UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: June 30, 2014
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-12465
CTI BIOPHARMA CORP.
(Exact name of registrant as specified in its charter)
Washington |
|
91-1533912 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
|
|
|
3101 Western Avenue, Suite 600 |
|
|
Seattle, Washington |
|
98121 |
(Address of principal executive offices) |
|
(Zip Code) |
(206) 282-7100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
|
¨ |
|
Accelerated filer |
|
x |
|
|
|
|
|||
Non-accelerated filer |
|
¨ (Do not check if a smaller reporting company) |
|
Smaller reporting company |
|
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class |
|
Outstanding at July 29, 2014 |
Common Stock, no par value |
|
149,933,210 |
CTI BIOPHARMA CORP.
TABLE OF CONTENTS
|
|
PAGE |
PART I - FINANCIAL INFORMATION |
|
|
|
|
|
ITEM 1: Financial Statements |
|
|
|
|
|
Condensed Consolidated Balance Sheets at June 30, 2014 (unaudited) and December 31, 2013 |
|
3 |
|
|
|
|
4 |
|
|
|
|
|
5 |
|
|
|
|
|
6 |
|
|
|
|
|
7 |
|
|
|
|
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
13 |
|
|
|
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk |
|
24 |
|
|
|
|
24 |
|
|
|
|
Report of Marcum LLP, Independent Registered Public Accounting Firm |
|
26 |
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
28 |
|
|
|
|
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds |
|
42 |
|
|
|
|
42 |
|
|
|
|
|
42 |
|
|
|
|
|
42 |
|
|
|
|
|
43 |
|
|
|
|
|
47 |
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
|
June 30, |
|
|
December 31, |
|
||
|
2014 |
|
|
2013 |
|
||
|
(unaudited) |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
33,184 |
|
|
$ |
71,639 |
|
Accounts receivable |
|
613 |
|
|
|
235 |
|
Inventory |
|
5,020 |
|
|
|
5,074 |
|
Prepaid expenses and other current assets |
|
3,433 |
|
|
|
3,567 |
|
Total current assets |
|
42,250 |
|
|
|
80,515 |
|
Property and equipment, net |
|
5,000 |
|
|
|
5,478 |
|
Other assets |
|
8,006 |
|
|
|
7,730 |
|
Total assets |
$ |
55,256 |
|
|
$ |
93,723 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
$ |
6,444 |
|
|
$ |
5,051 |
|
Accrued expenses |
|
11,906 |
|
|
|
9,469 |
|
Warrant liability |
|
— |
|
|
|
991 |
|
Current portion of deferred revenue |
|
899 |
|
|
|
1,010 |
|
Current portion of long-term debt |
|
4,152 |
|
|
|
3,155 |
|
Other current liabilities |
|
393 |
|
|
|
393 |
|
Total current liabilities |
|
23,794 |
|
|
|
20,069 |
|
Deferred revenue, less current portion |
|
1,399 |
|
|
|
1,626 |
|
Long-term debt, less current portion |
|
9,398 |
|
|
|
10,152 |
|
Other liabilities |
|
6,092 |
|
|
|
5,657 |
|
Total liabilities |
|
40,683 |
|
|
|
37,504 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
Common stock purchase warrants |
|
7,890 |
|
|
|
13,461 |
|
Shareholders' equity: |
|
|
|
|
|
|
|
Common stock, no par value: |
|
|
|
|
|
|
|
Authorized shares - 215,000,000 |
|
|
|
|
|
|
|
Issued and outstanding shares - 149,945,210 and 145,508,767 at June 30, 2014 and December 31, 2013, respectively |
|
1,953,916 |
|
|
|
1,933,305 |
|
Accumulated other comprehensive loss |
|
(8,440 |
) |
|
|
(8,429 |
) |
Accumulated deficit |
|
(1,936,104 |
) |
|
|
(1,879,703 |
) |
Total CTI shareholders' equity |
|
9,372 |
|
|
|
45,173 |
|
Noncontrolling interest |
|
(2,689 |
) |
|
|
(2,415 |
) |
Total shareholders' equity |
|
6,683 |
|
|
|
42,758 |
|
Total liabilities and shareholders' equity |
$ |
55,256 |
|
|
$ |
93,723 |
|
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net |
$ |
1,148 |
|
|
$ |
306 |
|
|
$ |
2,416 |
|
|
$ |
1,432 |
|
License and contract revenue |
|
195 |
|
|
|
— |
|
|
|
338 |
|
|
|
— |
|
Total revenues |
|
1,343 |
|
|
|
306 |
|
|
|
2,754 |
|
|
|
1,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sold |
|
202 |
|
|
|
36 |
|
|
|
347 |
|
|
|
91 |
|
Research and development |
|
14,017 |
|
|
|
8,020 |
|
|
|
26,196 |
|
|
|
16,375 |
|
Selling, general and administrative |
|
13,792 |
|
|
|
10,102 |
|
|
|
30,542 |
|
|
|
21,245 |
|
Settlement expense |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
95 |
|
Total operating costs and expenses |
|
28,011 |
|
|
|
18,158 |
|
|
|
57,085 |
|
|
|
37,806 |
|
Loss from operations |
|
(26,668 |
) |
|
|
(17,852 |
) |
|
|
(54,331 |
) |
|
|
(36,374 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
(467 |
) |
|
|
(316 |
) |
|
|
(931 |
) |
|
|
(364 |
) |
Amortization of debt discount and issuance costs |
|
(185 |
) |
|
|
(164 |
) |
|
|
(363 |
) |
|
|
(187 |
) |
Foreign exchange gain (loss) |
|
(160 |
) |
|
|
5 |
|
|
|
(165 |
) |
|
|
(746 |
) |
Other income (expense) |
|
1 |
|
|
|
107 |
|
|
|
(885 |
) |
|
|
(165 |
) |
Total other expense, net |
|
(811 |
) |
|
|
(368 |
) |
|
|
(2,344 |
) |
|
|
(1,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before noncontrolling interest |
|
(27,479 |
) |
|
|
(18,220 |
) |
|
|
(56,675 |
) |
|
|
(37,836 |
) |
Noncontrolling interest |
|
80 |
|
|
|
209 |
|
|
|
274 |
|
|
|
441 |
|
Net loss |
$ |
(27,399 |
) |
|
$ |
(18,011 |
) |
|
$ |
(56,401 |
) |
|
$ |
(37,395 |
) |
Basic and diluted net loss per common share |
$ |
(0.19 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.39 |
) |
|
$ |
(0.35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation of basic and diluted net loss per common share |
|
144,453 |
|
|
|
107,727 |
|
|
|
143,302 |
|
|
|
107,215 |
|
4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Net loss before noncontrolling interest |
$ |
(27,479 |
) |
|
$ |
(18,220 |
) |
|
$ |
(56,675 |
) |
|
$ |
(37,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
76 |
|
|
|
148 |
|
|
|
47 |
|
|
|
487 |
|
Net unrealized loss on securities available-for-sale: |
|
(66 |
) |
|
|
(201 |
) |
|
|
(58 |
) |
|
|
(167 |
) |
Other comprehensive income (loss): |
|
10 |
|
|
|
(53 |
) |
|
|
(11 |
) |
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
(27,469 |
) |
|
|
(18,273 |
) |
|
|
(56,686 |
) |
|
|
(37,516 |
) |
Comprehensive loss attributable to noncontrolling interest |
|
80 |
|
|
|
209 |
|
|
|
274 |
|
|
|
441 |
|
Comprehensive loss attributable to CTI |
$ |
(27,389 |
) |
|
$ |
(18,064 |
) |
|
$ |
(56,412 |
) |
|
$ |
(37,075 |
) |
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
|
Six Months Ended June 30, |
|
|||||
|
2014 |
|
|
2013 |
|
||
Operating activities |
|
|
|
|
|
|
|
Net loss |
$ |
(56,675 |
) |
|
$ |
(37,836 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
Share-based compensation expense |
|
13,185 |
|
|
|
4,396 |
|
Depreciation and amortization |
|
616 |
|
|
|
817 |
|
Noncash interest expense |
|
363 |
|
|
|
187 |
|
Change in value of warrant liability |
|
886 |
|
|
|
(32 |
) |
Other |
|
409 |
|
|
|
161 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
(380 |
) |
|
|
(790 |
) |
Inventory |
|
22 |
|
|
|
(1,741 |
) |
Prepaid expenses and other current assets |
|
73 |
|
|
|
5,175 |
|
Other assets |
|
(366 |
) |
|
|
(645 |
) |
Accounts payable |
|
1,346 |
|
|
|
112 |
|
Accrued expenses |
|
2,448 |
|
|
|
(374 |
) |
Deferred revenue |
|
(338 |
) |
|
|
— |
|
Other liabilities |
|
2 |
|
|
|
(26 |
) |
Total adjustments |
|
18,266 |
|
|
|
7,240 |
|
Net cash used in operating activities |
|
(38,409 |
) |
|
|
(30,596 |
) |
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
(58 |
) |
|
|
(1,355 |
) |
Proceeds from sales of property and equipment |
|
— |
|
|
|
52 |
|
Net cash used in investing activities |
|
(58 |
) |
|
|
(1,303 |
) |
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
Issuance of long-term debt, net |
|
(73 |
) |
|
|
9,730 |
|
Other |
|
(49 |
) |
|
|
(279 |
) |
Net cash provided by (used in) financing activities |
|
(122 |
) |
|
|
9,451 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
134 |
|
|
|
580 |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
(38,455 |
) |
|
|
(21,868 |
) |
Cash and cash equivalents at beginning of period |
|
71,639 |
|
|
|
50,436 |
|
Cash and cash equivalents at end of period |
$ |
33,184 |
|
|
$ |
28,568 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
Cash paid during the period for interest |
$ |
911 |
|
|
$ |
302 |
|
Cash paid for taxes |
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash financing and investing activities |
|
|
|
|
|
|
|
Issuance of common stock upon exercise of common stock purchase warrants |
$ |
1,877 |
|
|
$ |
— |
|
6
CTI BIOPHARMA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. |
Description of Business and Summary of Significant Accounting Policies |
CTI BioPharma Corp., also referred to in this Quarterly Report on Form 10-Q as CTI, the Company, we, us or our, is a biopharmaceutical company focused on the acquisition, development and commercialization of novel targeted therapies covering a spectrum of blood-related cancers that offer a unique benefit to patients and healthcare providers. Our goal is to build a profitable company by generating income from products we develop and commercialize, either alone or with partners. We are currently concentrating our efforts on treatments that target blood-related cancers where there is an unmet medical need. We are primarily focused on commercializing PIXUVRI® (pixantrone), or PIXUVRI, in the European Union, or the E.U., for multiply relapsed or refractory aggressive B-cell non-Hodgkin lymphoma, and conducting a Phase 3 clinical trial program of pacritinib for the treatment of patients with myelofibrosis that will support regulatory submission for approval in the United States, or the U.S., and Europe.
We operate in a highly regulated and competitive environment. The manufacturing and marketing of pharmaceutical products require approval from, and are subject to, ongoing oversight by the Food and Drug Administration in the U.S., the European Medicines Agency in the E.U. and comparable agencies in other countries. Obtaining approval for a new therapeutic product is never certain and may take many years and may involve expenditure of substantial resources.
Basis of Presentation
The accompanying unaudited financial information of CTI as of June 30, 2014 and for the three and six months ended June 30, 2014 and 2013 has been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited financial statements and related notes should be read in conjunction with our audited annual financial statements for the year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the SEC on March 4, 2014.
The condensed consolidated balance sheet at December 31, 2013 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of CTI and its wholly-owned subsidiaries, which include Systems Medicine LLC and CTI Life Sciences Limited, or CTILS. We also retain ownership of our branch, Cell Therapeutics Inc. – Sede Secondaria, or CTI (Europe); however, we ceased operations related to this branch in September 2009. In addition, CTI Commercial LLC, a wholly-owned subsidiary, was included in the consolidated financial statements until dissolution in March 2012.
As of June 30, 2014, we also had a 61% interest in our majority-owned subsidiary, Aequus Biopharma, Inc., or Aequus. The remaining interest in Aequus not held by CTI is reported as noncontrolling interest in the consolidated financial statements.
All intercompany transactions and balances are eliminated in consolidation.
Accounts Receivable
Our accounts receivable balance includes trade receivables related to PIXUVRI sales. We estimate an allowance for doubtful accounts based upon the age of outstanding receivables and our historical experience of collections, which includes adjustments for risk of loss for specific customer accounts. We periodically review the estimation process and make changes to our assumptions as necessary. When it is deemed probable that a customer account is uncollectible, the account balance is written off against the existing allowance. We also consider the customers’ country of origin to determine if an allowance is required. We continue to monitor economic conditions, including the volatility associated with international economies, the sovereign debt crisis in certain European
7
countries and associated impacts on the financial markets and our business. As of June 30, 2014 and December 31, 2013, our accounts receivable did not include any balance from a customer in a country that has exhibited financial stress that would have had a material impact on our financial results. We did not record an allowance for doubtful accounts as of June 30, 2014 and December 31, 2013.
Value Added Tax Receivable
Our European operations are subject to a value added tax, or VAT, which is usually applied to all goods and services purchased and sold throughout Europe. The VAT receivable is approximately $5.8 million and $5.7 million as of June 30, 2014 and December 31, 2013, of which $5.5 million and $5.6 million is included in other assets and $0.3 million and $0.1 million is included in prepaid expenses and other current assets as of June 30, 2014 and December 31, 2013, respectively. The collection period of VAT receivable for our European operations ranges from approximately three months to five years. For our Italian VAT receivable, the collection period is approximately three to five years. As of June 30, 2014, the VAT receivable related to operations in Italy is approximately $5.5 million. We review our VAT receivable balance for impairment whenever events or changes in circumstances indicate the carrying amount might not be recoverable.
