the Change of Control Severance Agreement, incorporated here by reference, and attached hereto as Appendix A. Appendix A must also be signed by you for this Agreement to become Effective.

 

B.             Your employment at the Company shall be “At Will,” which means your employment with the Company may be terminated at any time either by you or the Company, with or without cause and with or without notice. Upon your termination of employment for any reason, you shall be deemed to have resigned from all offices and positions with the Company or any of its affiliates and you shall execute any documentation requested by the Company to confirm such resignation(s). If your employment is terminated by the Company without cause, or if your resignation is due to an Involuntary Termination (as defined below) you will be paid two years of continuation payments of your then Base Salary and Target Bonus, provided you timely execute a full release of all claims in a form prescribed by the Company and further provided you fully comply with any other terms and conditions established by the Company.

 

C.             Termination Without Cause. For purposes of this Agreement, a “termination without cause” by the Company is defined as an

 

3



 

 

 

“Involuntary Termination” as set forth in paragraph 1(d) of the Change of Control Severance Agreement and is incorporated here by reference. This paragraph provides as follows:

 

1(d)    Involuntary Termination.  “Involuntary Termination” shall mean (i) without the Employee’s express written consent, a significant reduction of the Employee’s duties, position or responsibilities relative to the Employee’s duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee’s express written consent, a substantial reduction, without good business reasons, of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Company of the Employee’s base salary or target bonus as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee’s overall benefits package is significantly reduced; (v) without the Employee’s express written consent, the relocation of the Employee to a facility or a location more than thirty-five (35) miles from his current location; (vi) any purported termination of the Employee by the Company which is not effected for Cause or for which the grounds relied upon are not valid; or (vii) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 6 below.

 

D.            Termination With Cause. Termination with “Cause” shall have the same meaning as defined in paragraph 1(a) of the Change of Control Agreement and is incorporated here by reference.This

 

4



 

 

 

paragraph provides as follows:

 

1(a)     Cause.    “Cause” shall mean (i) any act of personal dishonesty taken by the Employee in connection with his responsibilities as an employee which is intended to result in substantial personal enrichment of the Employee, (ii) Employee’s conviction of a felony which the Board reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business, (iii) a willful act by the Employee which constitutes misconduct and is injurious to the Company, and (iv) continued willful violations by the Employee of the Employee’s obligations to the Company after there has been delivered to the Employee a written demand for performance from the Company which describes the basis for the Company’s belief that the Employee has not substantially performed his duties.

 

E.              If you should resign your employment with the Company for any reason other than as a result of an Involuntary Termination or should your employment be terminated as a result of your death or your disability, you shall only be paid for unpaid Base Salary accrued as of your date of termination and you shall be entitled to no other payments from the Company, provided, however, that in the event of your disability or death, you or your estate shall be paid a pro rata share of your Target bonus for that year at the time that Target Bonuses are paid to other senior executives of the Company..

 

10.

Proof of Right to Work

Our offer to hire you is contingent upon your submission of satisfactory proof of your identity and your legal authorization to work in the United States. If you fail to timely submit this proof, federal law prohibits us from hiring you and this Agreement shall be null and void.

 

11.

Confidential
Information

As a condition of this Agreement and your employment, you agree to sign an Employment, Confidential Information and Invention Assignment Agreement on or before the Effective Date of this Agreement. A copy is attached as Appendix B to this Agreement.

 

12.

Commencement of Employment

You will commence employment initially on a part-time basis, as a Transition Advisor, on July 20, 2004, and shall perform transition-related duties in the office of the Company’s chief Executive Officer, and shall assist the Chief Executive Officer as appropriate and necessary

 

5



 

 

 

to facilitate transition. You shall be paid at the rate of $20,834 per month for working part-time between July 20 and August 29, 2004, inclusive. “Part-time” shall be sufficient to qualify you for participation in the Plan.

 

This Agreement constitutes the full agreement of the parties as to the terms and subject matter covered.  This Agreement shall be governed by the laws of the State of California without reference to rules relating to conflicts of law.  Except as to matters related to future compensation, no changes may be made to this Agreement except in writing signed by both parties.

 

ACCEPTED:

 

 

/s/ William R. Ringo

 

July 20, 2004

  William R. Ringo

 

 Date

 

 

 

 

 

 

/s/ R. Scott Greer

 

July 20, 2004

  R. Scott Greer, Chairman of the Board
  On behalf of the Company

 

 Date

 

6


EX-10.89 3 a04-12711_1ex10d89.htm EX-10.89

Exhibit 10.89

 

ABGENIX, INC.

 

CHANGE OF CONTROL SEVERANCE AGREEMENT

 

This Change of Control Severance Agreement (the “Agreement”) is made and entered into effective as of August 30, 2004 (the “Effective Date”), by and between William R. Ringo (the “Employee”) and Abgenix, Inc., a Delaware corporation (the “Company”).  Certain capitalized terms used in this Agreement are defined in Section 1 below.

 

RECITALS

 

A.                                   It is expected that the Company from time to time will consider the possibility of a Change of Control.  The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities.

 

B.                                     The Board believes that it is in the best interests of the Company and its shareholders to provide the Employee with an incentive to continue his employment and to maximize the value of the Company upon a Change of Control for the benefit of its shareholders.

 

C.                                     In order to provide the Employee with enhanced financial security and sufficient encouragement to remain with the Company notwithstanding the possibility of a Change of Control, the Board believes that it is imperative to provide the Employee with certain severance benefits upon the Employee’s termination of employment following a Change of Control.

 

AGREEMENT

 

In consideration of the mutual covenants herein contained and the continued employment of Employee by the Company, the parties agree as follows:

 

1.             Definition of Terms.  The following terms referred to in this Agreement shall have the following meanings:

 

(a)                                  Cause.  “Cause” shall mean (i) any act of personal dishonesty taken by the Employee in connection with his responsibilities as an employee which is intended to result in substantial personal enrichment of the Employee, (ii) Employee’s conviction of a felony which the Board reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business, (iii) a willful act by the Employee which constitutes misconduct and is injurious to the Company, and (iv) continued willful violations by the Employee of the Employee’s obligations to the Company after there has been delivered to the Employee a written demand for performance from the Company which describes the basis for the Company’s belief that the Employee has not substantially performed his duties.

 

(b)                                 Change of Control.  “Change of Control” shall mean the occurrence of any of the following events:

 



 

(i)                                                        the approval by shareholders of the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

 

(ii)                                                     any approval by the shareholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets;

 

(iii)                                                  any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities; or

 

(iv)                                                 a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors.  “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transaction described in subsections (i), (ii) or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

 

(c)                                  Compensation Continuation Period.  “Compensation Continuation Period” shall mean the period of time commencing with termination of the Employee’s employment as a result of Involuntary Termination at any time within twenty four (24) months after a Change of Control and ending with the date twenty-four (24) months following the date of the Employee’s termination.

 

(d)                                 Involuntary Termination.  “Involuntary Termination” shall mean (i) without the Employee’s express written consent, a significant reduction of the Employee’s duties, position or responsibilities relative to the Employee’s duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee’s express written consent, a substantial reduction, without good business reasons, of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Company of the Employee’s base salary or target bonus as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee’s overall benefits package is significantly reduced; (v) without the Employee’s express written consent, the relocation of the Employee to a facility or a location more than thirty-five (35) miles from his current location; (vi) any purported termination of the Employee by the Company which is not effected for Cause or

 

2



 

for which the grounds relied upon are not valid; or (vii) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 6 below.

 

2.                                       Term of Agreement.  This Agreement shall terminate upon the date that all obligations of the parties hereto under this Agreement have been satisfied.

 

3.                                       At-Will Employment.  The Company and the Employee acknowledge that the Employee’s employment is and shall continue to be at-will, as defined under applicable law.  If the Employee’s employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be established under the Company’s then existing employee benefit plans or policies at the time of termination.

 

4.                                       Change of Control and Severance Benefits.

 

(a)                                  Termination Following A Change of Control.

 

(i)                                          Severance Payments.  If the Employee’s employment with the Company terminates as a result of an Involuntary Termination at any time within twenty four (24) months after a Change of Control, then the Employee shall be entitled to receive continuing payments of severance pay during the Compensation Continuation Period at a rate equal to one hundred (100)% of the Employee’s base salary and target bonus (as in effect immediately prior to the Change of Control).  Such severance payments shall be paid bi-weekly in accordance with the Company’s normal payroll practices. In addition, during the Compensation Continuation Period, the Company shall continue to make available to the Employee and Employee’s spouse and dependents covered under any group health plans or life insurance plans of the Company on the date of such termination of employment, all group health, life and other similar insurance plans in which Employee or such Covered Dependents participate on the date of the Employee’s termination.