Inventory
We carry inventory at the lower of cost or market. The cost of finished goods and work in process is determined using the standard-cost method, which approximates actual cost based on a first-in, first-out method. Inventory includes the cost of materials, third-party contract manufacturing and overhead costs, quality control costs and shipping costs from the manufacturers to the final distribution warehouse associated with the production and distribution of PIXUVRI. Production costs for our other product candidates continue to be charged to research and development expense as incurred prior to regulatory approval or until our estimate for regulatory approval becomes probable. We regularly review our inventories for impairment and reserves are established when necessary. Estimates of excess inventory consider our projected sales of the product and the remaining shelf lives of product. In the event we identify excess, obsolete or unsaleable inventory, the value is written down to the net realizable value.
Revenue Recognition
We currently have conditional marketing authorization for PIXUVRI in the E.U. Revenue is recognized when there is persuasive evidence of the existence of an agreement, delivery has occurred, prices are fixed or determinable, and collectability is assured. Where the revenue recognition criteria are not met, we defer the recognition of revenue by recording deferred revenue until such time that all criteria under the provision are met.
Product Sales
We sell PIXUVRI directly to health care providers and through a limited number of distributors. We generally record product sales upon receipt of the product by the health care providers and certain distributors at which time title and risk of loss pass. Product sales are recorded net of distributor discounts, estimated government-mandated rebates, trade discounts, and estimated product returns. Reserves are established for these deductions and actual amounts incurred are offset against the applicable reserves. We reflect these reserves as either a reduction in the related account receivable or as an accrued liability depending on the nature of the sales deduction. These estimates are periodically reviewed and adjusted as necessary.
Government-mandated discounts and rebates
Our products are subject to certain programs with government entities in the E.U. whereby pricing on products is discounted below distributor list price to participating health care providers. These discounts are provided to participating health care providers either at the time of sale or through a claim by the participating health care providers for a rebate. Due to estimates and assumptions inherent in determining the amount of government-mandated discounts and rebates, the actual amount of future claims may be different from our estimates, at which time we would adjust our reserves accordingly.
Product returns and other deductions
At the time of sale, we also record estimates for certain sales deductions such as product returns and distributor discounts and incentives. We offer certain customers a limited right of return or replacement of product that is damaged in certain instances. When we cannot reasonably estimate the amount of future product returns and/or other sales deductions, we do not recognize revenue until the risk of product return and additional sales deductions have been substantially eliminated. To date, there have been no PIXUVRI product returns.
8
Cost of Product Sold
Cost of product sold includes third-party manufacturing costs, shipping costs, contractual royalties and other costs of PIXUVRI product sold. Cost of product sold also includes any necessary allowances for excess inventory that may expire and become unsalable. We did not record an allowance for excess inventory as of June 30, 2014 and 2013.
Net Loss Per Share
Basic net income (loss) per share is calculated based on the net income (loss) attributable to common shareholders divided by the weighted average number of shares outstanding for the period excluding any dilutive effects of options, warrants, unvested share awards and convertible securities. Diluted net income (loss) per common share assumes the conversion of all dilutive convertible securities, such as convertible debt and convertible preferred stock using the if-converted method, and assumes the exercise or vesting of other dilutive securities, such as options, warrants and restricted stock using the treasury stock method. As of June 30, 2014 and 2013, options, warrants and unvested share rights aggregating 14.8 million and 12.7 million common share equivalents, respectively, prior to the application of the as-if converted method for convertible securities and the treasury stock method for other dilutive securities, such as options and warrants, are not included in the calculation of diluted net loss per share as they are anti-dilutive.
Fair Value Measurement
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest:
Level 1 – Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities, or other inputs that are observable directly or indirectly.
Level 3 – Unobservable inputs that are supported by little or no market activity, requiring an entity to develop its own assumptions.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Concentrations of Credit Risk
Financial instruments which potentially subject us to concentrations of credit risk consist of accounts receivable. The Company has accounts receivable from the sale of PIXUVRI from a small number of distributors and health care providers. Further, the Company does not require collateral on amounts due from its distributors and is therefore subject to credit risk. The Company has not experienced any significant credit losses to date as a result of credit risk concentration and does not consider an allowance for doubtful accounts to be necessary.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board, or the FASB, issued a new financial accounting standard which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. We are currently evaluating the impact of this accounting standard.
Recently Adopted Accounting Standards
In March 2013, the FASB issued guidance to clarify when to release cumulative foreign currency translation adjustments when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity. The amendment is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013 and should be applied prospectively to derecognition events occurring after the effective date, with early adoption permitted. The adoption of this guidance did not have an impact on our consolidated financial statements.
9
In July 2013, the FASB issued guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss or tax carryforward exists. The FASB concluded that an unrecognized tax benefit should be presented as a reduction of a deferred tax asset except in certain circumstances the unrecognized tax benefit should be presented as a liability and should not be combined with deferred tax assets. The amendment is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The adoption of this guidance did not have an impact on our consolidated financial statements.
Reclassifications
Certain prior year items have been reclassified to conform to current year presentation.
2. |
Inventory |
The components of PIXUVRI inventory consisted of the following as of June 30, 2014 and December 31, 2013 (in thousands):
|
June 30, |
|
|
December 31, |
|
||
|
2014 |
|
|
2013 |
|
||
Finished goods |
$ |
1,004 |
|
|
$ |
601 |
|
Work-in-process |
|
4,016 |
|
|
|
4,473 |
|
Total inventories |
$ |
5,020 |
|
|
$ |
5,074 |
|
3. |
Long-term Debt |
In March 2014, we entered into a First Amendment, or the Amendment, to Loan and Security Agreement, or the Original Loan Agreement (and as amended by the Amendment, the Loan Agreement) with Hercules Capital Funding Trust 2012-1, or Hercules, which was assigned from the original lender, Hercules Technology Growth Capital, Inc. The Amendment modified certain terms applicable to the presently outstanding loan balance of $15.0 million, or the Original Loan, as described below and provides us with the option to borrow an additional $5.0 million, or the 2014 Term Loan Availability, through October 31, 2014, subject to certain conditions. We paid a facility charge of $72,500 in connection with the Amendment.
Pursuant to the Amendment, the interest-only period of the Original Loan has been extended by six months such that the 24 equal monthly installments of principal and interest (mortgage style) will now commence on November 1, 2014 (rather than May 1, 2014). In addition, the interest rate on the Original Loan (which is currently 12.25% plus the amount by which the prime rate exceeds 3.25%) will, upon Hercules’ receipt of evidence of the achievement of positive Phase III data in connection with our PERSIST-1 clinical trial, be reduced to 11.25% plus the amount by which the prime rate exceeds 3.25%. The modified terms were not considered substantially different pursuant to ASC 470-50, Modification and Extinguishment.
If we elect to borrow the funds under the 2014 Term Loan Availability, interest on such portion would float at a rate per annum equal to 10.00% plus the amount by which the prime rate exceeds 3.25%. Any borrowings under the 2014 Term Loan Availability would be repayable in 24 equal monthly installments of principal and interest (mortgage style) commencing on November 1, 2014. As of the time of this filing, we have not borrowed the funds underlying the 2014 Term Loan Availability.
Subject to certain exceptions, all loan obligations under the Loan Agreement are secured by a first priority security interest on substantially all of our personal property (excluding our intellectual property).
As of December 31, 2013, the fair value of the warrant issued in connection with the consummation of the Original Loan Agreement in March 2013 was $1.0 million and was classified as a liability since it did not meet the considerations necessary for equity classification. The warrant was categorized as Level 2 in the fair value hierarchy as the significant inputs used in determining fair value were considered observable market data. In January 2014, all of the warrant was exercised into 0.5 million shares of common stock via cashless exercise.
As of June 30, 2014 and December 31, 2013, unamortized debt discount was $1.5 million and $1.7 million, unamortized issuance costs were $0.2 million and $0.3 million, respectively.
4. |
Legal Proceedings |
On December 10, 2009, the Commissione Nazionale per le Società e la Borsa (which is the public authority responsible for regulating the Italian securities markets), or CONSOB, sent us a notice claiming, among other things, violation of the provisions of
10
Section 114, paragraph 1 of the Italian Legislative Decree no. 58/98 due to the asserted late disclosure of the contents of the opinion expressed by Stonefield Josephson, Inc., an independent registered public accounting firm, with respect to our 2008 financial statements. The sanctions established by Section 193, paragraph 1 of the Italian Legislative Decree no. 58/98 for such violations could require us to pay a pecuniary administrative sanction amounting to between $7,000 and $684,000 upon conversion from euros as of June 30, 2014. Until CONSOB’s right is barred, CONSOB may, at any time, confirm the occurrence of the asserted violation and apply a pecuniary administrative sanction within the foregoing range. To date, we have not received any such notification.
The Italian Tax Authority, or the ITA, issued notices of assessment to CTI (Europe) based on the ITA’s audit of CTI (Europe)’s VAT returns for the years 2003, 2005, 2006 and 2007, or, collectively, the VAT Assessments. The ITA audits concluded that CTI (Europe) did not collect and remit VAT on certain invoices issued to non-Italian clients for services performed by CTI (Europe). We believe that the services invoiced were non-VAT taxable consultancy services and that the VAT returns are correct as originally filed. We are defending ourselves against the assessments both on procedural grounds and on the merits of the case. As of December 31, 2012, we reversed the entire reserve we had previously recorded relating to the VAT Assessments after having received favorable court rulings. In January 2013, our then remaining deposit for the VAT Assessments was refunded to us. The current status of the legal proceedings surrounding each respective VAT year return at issue is as follows:
2003. In June 2013, the Regional Tax Court issued decision no. 119/50/13 in regards to the 2003 VAT assessment, which accepted the appeal of the ITA and reversed the previous decision of the Provincial Tax Court. In January 2014, we were notified that the ITA requested partial payment of the 2003 VAT assessment in the amount of €430,118, which we paid in March 2014. We believe that the decision of the Regional Tax Court did not carefully take into account our arguments and the documentation we filed, and in January 2014, we appealed such decision to the Supreme Court both on procedural grounds and on the merits of the case.
2005, 2006 and 2007. The ITA has appealed to the Supreme Court the decisions of the respective appellate court with respect to each of the 2005, 2006 and 2007 VAT returns.
If the final decisions of the Supreme Court for the VAT Assessments are unfavorable to us, we may incur up to $12.9 million in losses for the VAT amount assessed including penalties, interest and fees upon conversion from euros as of June 30, 2014.
In July 2014, Joseph Lopez and Gilbert Soper, shareholders of the Company, filed a derivative lawsuit purportedly on behalf of the Company, which is named a nominal defendant, against all current and one past member of the Company’s Board of Directors in King County Superior Court in the State of Washington, docketed as Lopez & Gilbert v. Nudelman, et al., Case No. 14-2-18941-9 SEA. The lawsuit alleges that the directors exceeded their authority under the Company’s 2007 Equity Incentive Plan, or the Plan, by improperly transferring 4,756,137 shares of the Company’s common stock from the Company to themselves. It alleges that the directors breached their fiduciary duties by granting themselves fully vested shares of Company common stock, which the plaintiffs allege were not among the six types of grants authorized by the Plan, and that the non-employee directors were unjustly enriched by these grants. The lawsuit also alleges that from 2011 through 2014, the non-employee members of the Board of Directors granted themselves grossly excessive compensation, and in doing so breached their fiduciary duties and were unjustly enriched. Among other remedies, the lawsuit seeks a declaration that the specified grants of common stock violated the Plan, rescission of the granted shares, disgorgement of the compensation awards to the non-employee directors from 2011 through 2014, disgorgement of all compensation and other benefits received by the defendant directors in the course of their breaches of fiduciary duties, damages, an order for certain corporate reforms and plaintiffs’ costs and attorneys’ fees. Because the complaint is derivative in nature, it does not seek monetary damages from the Company. At this stage of the litigation, no probability of loss can be predicted.
5. |
Share-based Compensation Expense |
The following table summarizes share-based compensation expense for the three and six months ended June 30, 2014 and 2013, which was allocated as follows (in thousands):
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Research and development |
$ |
1,034 |
|
|
$ |
451 |
|
|
$ |
1,816 |
|
|
$ |
855 |
|
Selling, general and administrative |
|
4,322 |
|
|
|
1,517 |
|
|
|
11,369 |
|
|
|
3,541 |
|
Total share-based compensation expense |
$ |
5,356 |
|
|
$ |
1,968 |
|
|
$ |
13,185 |
|
|
$ |
4,396 |
|
11
For the three and six months ended June 30, 2014 and 2013, we incurred share-based compensation expense due to the following types of awards (in thousands):
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Performance rights |
$ |
191 |
|
|
$ |
265 |
|
|
$ |
694 |
|
|
$ |
605 |
|
Restricted stock |
|
3,679 |
|
|
|
1,456 |
|
|
|
9,648 |
|
|
|
3,451 |
|
Options |
|
1,486 |
|
|
|
247 |
|
|
|
2,843 |
|
|
|
340 |
|
Total share-based compensation expense |
$ |
5,356 |
|
|
$ |
1,968 |
|
|
$ |
13,185 |
|
|
$ |
4,396 |
|
6. |
Other Comprehensive Income (Loss) |
Total accumulated other comprehensive income (loss) consisted of the following (in thousands):
|
Net Unrealized Loss on Securities Available-For- Sale |
|
|
Foreign Currency Translation Adjustments |
|
|
Accumulated Other Comprehensive Loss |
|
|||
December 31, 2013 |
$ |
(422 |
) |
|
$ |
(8,007 |
) |
|
$ |
(8,429 |
) |
Current period other comprehensive income (loss) |
|
(58 |
) |
|
|
47 |
|
|
|
(11 |
) |
June 30, 2014 |
$ |
(480 |
) |
|
$ |
(7,960 |
) |
|
$ |
(8,440 |
) |
7. |
Leases |
Our deferred rent balance was $4.6 million as of June 30, 2014, of which $0.4 million was included in other current liabilities and $4.2 million was included in other liabilities. As of December 31, 2013, our deferred rent balance was $4.8 million, of which $0.4 million was included in other current liabilities and $4.4 million was included in other liabilities.