 

(ii)                                       Option Acceleration.  If the Employee’s employment with the Company terminates as a result of an Involuntary Termination at any time within twenty four (24) months after a Change of Control, then each option granted to the Employee by the Company (the “Options”) shall immediately become vested and exercisable in full.

 

(iii)                                    Other Termination.  If the Employee’s employment with the Company terminates other than as a result of an Involuntary Termination at any time within twenty four (24) months after a Change of Control, then the Employee shall not be entitled to receive severance or other benefits hereunder, but may be eligible for those benefits (if any) as may then be established under the Company’s then existing severance and benefits plans and policies at the time of such termination.

 

(b)                                 Termination Apart from a Change of Control.  If the Employee’s employment with the Company terminates for any or no reason other than within twenty four (24) months following a Change of Control, then the Employee shall not be entitled to receive severance or other benefits hereunder, but may be eligible for those benefits (if any) as may then be established under

 

3



 

the Company’s then existing severance and benefits plans and policies at the time of such termination.

 

(c)                                  Accrued Wages and Vacation; Expenses.  Without regard to the reason for, or the timing of, Employee’s termination of employment:  (i) the Company shall pay the Employee any unpaid base salary due for periods prior to the date of termination; (ii) the Company shall pay the Employee all of the Employee’s accrued and unused vacation through the date of termination; and (iii) following submission of proper expense reports by the Employee, the Company shall reimburse the Employee for all expenses reasonably and necessarily incurred by the Employee in connection with the business of the Company prior to the date of termination.  These payments shall be made promptly upon termination and within the period of time mandated by law.

 

5.                                       Golden Parachute Excise Tax Gross-Up.  In the event that the severance and other benefits provided for in this Agreement or otherwise payable to Employee constitute “excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and will be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then Employee shall receive (i) a payment from the Company sufficient to pay the Excise Tax, and (ii) an additional payment from the Company sufficient to pay the Excise Tax arising from the payments made by the Company to Employee pursuant to this sentence.  Unless the Company and Employee otherwise agree in writing, the determination of Employee’s Excise Tax liability and the amount required to be paid under this Section 5 shall be made in writing by the Company’s independent public accountants (the “Accountants”).  In the event that the Excise Tax incurred by Employee is determined by the Internal Revenue Service to be greater or lesser than the amount determined by the Accountants, the Company and Employee agree to promptly make such additional payment, including interest and any tax penalties, to the other party as the Accountants reasonably determine is appropriate to ensure that the net economic effect to Employee under this Section 5, on an after-tax basis, is as if the Excise Tax did not apply to Employee.  For purposes of making the calculations required by this Section 5, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations of the Code.  The Company and Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section.  The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 5.

 

The gross-up payment to which Employee is entitled hereunder shall be paid by the Company to Employee, in cash and in full, not later than thirty (30) calendar days following the date Employee becomes subject to the Excise Tax.

 

6.                                       Successors.

 

(a)                                  Company’s Successors.  Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s obligations under this Agreement and agree expressly to perform the Company’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform

 

4



 

such obligations in the absence of a succession.  For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

 

(b)                                 Employee’s Successors.    Without the written consent of the Company, Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of Employee hereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

 

7.                                       Notices.

 

(a)                                  General.  Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid.  In the case of the Employee, mailed notices shall be addressed to him at the home address that he most recently communicated to the Company in writing.  In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

 

(b)                                 Notice of Termination.  Any termination by the Company for Cause or by the Employee as a result of a voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with this Section.  Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated.  The failure by the Employee to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his rights hereunder.

 

8.                                       Arbitration.

 

(a)                                  Except as provided in Section 8(d) below, any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be settled by binding arbitration to be held in Palo Alto, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the “Rules”).  The arbitrator may grant injunctions or other relief in such dispute or controversy.  The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration.  Judgment may be entered on the arbitrator’s decision in any court having jurisdiction.

 

(b)                                 The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to conflicts of law rules.  The arbitration proceedings shall be governed by

 

5



 

federal arbitration law and by the Rules, without reference to state arbitration law.  Employee hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants.

 

(c)                                  Employee understands that nothing in this Section modifies Employee’s at-will employment status.  Either Employee or the Company can terminate the employment relationship at any time, with or without cause.

 

(d)                                 EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION.  EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION TO THE EXTENT PERMITTED BY LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:

 

(i)                                          ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION.

 

(ii)                                       ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et seq;

 

(iii)                                    ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

 

9.                                       Miscellaneous Provisions.

 

(a)                                  No Duty to Mitigate.  The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other source.

 

6



 

(b)                                 Waiver.  No provision of this Agreement may be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee).  No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

 

(c)                                  Integration.  This Agreement and the stock option agreements representing the Options represent the entire agreement and understanding between the parties as to the subject matter herein and supersede all prior or contemporaneous agreements, whether written or oral.

 

(d)                                 Choice of Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws, but not the conflicts of law rules, of the State of California.

 

(e)                                  Severability.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

 

(f)                                    Employment Taxes.  All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes.

 

(g)                                 Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

 

COMPANY:

 

ABGENIX, INC.

 

 

 

 

 

 

By:

/s/ R. Scott Greer

 

 

 

 

 

 

 

 

Title:

 

Chairman

 

 

 

 

 

 

 

 

EMPLOYEE:

 

/s/ William R. Ringo

 

 

 

 

William R. Ringo

 

7


EX-10.90 4 a04-12711_1ex10d90.htm EX-10.90

Exhibit 10.90

 

Abgenix, Inc.

RESIGNATION AND TRANSITION AGREEMENT

 

This Resignation and Transition Agreement (this “Agreement”) is entered into between Abgenix, Inc. (the “Company”) and Raymond M. Withy (“Employee”). The purpose of this Agreement is to arrange for Employee’s resignation as the Chief Executive Officer and President of the Company as well as for a transition of Employee’s employment with Company on a basis that is satisfactory both to Company and to Employee (collectively, the “Parties”).  In consideration of the promises and obligations set forth herein, the Company agrees to provide certain additional benefits to Employee in full satisfaction of its obligations under the employment relationship between the Parties and Employee agrees to release the Company from any claims or obligations as set forth herein.

 

1.                                       Resignation.  Employee irrevocably resigns from his positions as Chief Executive Officer and President of the Company effective as of August 30, 2004.

 

2.                                       Continued Employment for Transition Period.  After August 30, 2004, Employee shall continue providing services as a full-time employee of the Company through December 31, 2004 (“Transition Period”).  Employee shall report to the individual who is then serving as the Company’s Chief Executive Officer, who shall determine Employee’s duties and responsibilities.

 

Provided that Employee (1) executes this Agreement and the Exhibits attached hereto, including the release of claims attached hereto as Exhibit A, (2) does not revoke such release of claims, and (3) uses his best efforts to perform the services requested of him during the Transition Period, Employee shall continue to receive the same base salary, cash incentive bonus opportunity, benefits, and perquisites as he was receiving immediately prior to the effectiveness of his resignation under Section 1 above.  For avoidance of doubt, the Parties agree that the terms of Employee’s annual cash incentive bonus for 2004, including but not limited to the performance objectives and target bonus amount, shall remain unchanged.  The stock options previously granted to Employee by the Company shall continue to vest during the Transition Period, but not thereafter.  Employee agrees to execute the form of amendments to Employee’s stock option agreements attached hereto as Exhibit B at the same time that he executes this Agreement.

 

Employee understands and agrees that the compensation and benefits described in this Section 2 are greater than the amounts that the Company would otherwise expect to pay in order to obtain Employee’s services during the Transition Period, and furthermore agrees that such additional compensation and benefits provide consideration for Employee’s obligations hereunder, including but not limited to execution by Employee of any release of claims described herein and execution of the amendments to Employee’s stock option agreements.

 



 

3.                                       Transition Information.

 

(a)                                  Separation Date.  Employee’s employment with the Company and its affiliates will terminate effective as of December 31, 2004 (the “Separation Date”).  Employee understands and agrees that this termination is effective with respect to all positions he then holds with the Company and any of its affiliates, except as a member of the Board of Directors of the Company (“Board”).  If requested by the Company in its sole discretion, Employee agrees to execute a release of claims substantially in the form attached hereto as Exhibit A in order to release any claims arising out of Employee’s service with the Company through the Separation Date.