12
This Quarterly Report on Form 10-Q may contain, in addition to historical information, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and should be read in conjunction with the Condensed Consolidated Financial Statements and the related Notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q. When used in this Quarterly Report on Form 10-Q, terms such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of those terms or other comparable terms are intended to identify such forward-looking statements. Such statements, which include statements concerning sufficiency of cash resources and related projections, product sales, research and development expenses, selling, general and administrative expenses, additional financings and additional losses, are subject to known and unknown risks and uncertainties, including, but not limited to, those discussed below and elsewhere in this Quarterly Report on Form 10-Q and our 2013 Annual Report on Form 10-K, or the 2013 Form 10-K, particularly in “Factors Affecting Our Business, Financial Condition, Operating Results and Prospects,” that could cause actual results, levels of activity, performance or achievements to differ significantly from those projected. Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We will not update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or changes in our expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q.
OVERVIEW
We are a biopharmaceutical company focused on the acquisition, development and commercialization of novel targeted therapies covering a spectrum of blood-related cancers that offer a unique benefit to patients and healthcare providers. Our goal is to build a profitable company by generating income from products we develop and commercialize, either alone or with partners. We are currently concentrating our efforts on treatments that target blood-related cancers where there is an unmet medical need. We are primarily focused on commercializing PIXUVRI® (pixantrone), or PIXUVRI, in the European Union, or the E.U., for multiply relapsed or refractory aggressive B-cell non-Hodgkin lymphoma, or NHL, and conducting a Phase 3 clinical trial program of pacritinib for the treatment of patients with myelofibrosis that will support regulatory submission for approval in the United States, or the U.S., and Europe.
PIXUVRI
PIXUVRI is a novel aza-anthracenedione derivative that is structurally related to anthracyclines and anthracenediones, but does not appear to be associated with the same level of cardiotoxic effects. In May 2012, the European Commission granted conditional marketing authorization in the E.U. for PIXUVRI as a monotherapy for the treatment of adult patients with multiply relapsed or refractory aggressive B-cell NHL. PIXUVRI is the first approved treatment in the E.U. for patients with multiply relapsed or refractory aggressive B-cell NHL who have failed two or three prior lines of therapy. In connection with the conditional marketing authorization, we are conducting the required post-approval commitment trial, which compares pixantrone and rituximab with gemcitabine and rituximab in the setting of aggressive B-cell NHL. As of the date of this filing, PIXUVRI was available in Austria, Denmark, Finland, France, Germany, Israel, Italy, Netherlands, Norway, Sweden and the United Kingdom, or the U.K. We have established a commercial organization, including sales, marketing, supply chain management and reimbursement capabilities, to commercialize PIXUVRI in the E.U. PIXUVRI is not approved in the U.S.
In July 2014, the Dutch Healthcare Authority (NZa) and the healthcare insurance board of the Netherlands approved funding for PIXUVRI as an add-on drug. In February 2014, PIXUVRI received final guidance for funding and reimbursement from the National Institute for Health and Care Excellence in England/Wales. Previously, in December 2013, we reached agreement for funding and reimbursement with the National Association of Statutory Health Insurance Funds in Germany, and in the third quarter of 2013, PIXUVRI was granted market access in Italy and France.
Our intent is to expand PIXUVRI’s global reach and revenue potential through a possible global development and commercialization collaboration whereby we would seek to retain rights to PIXUVRI in certain European countries and the U.S.
Decisions by governmental authorities and healthcare providers will impact the price and market acceptance of PIXUVRI, as pricing and availability of prescription pharmaceuticals are subject to governmental control in almost all European markets. Accordingly, any future revenues are dependent on market acceptance of PIXUVRI, the reimbursement decisions made by the governmental authorities and healthcare providers in each country where PIXUVRI is available for sale and other factors.
Pacritinib
Our lead development candidate, pacritinib, is an oral tyrosine kinase inhibitor (TKI) with dual activity against Janus Kinase 2, or JAK2, and FMS-like tyrosine kinase (also known as FLT3), which demonstrated meaningful clinical benefit and good tolerability in myelofibrosis patients in Phase 2 clinical trials. Myelofibrosis is a blood-related cancer caused by the accumulation of malignant
13
bone marrow cells that triggers an inflammatory response, scarring the bone marrow and limiting its ability to produce red blood cells prompting the spleen and liver to take over this function. Symptoms that arise from this disease include enlargement of the spleen, anemia, extreme fatigue, itching and pain. We believe pacritinib may offer an advantage over other JAK inhibitors through effective relief of symptoms with less treatment-emergent thrombocytopenia and anemia.
In collaboration with Baxter International, Inc., or Baxter, pursuant to our worldwide license agreement to develop and commercialize pacritinib, or the Baxter Agreement, we are pursuing a broad approach to advancing pacritinib for patients with myelofibrosis by conducting two Phase 3 clinical trials: one in a broad set of patients without limitations on blood platelet counts, the PERSIST-1 trial, and the other in patients with low platelet counts, the PERSIST-2 trial. The PERSIST-1 trial was initiated in January 2013 and enrollment in this trial was completed in July 2014, while top-line results are expected in early 2015. In October 2013, we reached an agreement with the U.S. Food and Drug Administration, or FDA, on a Special Protocol Assessment for PERSIST-2,which was subsequently opened for enrollment in March 2014. The two clinical trials are intended to support a New Drug Application, or NDA, regulatory submission in the U.S. in late 2015, followed by a Marketing Authorization Application submission in Europe in 2016. In August 2014, we received a $20 million development milestone payment under the Baxter Agreement following completion of enrollment in PERSIST-1. For additional information on our collaboration with Baxter, please see the discussion in Part I, Item 2, License Agreements and Additional Milestone Activities – Baxter.
We are also currently evaluating pacritinib in acute myeloid leukemia, or AML, through an ongoing investigator-sponsored trial, or IST, and intend to evaluate it in other blood cancers in the future.
Tosedostat
Tosedostat is an oral aminopeptidase inhibitor that has demonstrated significant responses in patients with AML. It is currently being evaluated in several Phase 2 trials, which are being conducted as cooperative group-sponsored trials and ISTs. These trials are evaluating tosedostat in combination with hypomethylating agents in AML and myelodysplastic syndrome, which are cancers of the blood and bone marrow. We anticipate that data from these signal-finding trials may be used to determine the appropriate design for a Phase 3 trial.
Paclitaxel Poliglumex (Opaxio)
Opaxio is our novel biologically-enhanced chemotherapeutic agent that links paclitaxel to a biodegradable polyglutamate polymer, resulting in a new chemical entity. Taxanes, including paclitaxel (Taxol®) and docetaxel (Taxotere®), are widely used for the treatment of various solid tumors. Development of Opaxio is currently being conducted through cooperative group trials and ISTs focusing on ovarian cancer, glioblastoma multiforme and head and neck cancers. Opaxio is being evaluated in a Phase 3 trial, GOG-0212, as a potential maintenance therapy for women with advanced stage ovarian cancer who achieve a complete remission following first-line therapy with paclitaxel and carboplatin. This trial is being conducted and managed by the Gynecologic Oncology Group, or the GOG, which is one of the National Cancer Institute’s funded cooperative cancer research groups focused on the study of gynecologic malignancies. For purposes of registration, the primary endpoint of this trial is overall survival of patients treated with Opaxio compared to no maintenance therapy. The statistical analysis plan calls for up to four interim analyses and one final analysis, each with boundaries for early closure for superior efficacy or for futility. The first interim analysis was conducted in January 2013, which passed the futility boundary and continued with no changes. In January 2014, we were informed by the GOG that enrollment in the trial had been completed with 1,150 patients enrolled.
Financial summary
Our product sales are currently generated solely from the sales of PIXUVRI in Europe. We recorded $1.1 million in total net product sales for the three months ended June 30, 2014. Our product sales may vary significantly from period to period as the commercialization and reimbursement negotiations for PIXUVRI progress. Our loss from operations for the three months ended June 30, 2014 was $26.7 million, compared to $17.9 million for the same period in 2013. Our results of operations may vary substantially from year to year and from quarter to quarter and, as a result, you should not rely on them as being indicative of our future performance.
As of June 30, 2014, we had cash and cash equivalents of $33.2 million and outstanding debt under our senior secured term loan agreement of $15.0 million (with an option to borrow an additional $5.0 million thereunder through October 31, 2014, subject to certain conditions). Please refer to Note 3, Long-term Debt, under Part I, Item 1 in this Quarterly Report on Form 10-Q, which note is incorporated herein by reference, for further information relating to our senior secured term loan agreement.
As discussed above, in August 2014 we received a $20 million development milestone payment under the Baxter Agreement following completion of enrollment in PERSIST-1.
14
RESULTS OF OPERATIONS
Three months ended June 30, 2014 and 2013
Product sales, net. Net product sales from PIXUVRI for the three months ended June 30, 2014 and 2013 were $1.1 million and $0.3 million, respectively. We sell PIXUVRI directly to health care providers and through a limited number of wholesale distributors in the E.U. Of our product sales during the three months ended June 30, 2014, 45 percent were made to a single customer. All sales of PIXUVRI during the periods presented were made in Europe. We generally record product sales upon receipt of the product by the health care provider or distributor at which time title and risk of loss pass. Product sales are recorded net of distributor discounts, estimated government-mandated discounts and rebates, trade discounts and estimated product returns. Any future revenues are dependent on market acceptance of PIXUVRI, the reimbursement decisions made by governmental authorities in each country where PIXUVRI is available for sale and other factors.
As of June 30, 2014, the balance from activity in returns, discounts and rebates is reflected in accounts receivable and accrued expenses. Balances and activity for the components of our gross to net sales adjustments for the three months ended June 30, 2014 and 2013 are as follows (in thousands) where gross sales is defined as our contracted reimbursement price in each country:
|
Product returns |
|
|
Discounts, rebates and other |
|
|
Total |
|
|||
Balance at March 31, 2014 |
$ |
42 |
|
|
$ |
108 |
|
|
$ |
150 |
|
Provision for current period sales |
|
35 |
|
|
|
15 |
|
|
|
50 |
|
Adjustments to provision for prior period sales |
|
— |
|
|
|
— |
|
|
|
— |
|
Payments/credits for current period sales |
|
— |
|
|
|
(15 |
) |
|
|
(15 |
) |
Payments/credits for prior period sales |
|
— |
|
|
|
(7 |
) |
|
|
(7 |
) |
Balance at June 30, 2014 |
$ |
77 |
|
|
$ |
101 |
|
|
$ |
178 |
|
|
Product returns |
|
|
Discounts, rebates and other |
|
|
Total |
|
|||
Balance at March 31, 2013 |
$ |
25 |
|
|
$ |
8 |
|
|
$ |
33 |
|
Provision for current period sales |
|
12 |
|
|
|
27 |
|
|
|
39 |
|
Adjustments to provision for prior period sales |
|
— |
|
|
|
114 |
|
|
|
114 |
|
Payments/credits for current period sales |
|
— |
|
|
|
(7 |
) |
|
|
(7 |
) |
Payments/credits for prior period sales |
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at June 30, 2013 |
$ |
37 |
|
|
$ |
142 |
|
|
$ |
179 |
|
Provision for product returns increased $35,000 during the three months ended June 30, 2014 as compared to an increase of $12,000 during the three months ended June 30, 2013 due to an increase in sales activity. This provision relates to a limited right of return or replacement that we offer to certain customers. To date, there have been no PIXUVRI product returns.
Provision for discounts, rebates and other during the three months ended June 30, 2014 and 2013 primarily relates to distributor discounts and government-mandated rebates on product sold. All rebate payments made during the three months ended June 30, 2014 relate to 2013 sales activity.
Please refer to Note 1, Description of Business and Summary of Significant Accounting Policies, under Part I, Item 1 in this Quarterly Report on Form 10-Q, which note is incorporated herein by reference, for further information.
15
License and contract revenue. In connection with the execution of the Baxter Agreement in 2013, we allocated and recorded $2.7 million of the upfront payment we received under the Baxter Agreement to deferred revenue. We recognize license and contract revenue based on a proportional performance method, by which revenue is recognized in proportion to the development costs incurred. The development services under the Baxter Agreement are expected to be performed through approximately 2018, with the majority of development services expected to be completed by approximately the end of 2015. During the three months ended June 30, 2014, approximately $0.2 million of the remaining deferred revenue balance was recognized as revenue and included in license and contract revenue. We had no such revenue during the three months ended June 30, 2013. The following table illustrates such balance of deferred revenue under the Baxter Agreement as of June 30, 2014 and December 31, 2013 (in thousands):
|
June 30, 2014 |
|
|
December 31, 2013 |
|
||
Current portion of deferred revenue |
$ |
899 |
|
|
$ |
1,010 |
|
Deferred revenue, less current portion |
|
1,399 |
|
|
|
1,626 |
|
Total deferred revenue |
$ |
2,298 |
|
|
$ |
2,636 |
|
Cost of product sold. Cost of product sold is related to sales of PIXUVRI. This expense increased to $202,000 for the three months ended June 30, 2014 as compared to $36,000 for the three months ended June 30, 2013, primarily due to an increase in sales activity. We began capitalizing costs related to the production of PIXUVRI in February 2012 upon receiving a positive opinion for conditional marketing authorization by the Committee for Medicinal Products for Human Use, or the CHMP, which is a committee of the European Medicines Agency, or the EMA. The manufacturing costs of PIXUVRI product prior to receipt of the CHMP’s positive opinion was expensed as research and development as incurred. While we tracked the quantities of individual PIXUVRI product lots, we did not track manufacturing costs in our inventory system prior to capitalization, and therefore, the manufacturing cost of PIXUVRI produced prior to capitalization is not reasonably determinable. Most of this reduced-cost inventory is expected to be available for us to use commercially. The timing of the sales of such reduced-cost inventory and its impact on gross margin is dependent on the level of PIXUVRI sales as well as our ability to utilize this inventory prior to its expiration date. We expect that our cost of product sold as a percentage of product revenue will increase in future periods as PIXUVRI product manufactured and expensed prior to capitalization is sold. At this time, we cannot reasonably estimate the timing or rate of consumption of reduced-cost PIXUVRI product manufactured and expensed prior to capitalization, and we are unable to provide our estimate of cost of goods sold as a percentage of product revenue once such inventory is exhausted.