 

Commencing on January 1, 2005, Employee shall be compensated for his services on the Board in accordance with the Company’s policies for individuals who continue to serve on the Board after having ceased employment with the Company.  For avoidance of doubt, for service on the Board in 2005, Employee shall be entitled to payment of a pro-rated annual retainer fee, standard meeting fees, and reimbursement for expenses incurred to attend meetings of the Board or a committee of the Board or to otherwise carry out his responsibilities as a member of the Board.  The Board and Employee agree that Employee will continue to serve as a member of the Board until at least the expiration of his current term.

 

(b)                                 Accrued Benefits.  On or before the Separation Date, the Company will have paid Employee all wages due to him, including regular base salary through his Separation Date and payment for all accrued and unused vacation credited to him as of the Separation Date.  In addition, the Company will reimburse Employee in a timely fashion for all approved business expenses incurred by Employee prior to the Separation Date in accordance with normal Company policy.

 

4.                                       Continuation of Benefits.

 

(a)                                  Group Health Insurance.  Employee’s current coverage under the Company’s standard group health insurance programs will terminate on December 31, 2004.  Employee may then have the opportunity to elect continuation coverage under the Company’s group health insurance programs as permitted pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).  Employee will be provided with information regarding, and an opportunity to elect, such coverage following the Separation Date.

 

(b)                                 Other Benefits.  Employee acknowledges and agrees that Employee will have no right, title, interest, or claim in or to participation in, or any benefits provided under, any of the Company’s employee benefit programs or policies following the Separation Date.

 

5.                                       Equity BenefitsExhibit B to this Agreement sets forth Employee’s rights to purchase shares of the Company’s capital stock as of the Separation Date (assuming that Employee continues to be employed by the Company through the Separation Date), reflecting

 

2



 

the amendments to Employee’s stock option agreements included as part of Exhibit B.  Employee acknowledges and agrees that except as set forth on Exhibit B and in those stock option agreements as amended that govern Employee’s rights to the

shares described on Exhibit B, Employee has no other right, title, interest, or claim in or to any shares of the Company’s capital stock, other than any shares he might own that are unencumbered by any contractual restrictions in favor of the Company.

 

6.                                       No Other Payments Due.  Employee acknowledges and agrees that, upon payment of those amounts set forth in this Agreement, he will have received all salary, accrued vacation, bonuses, wages, compensation or other such sums due to him as of the Separation Date other than amounts, if any, to be paid after the Separation Date pursuant to this Agreement.

 

7.                                       Covenants.

 

(a)                                  Confidential and Proprietary InformationEmployee represents and warrants that at all times prior to the date on which he executes this Agreement he has been in full compliance with his obligation to maintain the confidentiality of all confidential and proprietary information of the Company.  Employee understands and agrees that the provisions of the Company’s standard form of proprietary information and inventions agreement shall continue in full force and effect following his Separation Date, such that the Company shall continue to hold all remedies available to it, whether at law or in equity, in order to enforce Employee’s compliance with such agreement.

 

(b)                                 Return of Company Property.  As a condition of the Company entering into this Agreement, Employee is required to return all of the Company’s property, including but not limited to any confidential or proprietary information, in his possession, on or before the Separation Date, except for any property that the Company expressly agrees Employee may retain or any property that has been made available to members of the Board in order to allow them to perform their duties in that capacity.

 

(c)                                  Non-Disparagement.  Employee agrees to refrain from making any derogatory, disparaging and/or detrimental statements to any other person or third parties about the Company or any of the Released Parties, including but not limited to the Company’s directors, officers, investors, employees, products, or services.  The Company agrees to direct each of the current members of its Board of Directors (other than Employee) and its current named executive officers to refrain from making any derogatory, disparaging and/or detrimental statements to any other person or third parties about Employee.

 

8.                                       Taxes.  Any payments or benefits provided pursuant to this Agreement will be subject to applicable tax withholdings.  Employee expressly permits the Company to deduct from any amounts due hereunder such amounts as necessary to satisfy any withholding or employment tax obligations arising in connection with the termination of his employment, including, but not limited to, the cancellation of any debt, the payment of any amount or the provision of any benefit hereunder.

 

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9.                                       Entire Agreement.  This Agreement (including the Exhibits hereto) sets forth the entire agreement between the Company and Employee, and supersedes any prior agreements or understanding, whether oral or written, concerning the subject matter set forth herein.  This Agreement may not be altered or amended except by a written document signed by the Parties.  Employee expressly agrees that, except as set forth herein, the terms of this Agreement supersede the terms of any individual agreement or understanding with the Company relating to Employee’s rights as an employee of the Company, including but not limited to that certain Amended and Restated Change of Control Severance Agreement between the Parties dated as of April 24, 2003.  Employee acknowledges that he is executing this Agreement voluntarily and knowingly and that he has not relied upon any representation or statement made by the Company, the Released Parties (as that term is defined in Exhibit A) or their respective agents with respect to the subject matter, basis or effect of this Agreement, other than those specifically stated in this written Agreement.

 

10.                                 Severability.  If any one or more of the provisions of this Agreement, including, without limitation, Employee’s obligations described in Section 7 herein, shall be or become invalid, illegal or unenforceable in any respect or to any degree, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby and said illegal, unenforceable or invalid provisions shall be deemed not to be a part of this Agreement.

 

11.                                 Governing Law.  This Agreement shall be governed by the laws of the State of California, without regard to its conflicts of law provisions.

 

12.                                 Counterparts.  This Amendment may be executed in counterparts, each of which shall be deemed to be an original and together shall be deemed to be one and the same document.

 

13.                                 Voluntary Execution.  Employee hereby understands and agrees that:

 

(a)                                  He has been given twenty-one (21) days from the date that this Agreement was delivered to him (i.e., until September 16, 2004) in which to accept its terms, although he may accept it at any time within those twenty-one (21) days;

 

(b)                                 He has carefully read and fully understands all of the terms of the Agreement;

 

(c)                                  He is, through this Agreement, releasing the Released Parties from any and all claims he may have against them;

 

(d)                                 He was advised and is hereby advised in writing to consult with an attorney of his choice prior to executing this Agreement;

 

4



 

(e)                                  He has so consulted with an attorney of his choice or knowingly declined to do so;

 

(f)                                    He knowingly and voluntarily agrees to all of the terms set forth in this Agreement with full appreciation that he is forever foreclosed from pursuing any of the rights waived herein;

 

(g)                                 He has a period of 7 days after signing this Agreement within which to revoke his consent to this Agreement and that neither the Company nor any other person is obligated to provide any payment or benefit to him until 8 days have passed since his signing of this Agreement without his signature having been revoked in a writing received by the Company within the seven day revocation period; and

 

(h)                                 He is under no disability or impairment that affects his decision to sign this Agreement and knowingly and voluntarily intends to be legally bound by this Agreement.

 

 

IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement.

 

 

 

Abgenix, Inc.:

 

 

 

 

 

By:

  /s/ R. Scott Greer

 

Name: R. Scott Greer

 

Title:   Chairman

 

 

 

 

 

EMPLOYEE:

 

 

 

/s/ Raymond M. Withy

 

Raymond M. Withy

 

 

 

August 26, 2004

 

Date

 

5



 

EXHIBIT A

 

Employee’s Release of All Claims

 