Research and development expenses. Our research and development expenses for compounds under development and preclinical development for the three months ended June 30, 2014 and 2013 were as follows (in thousands):
|
Three Months Ended June 30, |
|
|||||
|
2014 |
|
|
2013 |
|
||
Compounds: |
|
|
|
|
|
|
|
PIXUVRI |
$ |
1,379 |
|
|
$ |
1,242 |
|
Pacritinib |
|
7,172 |
|
|
|
1,861 |
|
Opaxio |
|
133 |
|
|
|
434 |
|
Tosedostat |
|
124 |
|
|
|
271 |
|
Brostallicin |
|
1 |
|
|
|
44 |
|
Operating expenses |
|
4,895 |
|
|
|
4,043 |
|
Research and preclinical development |
|
313 |
|
|
|
125 |
|
Total research and development expenses |
$ |
14,017 |
|
|
$ |
8,020 |
|
Costs for our compounds include external direct expenses such as principal investigator fees, clinical research organization charges and contract manufacturing fees incurred for preclinical, clinical, manufacturing and regulatory activities associated with preparing the compounds for submissions of NDAs or similar regulatory filings to the FDA, the EMA or other regulatory agencies outside the U.S. and Europe, as well as upfront license fees for acquired technology. Subsequent to receiving a positive opinion for conditional marketing authorization of PIXUVRI in the E.U. from the EMA’s CHMP, costs associated with commercial batch production, quality control, stability testing and certain other manufacturing costs of PIXUVRI were capitalized as inventory. Operating expenses include our personnel and an allocation of occupancy, depreciation and amortization expenses associated with developing these compounds. Research and preclinical development costs primarily include costs associated with external laboratory services associated with other compounds. We are not able to capture the total cost of each compound because we do not allocate operating expenses to all of our compounds. External direct costs incurred by us as of June 30, 2014 were $88.8 million for PIXUVRI (excluding costs prior to our merger with Novuspharma S.p.A in January 2004), $25.9 million for pacritinib (excluding costs for pacritinib prior to our acquisition of certain assets from S*BIO Pte Ltd, or S*BIO, in May 2012 and $29.1 million of in-process research and development expenses associated with such acquisition), $227.2 million for Opaxio, $11.0 million for tosedostat (excluding costs for tosedostat prior to the effectiveness of the Chroma License Agreement (defined below) (see License Agreements
16
and Additional Milestone Activities – Chroma Therapeutics, Ltd. below)) and $9.6 million for brostallicin (excluding costs for brostallicin prior to our acquisition of Systems Medicine, LLC in July 2007).
Research and development expenses increased to $14.0 million for the quarter ended June 30, 2014 compared to $8.0 million for the quarter ended June 30, 2013. This $6.0 million increase was primarily due to development costs for the pacritinib program, which includes the expansion of patient enrollment in the PERSIST-1 clinical trial and an increase in start-up costs for the PERSIST-2 trial. The increase in operating expense is primarily due to additional non-cash share-based compensation between the periods. The offset to these increases was primarily attributable to a decrease in Opaxio development costs resulting from completion of the required patient enrollment in the GOG-0212 trial during the first quarter of 2014 and a reduction in manufacturing costs.
Regulatory agencies, including the FDA and EMA, regulate many aspects of a product candidate’s life cycle, including research and development and preclinical and clinical testing. We will need to commit significant time and resources to develop our current and any future product candidates. Our drug candidates pacritinib, tosedostat and Opaxio are currently in clinical development, and our product PIXUVRI, which is currently being commercialized in parts of Europe, is undergoing a post-approval commitment study. Many drugs in human clinical trials fail to demonstrate the desired safety and efficacy characteristics. We are unable to provide the nature, timing and estimated costs of the efforts necessary to complete the development of pacritinib, tosedostat and Opaxio, and to complete the post-approval commitment study of PIXUVRI, because, among other reasons, we cannot predict with any certainty the pace of patient enrollment of our clinical trials, which is a function of many factors, including the availability and proximity of patients with the relevant condition. We rely on third parties to conduct clinical trials, which may result in delays or failure to complete trials if the third parties fail to perform or meet applicable standards. Even after a clinical trial is enrolled, preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval and advancement of this compound through the development process. We or regulatory authorities may suspend clinical trials at any time on the basis that the participants are being exposed to unacceptable health risks. Even if our drugs progress successfully through initial human testing in clinical trials, they may fail in later stages of development. A number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in advanced clinical trials, even after reporting promising results in earlier trials. For these reasons, among others, we cannot estimate the date on which clinical development of our product candidates will be completed, if ever, or when we will generate material net cash inflows from PIXUVRI or be able to begin commercializing pacritinib, tosedostat or Opaxio to generate material net cash inflows. In order to generate revenue from these products, our product candidates need to be developed to a stage that will enable us to commercialize, sell or license related marketing rights to third parties.
We are also unable to control the amount and timing of resources any of our collaborators devote to product candidates, where applicable, which may result in delays in the development or marketing of products. Because of these risks and uncertainties, we cannot accurately predict when or whether we will successfully complete the development of our product candidates or the ultimate product development cost.
The risks and uncertainties associated with completing development on schedule and the consequences to operations, financial position and liquidity if the project is not timely completed are discussed in more detail in our risk factors, which begin on page 28 of this Quarterly Report on Form 10-Q and, in particular, in the following risk factors: “If our collaboration with Baxter with respect to pacritinib or any other collaboration for our products or product candidates is not successful, or if we are unable to enter into additional collaborations, we may not be able to effectively develop and/or commercialize the applicable product(s), which could have a material adverse effect on our business.”, “Product candidates that appear promising in research and development may fail to reach later stages of development for a number of reasons, including, among others, that clinical trials may take longer to complete than expected or may not be completed at all.”; “We or our collaboration partners may not obtain or maintain the regulatory approvals required to develop or commercialize some or all of our products.”; “Even if our drug candidates are successful in clinical trials and receive regulatory approvals, we or our collaboration partners may not be able to successfully commercialize them.”; and “Even if our products receive regulatory approval, we will be subject to ongoing obligations and continued regulatory review by the FDA, the EMA and other foreign regulatory agencies, as applicable, and may be subject to additional post-marketing obligations, all of which may result in significant expense and limit commercialization of our products, including PIXUVRI.”
Selling, general and administrative expenses. Selling, general and administrative expenses were $13.8 million for the three months ended June 30, 2014 as compared to $10.1 million for the three months ended June 30, 2013. This increase was primarily due to a $2.8 million increase in non-cash share-based compensation. The remaining increase is related to administrative expenses substantially associated with legal and patent services.
Interest expense. Interest expense is related to our senior secured term loan issued in March 2013 and December 2013. This expense increased to $0.5 million for the three months ended June 30, 2014 as compared to $0.3 million for the three months ended June 30, 2013 primarily due to the additional $5.0 million senior secured term loan that was issued in December 2013.
Amortization of debt discount and issuance costs. Amortization of debt discount and issuance costs for the three months ended June 30, 2014 and 2013 is related to the amortization of debt discount and issuance costs incurred on our senior secured term loan originally issued in 2013.
17
Foreign exchange gain (loss). The foreign exchange loss for the three months ended June 30, 2014 and foreign exchange gain for the three months ended June 30, 2013 are due to fluctuations in foreign currency exchange rates, primarily related to payables and receivables in our European branches and subsidiaries denominated in foreign currencies.
Other income. Other income for the three months ended June 30, 2013 is primarily related to the change in fair value of the warrant issued in connection with the issuance of our senior secured term loan in March 2013 and gain on disposal of property and equipment. There was no significant activity for the comparable period in 2014.
Six months ended June 30, 2014 and 2013
Product sales, net. Net product sales from PIXUVRI for the six months ended June 30, 2014 and 2013 were $2.4 million and $1.4 million, respectively.
As of June 30, 2014, the balance from activity in discounts, returns and rebates is reflected in accounts receivable and accrued expenses. Balances and activity for the components of our gross to net sales adjustments for the six months ended June 30, 2014 and 2013 are as follows (in thousands) where gross sales is defined as our contracted reimbursement price in each country:
|
Product returns |
|
|
Discounts, rebates and other |
|
|
Total |
|
|||
Balance at December 31, 2013 |
$ |
39 |
|
|
$ |
177 |
|
|
$ |
216 |
|
Provision for current period sales |
|
38 |
|
|
|
30 |
|
|
|
68 |
|
Adjustments to provision for prior period sales |
|
— |
|
|
|
— |
|
|
|
— |
|
Payments/credits for current period sales |
|
— |
|
|
|
(30 |
) |
|
|
(30 |
) |
Payments/credits for prior period sales |
|
— |
|
|
|
(76 |
) |
|
|
(76 |
) |
Balance at June 30, 2014 |
$ |
77 |
|
|
$ |
101 |
|
|
$ |
178 |
|
|
Product returns |
|
|
Discounts, rebates and other |
|
|
Total |
|
|||
Balance at December 31, 2012 |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Provision for current period sales |
|
37 |
|
|
|
186 |
|
|
|
223 |
|
Adjustments to provision for prior period sales |
|
— |
|
|
|
— |
|
|
|
— |
|
Payments/credits for current period sales |
|
— |
|
|
|
(44 |
) |
|
|
(44 |
) |
Payments/credits for prior period sales |
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at June 30, 2013 |
$ |
37 |
|
|
$ |
142 |
|
|
$ |
179 |
|
Provision for product returns increased $38,000 during the six months ended June 30, 2014 as compared to an increase of $37,000 during the six months ended June 30, 2013. This provision relates to a limited right of return or replacement that we offer to certain customers. To date, there have been no PIXUVRI product returns.
Provision for discounts, rebates and other during the six months ended June 30, 2014 and 2013 primarily relates to distributor discounts and government-mandated rebates on product sold. All rebate payments made during the six months ended June 30, 2014 relate to 2013 sales activity.
Please refer to Note 1, Description of Business and Summary of Significant Accounting Policies, under Part I, Item 1 in this Quarterly Report on Form 10-Q, which note is incorporated herein by reference, for further information.
License and contract revenue. In connection with the execution of the Baxter Agreement in 2013, we allocated and recorded $2.7 million of the upfront payment we received under the Baxter Agreement to deferred revenue. We recognize license and contract revenue based on a proportional performance method, by which revenue is recognized in proportion to the development costs incurred. The development services under the Baxter Agreement are expected to be performed through approximately 2018, with the majority of development services expected to be completed by approximately the end of 2015. During the six months ended June 30, 2014, approximately $0.3 million of the remaining deferred revenue balance was recognized as revenue and included in license and contract revenue. We had no such revenue during the six months ended June 30, 2013.
Cost of product sold. Cost of product sold for the six months ended June 30, 2014 and 2013 was $347,000 and $91,000 for the sales of PIXUVRI, respectively. We began capitalizing costs related to the production of PIXUVRI in February 2012 upon receiving a positive opinion for conditional marketing authorization by the CHMP. The manufacturing costs of PIXUVRI product prior to receipt
18
of the CHMP’s positive opinion was expensed as research and development as incurred. While we tracked the quantities of individual PIXUVRI product lots, we did not track manufacturing costs in our inventory system prior to capitalization, and therefore the manufacturing cost of PIXUVRI produced prior to capitalization is not reasonably determinable. Most of this reduced-cost inventory is expected to be available for us to use commercially. The timing of the sales of such reduced-cost inventory and its impact on gross margin is dependent on the level of PIXUVRI sales as well as our ability to utilize this inventory prior to its expiration date. We expect that our cost of product sold as a percentage of product revenue will increase in future periods as PIXUVRI product manufactured and expensed prior to capitalization is sold. At this time, we cannot reasonably estimate the timing or rate of consumption of reduced-cost PIXUVRI product manufactured and expensed prior to capitalization, and we are unable to provide our estimate of cost of goods sold as a percentage of product revenue once such inventory is exhausted.
Research and development expenses. Our research and development expenses for our compounds are as follows (in thousands):
|
Six Months Ended June 30, |
|
|||||
|
2014 |
|
|
2013 |
|
||
Compounds: |
|
|
|
|
|
|
|
PIXUVRI |
$ |
2,580 |
|
|
$ |
2,528 |
|
Pacritinib |
|
13,136 |
|
|
|
3,850 |
|
Opaxio |
|
241 |
|
|
|
982 |
|
Tosedostat |
|
284 |
|
|
|
606 |
|
Brostallicin |
|
1 |
|
|
|
46 |
|
Operating expenses |
|
9,541 |
|
|
|
8,196 |
|
Research and preclinical development |
|
413 |
|
|
|
167 |
|
Total research and development expenses |
$ |
26,196 |
|
|
$ |
16,375 |
|
Research and development expenses increased to approximately $26.2 million for the six months ended June 30, 2014 from approximately $16.4 million for the six months ended June 30, 2013. This $9.8 million increase was primarily due to development costs for the pacritinib program, which includes the expansion of patient enrollment in the PERSIST-1 clinical trial and an increase in start-up costs for the PERSIST-2 trial. The increase in operating expense is primarily due to additional non-cash share-based compensation between the periods. The offset to these increases was primarily attributable to a decrease in Opaxio development costs resulting from completion of the required patient enrollment in the GOG-0212 trial during the first quarter of 2014 and a reduction in manufacturing costs.
Selling, general and administrative expenses. Selling, general and administrative expenses were $30.5 million for the six months ended June 30, 2014 compared to $21.2 million for the six months ended June 30, 2013. This increase was primarily related to a $7.8 million increase in non-cash share-based compensation, a $0.6 million provision for VAT assessments associated with our CTI (Europe) branch, and approximately $0.9 million related to compensation, benefits and additional administrative expense associated with legal and patent services.
Interest expense. Interest expense is related to our senior secured term loan issued in March 2013 and December 2013. This expense increased to $0.9 million for the six months ended June 30, 2014 as compared to $0.4 million for the six months ended June 30, 2013 primarily due to the additional $5.0 million senior secured term loan that was issued in December 2013.
Amortization of debt discount and issuance costs. Amortization of debt discount and issuance costs for the six months ended June 30, 2014 and 2013 is related to the amortization of debt discount and issuance costs incurred on our senior secured term loan originally issued in 2013.
Foreign exchange gain (loss). The foreign exchange losses for the six months ended June 30, 2014 and 2013 are due to fluctuations in foreign currency exchange rates, primarily related to payables and receivables in our European branches and subsidiaries denominated in foreign currencies.
Other expense. The expense amount for the six months ended June 30, 2014 is primarily related to the change in fair value of the warrant issued in connection with the issuance of our senior secured term loan in March 2013. The expense amount for the six months ended June 30, 2013 is primarily related to loss on disposal of property and equipment.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Cash and cash equivalents. As of June 30, 2014, we had $33.2 million in cash and cash equivalents.
19
Net cash used in operating activities. Net cash used in operating activities increased to $38.4 million during the six months ended June 30, 2014 as compared to $30.6 million for the same period in 2013 primarily due to an increase in research and development activities related to pacritinib in 2014, an increase in interest paid on our long term debt and a refund of a VAT deposit received during the first quarter of 2013.
Net cash used in investing activities. Net cash used in investing activities decreased to $58,000 for the six months ended June 30, 2014 compared to $1.3 million for the same period in 2013 due to a decrease in purchases of property and equipment.
Net cash provided by (used in) financing activities. Net cash used in financing activities was $0.1 million for the six months ended June 30, 2014. Net cash provided by financing activities of $9.5 million for the six months ended June 30, 2013 was primarily due to the issuance of long-term debt during the period.
Under our senior secured term loan agreement, we have borrowed an aggregate of $15.0 million ($10.0 million of which was funded in March 2013 and the remaining $5.0 million of which was funded in December 2013), and we have an option to borrow an additional $5.0 million through October 31, 2014, subject to certain conditions. For additional information on this loan, please refer to Note 3, Long-term Debt, under Part I, Item 1 in this Quarterly Report on Form 10-Q.
Capital Resources and Requirements
As of June 30, 2014, our available cash and cash equivalents were $33.2 million, and we had $15.0 million in debt outstanding under our senior secured term loan agreement (with an option to borrow an additional $5.0 million through October 31, 2014, subject to certain conditions). At our currently planned spending rate, we believe that our present financial resources (including the milestone payment we received in August 2014 under the Baxter Agreement and presently available borrowings under our senior secured term loan agreement), together with additional milestone payments projected to be received under certain of our contractual agreements through 2015 and expected European sales from PIXUVRI, will be sufficient to fund our operations into the third quarter of 2015. However, our future capital requirements will depend on many factors, including:
|
changes in manufacturing; |
|
results of, and other developments with respect to, our clinical trials (including changes in clinical trial expenses); |
|
acquisitions of compounds or other assets; |
|
any expansion of our sales and marketing organization in Europe; |
|
regulatory approval developments; |
|
at the time of a future request, failure to then satisfy the requirements for an advance under our senior secured term loan agreement or a denial by our lender to advance requested funds; |
|
failure to receive projected milestone payments under our contractual agreements; |
|
failure to achieve projected sales of PIXUVRI; and |
|
other unplanned business developments. |
These and other factors may consume resources earlier than planned, and as a result, our forecast for the period for which we will have sufficient resources to fund our business may fail.
We expect that we will need to raise additional funds to develop our business. We may seek to raise such capital through equity or debt financings, partnerships, collaborations, joint ventures, disposition of assets or other sources. If additional funds are raised by issuing equity securities, substantial dilution to existing shareholders may result. Additional funding may not be available on favorable terms or at all. If we fail to obtain additional capital when needed, we may be required to delay, scale back or eliminate some or all of our research and development programs, reduce our selling, general and administrative expenses, be unable to attract and retain highly qualified personnel and/or refrain from making our contractually required payments when due, which could harm our business, financial condition, operating results and prospects.
20
The following table includes information relating to our contractual obligations as of June 30, 2014 (in thousands):
Contractual Obligations |
|
Payments Due by Period |
|
|||||||||||||||||
|
|
Total |
|
|
Less than 1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
More than 5 Years |
|
|||||
Operating leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities |
|
$ |
19,257 |
|
|
$ |
2,585 |
|
|
$ |
4,689 |
|
|
$ |
4,777 |
|
|
$ |
7,206 |
|
Long-term debt |
|
|
15,000 |
|
|
|
4,596 |
|
|
|
10,404 |
|
|
|
— |
|
|
|
— |
|
Interest on long-term debt(1) |
|
|
2,641 |
|
|
|
1,700 |
|
|
|
941 |
|
|
|
— |
|
|
|
— |
|
Purchase commitments(2) |
|
|
7,257 |
|
|
|
7,210 |
|
|
|
47 |
|
|
|
— |
|
|
|
— |
|
Other obligations(3) |
|
|
1,283 |
|
|
|
— |
|
|
|
1,283 |
|
|
|
— |
|
|
|
— |
|
|
|
$ |
45,438 |
|
|
$ |
16,091 |
|
|
$ |
17,364 |
|
|
$ |
4,777 |
|
|
$ |
7,206 |
|
(1) |
The interest rate on our long-term debt currently floats at a rate per annum equal to 12.25% plus the amount by which the prime rate exceeds 3.25%. The amounts presented for interest payments in future periods assume a prime rate of 3.25%. |
(2) |
Purchase commitments include obligations related to manufacturing supply, insurance and other purchase commitments. |
(3) |
Other obligations do not include $4.6 million deferred rent associated with our operating lease for office space. |
Some of our licensing agreements obligate us to pay a royalty on net sales of products utilizing licensed technology. Such royalties are dependent on future product sales and are not provided for in the table above as they are not estimable. For additional information, please see discussion below in “License Agreements and Additional Milestone Activities.”
LICENSE AGREEMENTS AND ADDITIONAL MILESTONE ACTIVITIES
Baxter
In November 2013, we entered into the Baxter Agreement for the development and commercialization of pacritinib for use in oncology and potentially additional therapeutic areas. Under the Baxter Agreement, we granted Baxter an exclusive, worldwide (subject to co-promotion rights discussed below), royalty-bearing, non-transferable license (which is sub-licensable under certain circumstances) relating to pacritinib. Licensed products under the Baxter Agreement consist of products in which pacritinib is an ingredient.
Baxter granted to us a non-exclusive license in order for us to perform our rights and obligations under the Baxter Agreement, including our co-promotion rights in the U.S. and manufacturing obligations.
Baxter paid us an upfront payment of $60 million, which included a $30 million investment in our equity. We are also eligible to receive potential payments of up to $302 million upon the successful achievement of certain development and commercialization milestones, comprised of $112 million of potential clinical, regulatory and commercial launch milestone payments, and potential additional sales milestone payments of up to $190 million. Of such milestones, $67 million relates to clinical progress milestones ($20 million of which we have received). We and Baxter will jointly commercialize and share profits and losses on sales of pacritinib in the U.S.
We were responsible for all development costs incurred prior to January 1, 2014, and will be responsible for approximately $96 million in U.S. and E.U. development costs incurred thereafter. Of such $96 million in development costs, we anticipate that up to $67 million will be effectively offset through the payment from Baxter through 2015 of the aforementioned potential clinical progress milestones ($20 million of which, as noted above, we have already received). All development costs exceeding the $96 million threshold will generally be shared as follows: (i) costs generally applicable worldwide will be shared 75 percent to Baxter and 25 percent to us, (ii) costs applicable to territories exclusive to Baxter will be 100 percent borne by Baxter and (iii) costs applicable exclusively to co-promotion in the U.S. will be shared equally between the parties, subject to certain exceptions.
Outside the U.S., we are eligible to receive tiered high single-digit to mid-teen percentage royalty payments based on net sales for myelofibrosis, and higher double digit royalties for other indications, subject to reduction by up to 50 percent if (i) Baxter is required to obtain additional third party licenses, on which it is obligated to pay royalties, to fulfill its obligations under the Baxter Agreement and (ii) in any jurisdiction where there is no longer either regulatory exclusivity or patent protection.
The Baxter Agreement will expire when there is no longer any obligation for Baxter to pay royalties to us in any jurisdiction, at which time the licenses granted to Baxter will become perpetual and royalty-free. We or Baxter may terminate the Baxter Agreement prior to its expiration in certain circumstances. Following the one-year anniversary of receipt of regulatory approval in Australia, Canada, China, France, Germany, Italy, Japan, Spain, the U.K. or the U.S., we may terminate the Baxter Agreement as to one or more particular countries if Baxter has not undertaken requisite regulatory or commercialization efforts in the applicable country and certain other conditions are met. Baxter may terminate the Baxter Agreement earlier than its expiration in certain circumstances including
21
(i) in the event development costs for myelofibrosis for the period commencing January 1, 2014 are reasonably projected to exceed a specified threshold, (ii) as to some or all countries in the event of commercial failure of the licensed product or (iii) without cause following the one-year anniversary of the effective date of the Baxter Agreement, provided that such termination will have a lead-in period of six months before it becomes effective. Additionally, either party may terminate the Baxter Agreement prior to its expiration in events of force majeure, or the other party’s uncured material breach or insolvency. In the event of a termination prior to the expiration date, rights in pacritinib will revert to us.
The Baxter Agreement also requires Baxter and us to negotiate and enter into a Manufacturing and Supply Agreement, which will provide for the manufacture of the licensed products.
University of Vermont
We entered into an agreement with the University of Vermont, or UVM, in March 1995, as amended, or the UVM Agreement, which grants us an exclusive license, with the right to sublicense, for the rights to PIXUVRI. Pursuant to the UVM Agreement, we acquired the rights to make, have made, sell and use PIXUVRI, and we are obligated to make royalty payments to UVM ranging from low single-digits to mid single-digits as a percentage of net sales. The higher royalty rate is payable for net sales in countries where specified UVM licensed patents exist, or where we have obtained orphan drug protection, until such UVM patents or such protection no longer exists. For a period of ten years after first commercialization of PIXUVRI, the lower royalty rate is payable for net sales in such countries after expiration of the designated UVM patents or loss of orphan drug protection, and in all other countries without such specified UVM patents or orphan drug protection. Unless otherwise terminated, the term of the UVM Agreement continues for the life of the licensed patents in those countries in which a licensed patent exists, and continues for ten years after the first sale of PIXUVRI in those countries where no such patents exist. We may terminate the UVM Agreement, on a country-by-country basis or on a patent-by-patent basis, at any time upon advance written notice. UVM may terminate the UVM Agreement upon advance written notice in the event royalty payments are not made. In addition, either party may terminate the UVM Agreement in the event of an uncured material breach of the UVM Agreement by the other party or in the event of bankruptcy of the other party.
S*BIO
We acquired the compounds SB1518 (which is referred to as “pacritinib”) and SB1578, which inhibit JAK2, from S*BIO in May 2012. Under our agreement with S*BIO, we are required to make milestone payments to S*BIO up to an aggregate amount of $132.5 million if certain U.S., E.U. and Japanese regulatory approvals are obtained or if certain worldwide net sales thresholds are met in connection with any pharmaceutical product containing or comprising any compound that we acquired from S*BIO for use for specific diseases, infections or other conditions. At our election, we may pay up to 50 percent of any milestone payments to S*BIO through the issuance of shares of our common stock or shares of our preferred stock convertible into our common stock. In addition, S*BIO will also be entitled to receive royalty payments from us at incremental rates in the low single-digits based on certain worldwide net sales thresholds on a product-by-product and country-by-country basis.
Chroma Therapeutics, Ltd.
We entered into an agreement, or the Chroma License Agreement, with Chroma Therapeutics, Ltd., or Chroma, in March 2011 under which we have an exclusive license to certain technology and intellectual property controlled by Chroma to develop and commercialize the drug candidate, tosedostat, in North, Central and South America, or collectively, the Licensed Territory. Pursuant to the terms of the Chroma License Agreement, we are required to make a milestone payment to Chroma of $5.0 million upon the initiation of the first pivotal trial. The Chroma License Agreement also includes additional development- and sales-based milestone payments related to AML and certain other indications, up to a maximum amount of $209.0 million payable by us to Chroma if all development and sales milestones are achieved.