In consideration of the benefits to be provided to Employee by the Company as set forth in this Agreement to which this Release of All Claims is an Exhibit, Employee, on behalf of himself, his spouse, domestic partner, agents, attorneys, successors, assigns, heirs and executors hereby fully and forever releases and discharges Abgenix, Inc., and its current and former officers, directors, shareholders, partners, members, investors, administrators, employees, contractors, agents, attorneys, insurers, affiliates, successors, predecessors, subsidiaries, assigns and fiduciaries in their individual and/or representative capacities (collectively, the “Released Parties”) from any and all claims, suits, agreements, promises, damages, disputes, controversies, contentions, differences, judgments, debts, dues, sums of money, accounts, reckonings, bonds, causes of action, bills, covenants, contracts, variances, trespasses, extents, executions and demands of any kind whatsoever, which Employee or his spouse, domestic partner, agents, attorneys, successors, assigns, heirs and executors ever had, now have or may have against the Released Parties or any of them, in law, admiralty or equity, for, upon, or by reason of, any matter, action, omission, course or thing whatsoever occurring up to the date this Agreement is signed by Employee, including, without limitation, in connection with or in relationship to Employee’s employment or other service relationship with the Company or its affiliates, Employee’s resignation as the Chief Executive Officer and President of the Company, the termination of any such employment or service relationship and any applicable employment, compensatory or equity arrangement with the Company or its respective affiliates; provided that such released claims shall not include (1) any claims to enforce Employee’s rights under, or with respect to, this Agreement, (2) Employee’s rights to employee benefits under the terms of the Company’s employee benefit plans, programs and arrangements, and (3) any rights to indemnification from the Company that Employee may possess relating to his service with the Company, whether under the Company’s Articles of Incorporation, By-laws, the Indemnification Agreement executed by Company and Employee or otherwise (such released claims are collectively referred to herein as the “Released Claims”).   Employee understands and agrees that the release set forth in this Exhibit A to this Agreement is a full and complete waiver of all claims, whether known or unknown by him, including, but not limited to, any claims with respect to his entitlement to any wages, bonuses, severance benefits or other forms of compensation; any claims with respect to his purchase of, or right to purchase, any capital stock of the Company; any claims of wrongful discharge, breach of contract, breach of the covenant of good faith and fair dealing, violation of public policy, defamation, personal injury, emotional distress; any claims under Title VII of the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, the California Fair Employment and Housing Act, the Equal Pay Act of 1963, the Americans With Disabilities Act, California Labor Code Section 1197.5, the Civil Rights Act of 1991, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) as related to severance benefits, any family and medical leave acts; and any claims under any other federal, state, and local laws and regulations relating to employment or employment discrimination. Employee agrees that the benefits provided to him pursuant to this Agreement are in full satisfaction and settlement of any such Released Claims.  Employee represents and warrants that he has not filed, and he will not file, any lawsuit or institute any proceeding, charge, complaint or action

 

6



 

asserting any such claim before any federal, state, or local administrative agency or court against any Released Party, concerning any event occurring prior to the signing of the Agreement.  Nothing in the Agreement, however, shall be construed as prohibiting Employee from filing a charge or complaint with the Equal Employment Opportunity Commission (“EEOC”) or participating in an investigation or proceeding conducted by the EEOC.  Employee also hereby agrees that nothing contained in this Release shall constitute or be treated as an admission of liability or wrongdoing by any of the Released Parties.

 

ADEA.  Employee represents that he is knowingly and voluntarily waiving any and all rights that he currently may have arising under the Age Discrimination in Employment Act of 1967, as amended.  Employee understands that he has the right to consult with an attorney before signing this Agreement.  Employee also understands that he may have twenty-one (21) days after his receipt of this Agreement within which he may review and consider, discuss with an attorney of his own choosing, and decide to execute or not execute it.  Employee further understands that for a period of seven (7) days after he signs this Agreement, he may revoke his release of all claims.   In order to revoke his release, Employee must deliver to the President and Chief Executive Officer of the Company, by no later than seven (7) days after he executes this Agreement, a letter stating that he is revoking it.  Employee understands and agrees that if he revokes his release, he will have no right to receive, and the Company will have no obligation to provide, any of the benefits described in this Agreement.  If Employee does not deliver such a letter, then this Agreement shall become effective upon the expiration of the seventh day after he executes this Agreement.  If Employee executes this Agreement prior to the twenty-first (21) day after its delivery to him, Employee hereby acknowledges that his decision to execute this Agreement prior to the expiration of such twenty-one (21) day period was entirely voluntary.

 

Civil Code Section 1542.  Employee hereby expressly waives any and all rights and benefits conferred upon him by the provisions of Section 1542 of the Civil Code of the State of California (as well as under any other statute or common law principles of similar effect), which states as follows:

 

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

 

Employee hereby executes this Release of All Claims on this 30th day of August 2004.

 

 

/s/ Raymond M. Withy

 

 

Raymond M. Withy

 

7



 

Exhibit B:

 

Stock Option Amendments and Stock Option Summary

 

 

[in the forms attached]

 

8



 

AGREEMENT AMENDING OPTIONS

 

This Agreement Amending Options (the “Agreement”) is entered into as of August 26, 2004 (the “Effective Date”), by and between Abgenix, Inc., a Delaware corporation (the “Company”), and Raymond M. Withy, Ph.D. (the “Employee”) (collectively, the “Parties”).

 

WHEREAS, the Company previously has granted stock options to Employee under 1996 Incentive Stock Plan (the “Plan”) for the purpose of providing equity compensation to Employee and aligning his interests with those of the stockholders of the Company.

 

WHEREAS, the Parties desire to amend the options listed in Attachment A hereto (the “Options”) to provide that the Options shall continue to vest until December 31, 2004, but not thereafter.