Under the Chroma License Agreement, we are required to pay Chroma royalties on net sales of tosedostat in any country within the Licensed Territory. Royalties commence on the first commercial sale of tosedostat in any country in the Licensed Territory and continue with respect to that country until the latest of the expiration date of the last patent claim, the expiration of all regulatory exclusivity periods for tosedostat in that country or ten years after the first commercial sale in that country. Royalty payments to Chroma are based on net sales volumes in any country within the Licensed Territory and range from the low- to mid-teens as a percentage of net sales.
Under the Chroma License Agreement, we are required to oversee and are responsible for performing the development operations and commercialization activities in the Licensed Territory, and Chroma will oversee and is responsible for performing the development operations and commercialization activities worldwide except for the Licensed Territory. We will be responsible for 75 percent of all development costs, while Chroma will be responsible for 25 percent of all development costs, subject to certain exceptions. Chroma is responsible for the manufacturing of tosedostat for development purposes in accordance with the terms of our supply agreement with Chroma. We have the option of obtaining a commercial supply of tosedostat from Chroma or from another manufacturer at our sole discretion in the Licensed Territory. The Chroma License Agreement may be terminated by us at our
22
convenience upon 120 days’ written notice to Chroma. The Chroma License Agreement may also be terminated by either party following a material breach by the other party subject to notice and cure periods. As discussed in Part II, Item 1, Legal Proceedings, the parties have certain disputes arising under the Chroma License Agreement, although no court proceedings have commenced as of the time of this filing.
Gynecologic Oncology Group
We entered into an agreement with the GOG in March 2004, as amended, related to the GOG-0212 trial of Opaxio in patients with ovarian cancer, which the GOG is conducting. We recorded a $0.9 million obligation due to the GOG based on the 1,100 patient enrollment milestone achieved in the third quarter of 2013 which was subsequently paid in the first half of 2014. In the first quarter of 2014, we also recorded a $0.3 million obligation to the GOG as required under the agreement based on the additional 50 patients enrolled, with such amount being paid in April 2014. We may be required to pay up to an additional $1.0 million upon the attainment of certain other milestones, of which $0.5 million has been recorded in accrued expenses as of June 30, 2014.
PG-TXL
In November 1998, we entered into an agreement, or the PG-TXL Agreement, with PG-TXL Company, L.P., or PG-TXL, as amended, which grants us an exclusive worldwide license for the rights to Opaxio and to all potential uses of PG-TXL’s polymer technology. Pursuant to the PG-TXL Agreement, we acquired the rights to research, develop, manufacture, market and sell anti-cancer drugs developed using this polymer technology. Pursuant to the PG-TXL Agreement, we are obligated to make payments to PG-TXL upon the achievement of certain development and regulatory milestones of up to $14.4 million. The timing of the remaining milestone payments under the PG-TXL Agreement is based on trial commencements and completions for compounds protected by PG-TXL license rights, and regulatory and marketing approval of those compounds by the FDA and the EMA. Additionally, we are required to make royalty payments to PG-TXL based on net sales. Our royalty payments range from low to mid single-digits as a percentage of net sales. Unless otherwise terminated, the term of the PG-TXL Agreement continues until no royalties are payable to PG-TXL. We may terminate the PG-TXL Agreement upon advance written notice to PG-TXL in the event issues regarding the safety of the products licensed pursuant to the PG-TXL Agreement arise during development or clinical data obtained reveal a materially adverse tolerability profile for the licensed product in humans, or for any reason upon advance written notice. In addition, either party may terminate the PG-TXL Agreement upon advance written notice in the event certain license fee payments are not made; in the event of an uncured material breach of the respective material obligations and conditions of the PG-TXL Agreement; or in the event of liquidation or bankruptcy of the other party.
Novartis
In January 2014, we entered into a termination agreement, or the Termination Agreement, with Novartis International Pharmaceutical Ltd., or Novartis, to reacquire the rights to PIXUVRI and Opaxio, or collectively, the Compounds, previously granted to Novartis under our License and Co-Development Agreement with Novartis entered into in September 2006, as amended, or the Original Agreement. Pursuant to the Termination Agreement, the Original Agreement was terminated in its entirety, except for certain customary provisions, including those pertaining to confidentiality and indemnification, which survive termination.
Under the Termination Agreement, we agreed not to transfer, license, sublicense or otherwise grant rights with respect to intellectual property of the Compounds unless the recipient thereof agrees to be bound by the terms of the Termination Agreement. We also agreed to provide potential payments to Novartis, including a percentage ranging from the low double-digits to the mid-teens, of any consideration received by us or our affiliates in connection with any transfer, license, sublicense or other grant of rights with respect to intellectual property of PIXUVRI or Opaxio, respectively; provided that such payments will not exceed certain prescribed ceilings in the low single-digit millions. Novartis is entitled to receive potential payments of up to $16.6 million upon the successful achievement of certain sales milestones of the Compounds. We are also obligated to pay to Novartis tiered low single-digit percentage royalty payments for the first several hundred million in annual net sales, and ten percent royalty payments thereafter based on annual net sales of each Compound, subject to reduction in the event generic drugs are introduced and sold by a third party, causing the sale of PIXUVRI or Opaxio to fall by a percentage in the high double-digits. To the extent we are required to pay royalties on net sales of Opaxio pursuant to the PG-TXL Agreement, we may credit a percentage of the amount of such royalties paid to those payable to Novartis, subject to certain exceptions. Notwithstanding the foregoing, royalty payments for both PIXUVRI and Opaxio are subject to certain minimum floor percentages in the low single-digits.
Nerviano Medical Sciences
Our license agreement dated October 6, 2006 with Nerviano Medical Sciences, S.r.l. for brostallicin, a synthetic DNA minor groove binding agent that has demonstrated anti-tumor activity, provides for the potential payment by us of up to $80 million in milestone payments based on the achievement of certain product development results. Due to the early stage of development of brostallicin, we cannot make a determination that the milestone payments are reasonably likely to occur at this time.
23
Cephalon
In June 2005, we entered into an acquisition agreement with Cephalon, Inc., or Cephalon, pursuant to which we divested of the compound, TRISENOX. Cephalon was subsequently acquired by Teva Pharmaceutical Industries Ltd., or Teva. Under this agreement, we have the right to receive up to $100 million in payments upon achievement by Teva of specified sales and development milestones related to TRISENOX. In November 2013, we received a $5.0 million payment related to achievement of a sales milestone.
Critical Accounting Estimates
We make certain judgments and use certain estimates and assumptions when applying accounting principles generally accepted in the U.S. in the preparation of our condensed consolidated financial statements. We evaluate our estimates and judgments on an on-going basis and base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary materially from what we anticipate and different assumptions or estimates about the future could change our reported results. There have been no material changes to our critical accounting estimates discussed in our 2013 10-K. For a discussion of our critical accounting estimates, please see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of such Form 10-K.
Foreign Exchange Market Risk
We are exposed to risks associated with the translation of euro-denominated financial results and accounts into U.S. dollars for financial reporting purposes. Changes in the value of the U.S. dollar as compared to the euro might have an adverse effect on our reported results of operations and financial condition. As the net positions of our unhedged foreign currency transactions fluctuate, our earnings might be negatively affected. In addition, the reported carrying value of our euro denominated assets and liabilities held in our European branches and subsidiaries will be affected by fluctuations in the value of the U.S. dollar compared to the euro. As of June 30, 2014, we had a net asset balance, excluding intercompany payables and receivables, in our European branches and subsidiaries denominated in euros. If the euro were to weaken 20 percent against the dollar, our net asset balance would decrease by approximately $2.1 million as of this date.
Interest Rate Risk
As of June 30, 2014, we had an outstanding balance under our senior secured term loan of $15.0 million, and we have the option to borrow an additional $5.0 million through October 31, 2014, subject to certain conditions. The senior secured term loan bears interest at variable rates. Based on the outstanding amount under such loan at June 30, 2014 of $15.0 million (which remains outstanding as of the time of this filing) a 1.0 percent increase in interest rates would result in additional annualized interest expense of $0.1 million. For a detailed discussion of our senior secured term loan, including a discussion of the applicable interest rate, please refer to Note 3, Long-term Debt, under Part I, Item 1 in this Quarterly Report on Form 10-Q.
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, under the supervision and with the participation of our President and Chief Executive Officer and Executive Vice President, Finance and Administration, or EVP of Finance, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our President and Chief Executive Officer and EVP of Finance have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective.
(b) Changes in Internal Control over Financial Reporting
24
There have been no changes to our internal control over financial reporting that occurred during the second fiscal quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Other Financial Information
With respect to our unaudited condensed consolidated financial statements for the six-month period ended June 30, 2014, included herein, Marcum LLP, or Marcum, reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their report dated August 4, 2014 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Marcum has not carried out any significant or additional audit beyond that which would have been necessary if their report had not been included. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. Marcum is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended.
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the Board of Directors
and Shareholders of CTI BioPharma Corp.
We have reviewed the accompanying condensed consolidated balance sheet of CTI BioPharma Corp. (formerly known as Cell Therapeutics, Inc.) as of June 30, 2014, and the related condensed consolidated statements of operations and comprehensive loss for the three- and six-month periods ended June 30, 2014 and 2013, and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2014 and 2013. These financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim consolidated financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of CTI BioPharma Corp. (formerly known as Cell Therapeutics, Inc.) as of December 31, 2013, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 4, 2014, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2013 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.
/s/ Marcum LLP
Marcum LLP
San Francisco, California
August 4, 2014
26
On December 10, 2009, the Commissione Nazionale per le Società e la Borsa (which is the public authority responsible for regulating the Italian securities markets), or CONSOB, sent us a notice claiming, among other things, violation of the provisions of Section 114, paragraph 1 of the Italian Legislative Decree no. 58/98 due to the asserted late disclosure of the contents of the opinion expressed by Stonefield Josephson, Inc., an independent registered public accounting firm, with respect to our 2008 financial statements. The sanction established by Section 193, paragraph 1 of the Italian Legislative Decree no. 58/98 for such violation could require us to pay a pecuniary administrative sanction amounting to between $7,000 and $684,000 upon conversion from euros as of June 30, 2014. Until CONSOB’s right is barred, CONSOB may, at any time, confirm the occurrence of the asserted violation and apply a pecuniary administrative sanction within the foregoing range. To date, we have not received any such notification.
In April 2009, December 2009 and June 2010, the Italian Tax Authority, or the ITA, issued notices of assessment to CTI (Europe) based on the ITA’s audit of CTI (Europe)’s VAT returns for the years 2003, 2005, 2006 and 2007. The ITA audits concluded that CTI (Europe) did not collect and remit VAT on certain invoices issued to non-Italian clients for services performed by CTI (Europe). The assessments, including interest and penalties, for the years 2003, 2005, 2006 and 2007 are €0.5 million, €5.5 million, €2.5 million and €0.8 million. We believe that the services invoiced were non-VAT taxable consultancy services and that the VAT returns are correct as originally filed. We are defending ourselves against the assessments both on procedural grounds and on the merits of the case, although we can make no assurances regarding the ultimate outcome of these cases. If the final decision of the Supreme Court is unfavorable to us, or if, in the interim, the ITA were to make a demand for payment and we were to be unsuccessful in suspending collection efforts, we may be requested to pay the ITA an amount up to €9.4 million, or approximately $12.9 million converted using the currency exchange rate as of June 30, 2014, plus collection fees, notification expenses and additional interest for the period lapsed between the date in which the assessments were issued and the date of effective payment. Following is a summary of the status of the legal proceedings surrounding each respective VAT year return at issue:
2003 VAT. In September 2011, the Provincial Tax Court issued decision no. 229/3/2011, which (i) fully accepted the merits of our appeal, (ii) declared that no penalties can be imposed against us and (iii) found the ITA liable to pay us €10,000, as partial refund of the legal expenses we incurred for our appeal. In October 2012, the ITA appealed this decision. In June 2013, the Regional Tax Court issued decision no. 119/50/13, which accepted the appeal of the ITA and reversed the previous decision of the Provincial Tax Court. In January 2014, we appealed such decision to the Supreme Court both on procedural grounds and on the merits of the case. In March 2014, we paid a deposit in respect of the 2003 VAT matter of €0.4 million, or approximately $0.5 million upon conversion from euros as of the date of payment following the ITA’s request for such payment.
2005 VAT. In January 2011, the Provincial Tax Court issued decision No. 4/2010 which (i) partially accepted our appeal and declared that no penalties can be imposed against us, (ii) confirmed the right of the ITA to reassess the VAT (plus interest) in relation to the transactions identified in the 2005 notice of assessment and (iii) repealed the suspension of the notice of deposit payment. Both the ITA and CTI appealed to the higher court against the decision. In October 2012, the Regional Tax Court issued a decision no. 127/31/2012, which (i) fully accepted the merits of our appeal and (ii) confirmed that no penalties can be imposed against us. On April 15, 2013, the ITA appealed the decision to the Italian Supreme Court.
2006 VAT. In October 2011, the Provincial Tax Court issued decision no. 276/21/2011 (jointly with the 2007 VAT case) in which it (i) fully accepted the merits of our appeal, (ii) declared that no penalties can be imposed against us and (iii) found that for the 2006 and 2007 VAT cases the ITA was liable to pay us €10,000 as partial refund of the legal expenses incurred for the appeal. In December 2011, the ITA appealed this decision to the Regional Tax Court. On April 16, 2013, the Regional Tax Court issued decision no. 57/35/13 (jointly with the 2007 VAT case) in which it fully rejected the merits of the ITA’s appeal, declared that no penalties can be imposed against us and found the ITA liable to pay us €12,000, as partial refund of the legal expenses we incurred for this appeal. The ITA appealed such decision to the Italian Supreme Court in November 2013.
2007 VAT. In October 2011, the Provincial Tax Court issued decision no. 276/21/2011 (jointly with the 2006 VAT case described above) in which the Provincial Tax Court (i) fully accepted the merits of our appeal, (ii) declared that no penalties can be imposed against us, and (iii) found that for 2006 and 2007 VAT cases the ITA was liable to pay us €10,000 as partial refund of the legal expenses incurred for the appeal. In December 2011, the ITA appealed this decision to the Regional Tax Court. On April 16, 2013, the Regional Tax Court issued decision no. 57/35/13 (jointly with the 2006 VAT case) in which it fully rejected the merits of the ITA’s appeal, declared that no penalties can be imposed against us and found the ITA liable to pay us €12,000 as partial refund of the legal expenses we incurred for this appeal. The ITA appealed such decision to the Italian Supreme Court in November 2013.
27
In July 2012, Chroma sent us a letter claiming that we breached the Chroma License Agreement by allegedly making decisions as to the development of tosedostat without requisite approval, failing to hold certain meetings and not using diligent efforts to develop tosedostat. We dispute the allegations on numerous grounds; in particular, we believe Chroma failed to comply with certain of its antecedent obligations and failed to demonstrate an ability to manufacture tosedostat to requisite standards. A party may terminate the Chroma License Agreement for a material breach only after arbitration. Court proceedings have not been initiated as of the time of this filing.
In July 2014, Joseph Lopez and Gilbert Soper, shareholders of the Company, filed a derivative lawsuit purportedly on behalf of the Company, which is named a nominal defendant, against all current and one past member of the Company’s Board of Directors in King County Superior Court in the State of Washington, docketed as Lopez & Gilbert v. Nudelman, et al., Case No. 14-2-18941-9 SEA. The lawsuit alleges that the directors exceeded their authority under the Company’s 2007 Equity Incentive Plan, or the Plan, by improperly transferring 4,756,137 shares of the Company’s common stock from the Company to themselves. It alleges that the directors breached their fiduciary duties by granting themselves fully vested shares of Company common stock, which the plaintiffs allege were not among the six types of grants authorized by the Plan, and that the non-employee directors were unjustly enriched by these grants. The lawsuit also alleges that from 2011 through 2014, the non-employee members of the Board of Directors granted themselves grossly excessive compensation, and in doing so breached their fiduciary duties and were unjustly enriched. Among other remedies, the lawsuit seeks a declaration that the specified grants of common stock violated the Plan, rescission of the granted shares, disgorgement of the compensation awards to the non-employee directors from 2011 through 2014, disgorgement of all compensation and other benefits received by the defendant directors in the course of their breaches of fiduciary duties, damages, an order for certain corporate reforms and plaintiffs’ costs and attorneys’ fees. Because the complaint is derivative in nature, it does not seek monetary damages from the Company.
In addition to the items discussed above, we are from time to time subject to legal proceedings and claims arising in the ordinary course of business.
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The occurrence of any of the following risks described below and elsewhere in this document, including the risk that our actual results may differ materially from those anticipated in these forward-looking statements, could materially adversely affect our business, financial condition, operating results and prospects and the market price of our securities. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also impair our business, financial condition, operating results and prospects and the market price of our securities.
Factors Affecting Our Business, Financial Condition, Operating Results and Prospects
We expect that we will need to raise additional financing to develop our business, but additional funds may not be available on acceptable terms, or at all. Any inability to raise required capital when needed could harm our liquidity, financial condition, business, operating results and prospects.
We have substantial operating expenses associated with the development of our product candidates and the commercialization of PIXUVRI, and we have significant contractual payment obligations. Our available cash and cash equivalents were $33.2 million as of June 30, 2014. At our currently planned spending rate, we believe that our present financial resources (including the milestone payment we received in August 2014 under the Baxter Agreement and presently available borrowings under our senior secured term loan agreement), together with additional milestone payments projected to be received under certain of our contractual agreements through 2015 and expected European sales from PIXUVRI, will be sufficient to fund our operations into the third quarter of 2015. Cash forecasts and capital requirements are subject to change as a result of a variety of risks and uncertainties. Changes in manufacturing, clinical trial expenses, acquisitions of compounds or other assets, any expansion of our sales and marketing organization in Europe, regulatory approval developments and other unplanned business developments may consume capital resources earlier than planned. Additionally, we may not be then eligible for an advance under our senior secured term loan at the time of a request (or we may otherwise be denied such advance by the lender), and we may not receive projected milestone payments under the applicable contractual agreements or sales from PIXUVRI. Due to these and other factors, our forecast for the period for which we will have sufficient resources to fund our operations, as well as any other operational or business projection we have disclosed, or may, from time to time, disclose, may fail.
We have $15.0 million outstanding under our senior secured term loan agreement and have an option to borrow an additional $5.0 million through October 31, 2014, subject to certain conditions. Based on the current outstanding balance, we are required to make monthly interest payments of approximately $158,000, and commencing November 1, 2014 through October 1, 2016, we will be required to make monthly interest plus principal payments in the aggregate amount of approximately $709,000. The senior secured term loan agreement also requires us to comply with restrictive covenants, including those that limit our operating flexibility and
28
ability to borrow additional funds. A failure to make a required loan payment or an uncured covenant breach could lead to an event of default, and in such case, all amounts then outstanding may become due and payable immediately.
We expect that we will need to acquire additional funds in order to develop our business, including in the event our costs are greater than anticipated or our cash inflow projections fail, or in the event we seek to expand our operations. We may seek to raise such capital through equity or debt financings, partnerships, collaborations, joint ventures, disposition of assets or other sources, but our ability to do so is subject to a number of risks and uncertainties, including:
|
our ability to raise capital through the issuance of additional shares of our common stock or convertible securities is restricted by the limited number of our residual authorized shares, the difficulty of obtaining shareholder approval to increase authorized shares, and the restrictive covenants of our senior secured term loan agreement; |
|
issuance of equity securities or convertible securities will dilute the proportionate ownership of existing shareholders; |
|
our ability to raise debt capital is limited by our existing senior secured term loan agreement; |
|
some of such arrangements may require us to relinquish rights to certain assets; and |
|
we may be required to meet additional regulatory requirements, and we may be subject to certain contractual limitations, which may increase our costs and harm our ability to obtain funding. |
For these and other reasons, additional funding may not be available on favorable terms or at all. If we fail to obtain additional capital when needed, we may be required to delay, scale back or eliminate some or all of our research and development programs, reduce our selling, general and administrative expenses, be unable to attract and retain highly qualified personnel and/or refrain from making our contractually required payments when due, which could harm our business, financial condition, operating results and prospects.
We may continue to incur net losses, and we may never achieve profitability.
We were incorporated in 1991 and have incurred a net operating loss every year since our formation. As of June 30, 2014, we had an accumulated deficit of $1.9 billion. We are pursuing certain regulatory approvals for PIXUVRI, pacritinib, tosedostat and Opaxio. We will need to continue to conduct research, development, testing and regulatory compliance activities and ensure the procurement of manufacturing and drug supply services, the costs of which, together with projected general and administrative expenses, may result in operating losses for the foreseeable future. There can be no assurances that we will ever achieve profitability.
If our collaboration with Baxter with respect to pacritinib or any other collaboration for our products or product candidates is not successful, or if we are unable to enter into additional collaborations, we may not be able to effectively develop and/or commercialize the applicable product(s), which could have a material adverse effect on our business.
Under the Baxter Agreement, we rely heavily on Baxter to collaborate with us in respect of the development and global commercialization of our lead product candidate, pacritinib. As a result of our dependence on our relationship with Baxter, the eventual success or commercial viability of pacritinib is, to a certain extent, beyond our control. We are subject to a number of specific risks associated with our dependence on our collaborative relationship with Baxter, including: possible disagreements between Baxter and us as to the timing, nature and extent of our development plans, including clinical trials or regulatory approval strategy; changes in personnel at Baxter who are key to the collaboration efforts; any changes in Baxter’s business strategy adverse to our interests; and possible disagreements with Baxter regarding ownership of proprietary rights. Furthermore, the contingent financial returns under our collaboration with Baxter depend in large part on the achievement of development and commercialization milestones, plus a share of revenues from any sales. Therefore, our success, and any associated future financial returns to us and our investors, will depend in large in part on the performance of both Baxter and us under the Baxter Agreement.
The continued development of our other compounds also depends on our ability to enter into and/or maintain collaborations. We have entered into a third-party service provider agreement with Quintiles Commercial Europe Limited, which provides a variety of services related to the commercialization of PIXUVRI in Europe. We are also pursuing potential partners for commercializing PIXUVRI in other markets, excluding countries in the E.U. where CTI has a commercial presence and the U.S. Because we rely on third parties to manufacture, distribute, and market and sell PIXUVRI, we have limited control over the efforts of these third parties, and we may receive less revenue than if we commercialized PIXUVRI ourselves. We are also a party to other agreements with third parties for our product candidates, including an agreement with the GOG, to perform a Phase 3 trial of Opaxio in patients with ovarian cancer.
If we fail to enter into additional collaborative arrangements or to maintain existing or future arrangements and service provider relationships, we may be unable to further develop and commercialize product candidates, generate revenues to grow, sustain our business or achieve profitability, which would harm our business, financial condition, operating results and prospects.
29
Product candidates that appear promising in research and development may fail to reach later stages of development for a number of reasons, including, among others, that clinical trials may take longer to complete than expected or may not be completed at all.
Successful development of anti-cancer and other pharmaceutical products is highly uncertain, and obtaining regulatory approval to market drugs to treat cancer is expensive, difficult and speculative. Product candidates that appear promising in research and development may fail to reach later stages of development for several reasons, including, but not limited to:
|
delay or failure in obtaining necessary U.S. and international regulatory approvals, or the imposition of a partial or full regulatory hold on a clinical trial; |
|
difficulties in formulating a product candidate, scaling the manufacturing process and obtaining manufacturing approval, pricing, reimbursement issues or other factors that may make the product uneconomical to commercialize; |
|
production problems, such as the inability to obtain raw materials or supplies satisfying acceptable standards for the manufacture of our products, equipment obsolescence, malfunctions or failures, product quality/contamination problems or changes in regulations requiring manufacturing modifications; |
|
inefficient cost structure of a product candidate compared to alternative treatments; |
|
obstacles resulting from proprietary rights held by others with respect to a product candidate, such as patent rights; |
|
lower than anticipated rates of patient enrollment as a result of factors, such as the number of patients with the relevant conditions, the proximity of patients to clinical testing centers, eligibility criteria for tests and competition with other clinical testing programs; |
|
preclinical or clinical testing requiring significantly more time than expected, resources or expertise than originally expected and inadequate financing, which could cause clinical trials to be delayed or terminated; |
|
failure of clinical testing to show potential products to be safe and efficacious, and failure to demonstrate desired safety and efficacy characteristics in human clinical trials; |
|
suspension of a clinical trial at any time by us, a collaboration partner or a regulatory authority on the basis that the participants are being exposed to unacceptable health risks or for other reasons; or |
|
failure of third parties, such as contract research organizations, academic institutions, collaborators, cooperative groups and/or investigator sponsors, to conduct, oversee and monitor clinical trials and results. |
If the development of our product candidates is delayed or fails, our development costs may increase and the ability to commercialize our product candidates may be harmed, which could harm our business, financial condition, operating results or prospects.
We or our collaboration partners may not obtain or maintain the regulatory approvals required to develop or commercialize some or all of our products.
We are subject to rigorous and extensive regulation by the FDA in the U.S. and by comparable agencies in other states and countries, including the EMA in the E.U. Pacritinib and our other product candidates are currently in research or development and, other than conditional marketing authorization for PIXUVRI in the E.U., we have not received marketing approval for our compounds (and we are not currently pursuing FDA marketing approval of PIXUVRI). Information about the status of regulatory approvals of our compounds can be found in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations and is incorporated by reference herein. Our products may not be marketed in the U.S. until they have been approved by the FDA and may not be marketed in other countries until they have received approval from the appropriate foreign regulatory agencies. Each product candidate requires significant research, development and preclinical testing and extensive clinical investigation before submission of any regulatory application for marketing approval. Obtaining regulatory approval requires substantial time, effort and financial resources, and we may not be able to obtain approval of any of our products on a timely basis, or at all. The number and focus of preclinical and clinical trials that will be required for approval by the FDA, the EMA or any other foreign regulatory agency varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address and the regulations applicable to any particular drug candidate. Preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval. The FDA, the EMA and other foreign regulatory agencies can delay, limit or deny approval of a drug candidate for many reasons, including, but not limited to:
|
a drug candidate may not be shown to be safe or effective; |
|
clinical trial results may be negative or inconclusive, or adverse medical events may occur during a clinical trial; |
|
they may not approve the manufacturing process of a drug candidate; |
|
they may interpret data from pre-clinical and clinical trials in different ways than we do; |
30
|
a drug candidate may fail to comply with regulatory requirements; or |
|
they might change their approval policies or adopt new regulations. |
Any delay or failure by us or, where applicable, a collaboration partner, to obtain regulatory approvals of our products could adversely affect the marketing of our products. If our products are not approved quickly enough to provide net revenues to defray our operating expenses, our business, financial condition, operating results and prospects could be harmed.
Even if our drug candidates are successful in clinical trials and receive regulatory approvals, we or our collaboration partners may not be able to successfully commercialize them.