 

NOW, THEREFORE, in consideration of the promises and mutual covenants herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

1.                                                                                       All terms with initial capitals that are used herein and that are not specifically defined herein shall have the defined meanings set forth in the option agreements for each Option.

 

2.                                                                                       Amendment to Options.  Section 2(a) of the option agreement for each of the Options is amended and restated in its entirety as follows:

 

“(a)                            Right of Exercise.  This Option may be exercised during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement; provided, however, that after December 31, 2004,  (i) no additional shares subject to the Option shall become exercisable if such shares are not exercisable on December 31, 2004, and (ii) this Option may not be exercised with regard to any shares that are not exercisable on December 31, 2004.”

 

3.                                                                                       Continuing Effect.  This Amendment shall be effective for all purposes as of the Effective Date.  Except as otherwise expressly modified by this Amendment, the Agreement shall remain in full force and effect in accordance with its terms.

 

4.                                                                                       Governing Law.  This Amendment shall be governed by, interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of laws principles.

 

5.                                                                                       Counterparts.  This Amendment may be executed in counterparts, each of which shall be deemed to be an original and together shall be deemed to be one and the same document.

 

9



 

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written.

 

COMPANY:

 

EMPLOYEE:

 

 

 

 

 

/s/ R. Scott Greer

 

/s/ Raymond M. Withy

 

[Name].

 

[Name]

 

By:

R. Scott Greer

 

By:

Raymond M. Withy

 

Title:

Chairman

 

 

 

 

10



 

Attachment A

 

The Options subject to this agreement to amend options are:

 

1.

Incentive Stock Options to buy 2,089 shares granted 1/8/2001

 

2.

Non-Qualified Stock Options to buy 97,911 shares granted 1/8/2001

 

3.

Incentive Stock Options to buy 2,607 shares granted 2/11/2002

 

4.

Non-Qualified Stock Options to buy 67,393 shares granted 2/11/2001

 

5.

Incentive Stock Options to buy 5,172 shares granted 5/6/2002

 

6.

Non-Qualified Stock Options to buy 164,828 shares granted 5/6/2002

 

7.

Incentive Stock Options to buy 2,919 shares granted 4/2/2003

 

8.

Non-Qualified Stock Options to buy 137,081 shares granted 4/2/2003

 

9.

Incentive Stock Options to buy 6,401 shares granted 1/14/2004

 

10.

Non-Qualified Stock Options to buy 68,599 shares granted 1/14/2004

 

11


EX-31.1 5 a04-12711_1ex31d1.htm EX-31.1

Exhibit 31.1

 

CERTIFICATIONS

 

I, William R. Ringo, certify that:

 

1.             I have reviewed this quarterly report on Form 10-Q of Abgenix, Inc.;

 

2.             Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.             Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.             The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

 

c) disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.             The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Dated: November 5, 2004

 

 

  /s/ WILLIAM R. RINGO

 

 

William R. Ringo

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 


EX-31.2 6 a04-12711_1ex31d2.htm EX-31.2

Exhibit 31.2

 

CERTIFICATIONS

 

I, H. Ward Wolff, certify that:

 

1.             I have reviewed this quarterly report on Form 10-Q of Abgenix, Inc.;

 

2.             Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.             Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.             The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

 

c) disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.             The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Dated: November 5, 2004

 

 

 

  /s/ H. WARD WOLFF

 

 

H. Ward Wolff

 

Chief Financial Officer and Senior Vice President, Finance

 

(Principal Financial and Accounting Officer)

 

 


EX-32.1 7 a04-12711_1ex32d1.htm EX-32.1

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Abgenix, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)           The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

 

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

November 5, 2004

 

 

 

/s/ WILLIAM R. RINGO

 

 

William R. Ringo

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

A signed original of this written statement required by Section 906 has been provided to Abgenix, Inc. and will be retained by Abgenix, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 


EX-32.2 8 a04-12711_1ex32d2.htm EX-32.2

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Abgenix, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)           The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

 

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

November 5, 2004

 

 

 

/s/ H. WARD WOLFF

 

 

H. Ward Wolff

 

Chief Financial Officer and Senior Vice President, Finance

 

(Principal Financial and Accounting Officer)

 

A signed original of this written statement required by Section 906 has been provided to Abgenix, Inc. and will be retained by Abgenix, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 


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