Pacritinib, Opaxio and tosedostat are currently in clinical trials; the development and clinical trials of these products may not be successful and, even if they are, such products may never be successfully developed into commercial products. Even if our products are successful in clinical trials or in obtaining other regulatory approvals, our products (even those that have been granted conditional marketing authorization, such as PIXUVRI) may not reach the market for a number of reasons including:
|
they may be found ineffective or cause harmful side effects; |
|
they may be difficult to manufacture on a scale necessary for commercialization; |
|
they may be uneconomical to produce; |
|
we may fail to obtain reimbursement amount approvals or pricing that is cost effective for patients as compared to other available forms of treatment; |
|
they may not compete effectively with existing or future alternatives to our products; |
|
we may be unable to sell marketing rights or develop commercial operations; |
|
they may fail to achieve market acceptance; or |
|
we may be precluded from commercialization of our products due to proprietary rights of third parties. |
In particular, with respect to the future potential commercialization of pacritinib, we will be heavily dependent on our collaboration partner, Baxter. Under the terms of our agreement, Baxter has exclusive commercialization rights for all indications for pacritinib outside the U.S., while we share commercialization rights with Baxter in the U.S.
The failure of Baxter (or any other applicable collaboration partner) to fulfill its commercialization obligations with respect to a product, or the occurrence of any of the events itemized in the foregoing list, could adversely affect the commercialization of our products. If we fail to commercialize products or if our future products do not achieve significant market acceptance, we will not likely generate significant revenues or become profitable.
The pharmaceutical business is subject to increasing government price controls and other restrictions on pricing, reimbursement, and access to drugs, which could adversely affect our future revenues and profitability.
To the extent our products are developed, commercialized and successfully introduced to market, they may not be considered cost-effective and third-party or government reimbursement might not be available or sufficient. Globally, governmental and other third-party payors are becoming increasingly aggressive in attempting to contain healthcare costs by strictly controlling, directly or indirectly, pricing and reimbursement and, in some cases, limiting or denying coverage altogether on the basis of a variety of justifications, and we expect pressures on pricing and reimbursement from both governments and private payors inside and outside the U.S. to continue. In the U.S., we are subject to substantial pricing, reimbursement and access pressures from state Medicaid programs, private insurance programs and pharmacy benefit managers, and implementation of U.S. health care reform legislation is increasing these pricing pressures. The Patient Protection and Affordable Care Act (HR 3590) instituted comprehensive health care reform commencing in 2010 and includes provisions that, among other things, reduce and/or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions) and impose new and/or increased taxes. In almost all European markets, pricing and choice of prescription pharmaceuticals are subject to governmental control. Therefore, the price of our products and their reimbursement in Europe is and will be determined by national regulatory authorities. Reimbursement decisions from one or more of the European markets may impact reimbursement decisions in other European markets. A variety of factors are considered in making reimbursement decisions, including whether there is sufficient evidence to show that treatment with the product is more effective than current treatments, that the product represents good value for money for the health service it provides and that treatment with the product works at least as well as currently available treatments. The continuing efforts of government and insurance companies, health maintenance organizations and other payors of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and collaborative partners and the availability of capital.
31
We may never be able to generate significant product revenues from the sale of PIXUVRI.
We anticipate that, for at least the next several years, our ability to generate revenues and become profitable will depend on the commercial success in Europe of our only marketed product candidate, PIXUVRI. PIXUVRI is not approved for marketing in the U.S. and is available only in those countries identified in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations. For a discussion of the reimbursement status in the applicable countries, also see such section. However, our ability to continue to commercialize PIXUVRI in the E.U. will depend on our ability to obtain an annual renewal of our conditional marketing authorization for PIXUVRI and to timely complete the post-marketing study of PIXUVRI aimed at confirming the clinical benefit previously observed in PIXUVRI. A failure of such study could result in a cessation of commercialization of PIXUVRI in the E.U.
In addition, the successful commercialization of PIXUVRI depends heavily on our ability to obtain and maintain favorable reimbursement rates for users of PIXUVRI, as well as on various additional factors, including, without limitation, our ability to:
|
increase and maintain demand for and sales of PIXUVRI and obtain greater acceptance of PIXUVRI by physicians and patients; |
|
establish and maintain agreements with wholesalers and distributors on reasonable terms; |
|
maintain, and enter into additional, commercial manufacturing arrangements with third-parties, cost-effectively manufacture necessary quantities and build distribution, managerial and other capabilities; and |
|
further develop and maintain a commercial organization to market PIXUVRI. |
If we are unable to successfully commercialize PIXUVRI as planned, our business, financial condition, operating results and prospects could be harmed.
We have in the past received and may in the future receive audit reports with an explanatory paragraph on our consolidated financial statements.
Our independent registered public accounting firm included an explanatory paragraph in its reports on our consolidated financial statements for each of the years ended December 31, 2007 through December 31, 2011 regarding their substantial doubt as to our ability to continue as a going concern. Although our independent registered public accounting firm removed this going concern explanatory paragraph in its report on our December 31, 2012 consolidated financial statements, we expect to continue to need to raise additional financing to develop our business and satisfy obligations as they become due. The inclusion of a going concern explanatory paragraph in future years may negatively impact the trading price of our common stock and make it more difficult, time consuming or expensive to obtain necessary financing, and we cannot guarantee that we will not receive such an explanatory paragraph in the future.
We may be unable to obtain a quorum for meetings of our shareholders or obtain necessary shareholder approvals and therefore be unable to take certain corporate actions.
Our articles of incorporation require that a quorum, generally consisting of one-third of the outstanding shares of voting stock, be represented in person, by telephone or by proxy in order to transact business at a meeting of our shareholders. In addition, amendments to our articles of incorporation, such as an amendment to increase our authorized capital stock, generally require the approval of a majority of our outstanding shares. Failure to meet a quorum or obtain shareholder approval can prevent us from raising capital through equity financing or otherwise taking certain actions that may be in the best interest of the company and shareholders.
A substantial majority of our common shares are held by Italian institutions and, under Italian laws and regulations, it is difficult to communicate with the beneficial holders of those shares to obtain votes. In 2006, we were unable to obtain a quorum at two scheduled annual meetings. Following that failure to obtain a quorum, we contacted certain depository banks in Italy where significant numbers of shares of our common stock were held and asked them to cooperate by making a book-entry transfer of their share positions at Monte Titoli to their U.S. correspondent bank, who would then transfer the shares to an account of the Italian bank at a U.S. broker-dealer that is an affiliate of that bank. Certain of the banks contacted agreed to make the share transfer pursuant to these arrangements as of the record date of the meeting, subject to the relevant beneficial owner being given notice before such record date and taking no action to direct the voting of such shares. Obtaining a quorum and necessary shareholder approvals at shareholder meetings will depend in part upon the willingness of the Italian depository banks to continue participating in the custody transfer arrangements, and we cannot be assured that those banks that have participated in the past will continue to participate in custody transfer arrangements in the future.
As a result of the foregoing, we may be unable to obtain a quorum or shareholder approval of proposals, when needed, at annual or special meetings of shareholders. Even if we are able to obtain a quorum at our shareholder meetings, we may not obtain enough votes to approve matters to be resolved upon at those meetings. For example, a proposal to approve a reverse stock split failed to
32
receive sufficient votes to pass at the March 2009 shareholders meeting. Any failure to obtain a quorum or the requisite vote on a proposal in question could harm us.
We could fail in financing efforts if we fail to receive shareholder approval when needed.
We are required under the NASDAQ Marketplace Rules to obtain shareholder approval for any issuance of additional equity securities that would comprise more than 20 percent of the total shares of our common stock outstanding before the issuance of such securities sold at a discount to the greater of book or market value in an offering that is not deemed to be a “public offering” by the NASDAQ Marketplace Rules or NASDAQ as well as under certain other circumstances. We have in the past and may in the future issue additional equity securities that would comprise more than 20 percent of the total shares of our common stock outstanding in order to fund our operations. However, we might not be successful in obtaining the required shareholder approval for any future issuance that requires shareholder approval pursuant to applicable rules and regulations, particularly in light of the historical difficulties we have experienced in obtaining a quorum and holding shareholder meetings discussed above. If we are unable to obtain financing due to shareholder approval difficulties, such failure may harm our ability to continue operations.
We are subject to Italian regulatory requirements, which limit our ability to issue additional shares of our common stock, could result in administrative and other challenges and additional expenses and/or could limit our ability to undertake other business initiatives.
Because our common stock is traded on the MTA in Italy, we are required to also comply with the rules and regulations of CONSOB and the Borsa Italiana, which regulate companies listed on Italy’s public markets. Compliance with Italian regulatory requirements may delay additional issuances of our common stock or other business initiatives. Under Italian law, we must publish a registration document, securities note and summary that have to be approved by CONSOB prior to issuing common stock that exceeds, in any twelve-month period, 10 percent of the number of shares of our common stock outstanding at the beginning of that period, subject to certain exceptions. If we are unable to obtain and maintain a registration document, securities note or summary to cover general financing efforts under Italian law, we may be required to raise money using alternative forms of securities. For example, we have issued convertible preferred stock in numerous prior offerings and may in the future issue convertible securities because the common stock resulting from the conversion of such securities, subject to current provisions of European Directive No. 71/2003 and, according to the current interpretations of the Committee of European Securities Regulators, is not subject to the 10 percent limitation imposed by E.U. and Italian law. However, any changes to Italian regulatory requirements, exemptions or interpretations may increase compliance costs or limit our ability to issue securities. Compliance with these regulations and responding to periodic information requests from Borsa Italiana and CONSOB requires us to devote additional time and resources to regulatory compliance matters and to incur additional expenses of engaging additional outside counsel, accountants and other professional advisors. Actual or alleged failure to comply with Italian regulators can also subject us to regulatory investigations. For more information on current investigations, see the regulatory investigations that are discussed in more detail in Part II, Item 1, Legal Proceedings.
Any of such regulatory requirements of CONSOB and the Borsa Italiana could result in administrative and other challenges and additional expenses, limit our ability to undertake other business initiatives and negatively affect our business, financial condition, operating results and prospects.
We will incur a variety of costs for and may never realize the anticipated benefits of acquisitions or other strategic transactions.
We evaluate and undertake acquisitions and other strategic transactions from time to time. The process of negotiating these transactions, as well as integrating any acquisitions or implementing any strategic alliances, may result in operating difficulties and expenditures. In addition, these transactions may require significant management attention that would otherwise be available for ongoing development of our business, whether or not any such transaction is ever consummated. These undertakings could also result in potentially dilutive issuances of equity securities, including common stock and preferred stock, the incurrence of debt, contingent liabilities and/or amortization expenses related to intangible assets, and we may never realize the anticipated benefits. In addition, following the consummation of a transaction, our results of operations and the market price of our common stock may be affected by factors different from those that affected our results of operations and the market price of our common stock prior to such acquisition. Any of the foregoing consequences resulting from transactions of the type described above could harm our business, financial condition, operating results or prospects.
We may owe additional amounts for value added taxes related to our operations in Europe.
Our European operations are subject to the VAT, which is usually applied to all goods and services purchased and sold throughout Europe. The VAT receivable was $5.8 million and $5.7 million as of June 30, 2014 and December 31, 2013, respectively. On April 14, 2009, December 21, 2009 and June 25, 2010, the ITA issued notices of assessment to CTI (Europe) based on the ITA’s audit of CTI (Europe)’s VAT returns for the years 2003, 2005, 2006 and 2007. The ITA audits concluded that CTI (Europe) did not collect and remit VAT on certain invoices issued to non-Italian clients for services performed by CTI (Europe). The assessments, including interest and penalties, for the years 2003, 2005, 2006 and 2007 are €0.5 million, €5.5 million, €2.5 million and €0.8 million.
33
While we are defending ourselves against the assessments both on procedural grounds and on the merits of the case, there can be no assurances that we will be successful in such defense. Further information pertaining to these cases can be found in Part II, Item 1, Legal Proceedings and is incorporated by reference herein. If the final decision of the Supreme Court is unfavorable to us, or if, in the interim, the ITA were to make a demand for payment and we were to be unsuccessful in suspending collection efforts, we may be requested to pay to the ITA an amount up to €9.4 million (or approximately $12.9 million converted using the currency exchange rate as of June 30, 2014) plus collection fees, notification expenses and additional interest for the period lapsed between the date in which the assessments were issued and the date of effective payment.
Even if our products receive regulatory approval, we will be subject to ongoing obligations and continued regulatory review by the FDA, the EMA and other foreign regulatory agencies, as applicable, and may be subject to additional post-marketing obligations, all of which may result in significant expense and limit commercialization of our products, including PIXUVRI.
Even if our other products receive regulatory approvals, we will be subject to numerous regulations and statutes regulating the manner of selling and obtaining reimbursement for those products. Regulatory approvals that we receive for our products may be subject to limitations on the indicated uses for which the product may be marketed or require potentially costly post-marketing follow-up studies. Even if a product receives regulatory approval, we may not be able to maintain compliance with regulatory requirements, which could result in the product being withdrawn from the market, product seizures, injunctions, regulatory restrictions on our business and sales activities, monetary penalties or criminal prosecution. In addition, PIXUVRI is subject to extensive regulatory requirements regarding its labeling, packaging, adverse event reporting, storage, advertising, promotion and record-keeping. If the FDA, the EMA or other foreign regulatory agency approves any of our other products, they will also be subject to similar extensive regulatory requirements. The subsequent discovery of previously unknown problems with PIXUVRI or any of our other products, including adverse events of unanticipated severity or frequency, or the discovery that adverse effects or unknown toxicities observed in preclinical research or clinical trials that were believed to be minor actually constitute more serious problems, may result in restrictions on the marketing of the product or withdrawal of the drug from the market. If we are not granted full approval of PIXUVRI in the E.U. or we are unable to renew our conditional marketing authorization for PIXUVRI in the E.U., our business, financial condition, operating results and prospects would be harmed.
We cannot predict the outcome of our post-approval commitment trial for PIXUVRI or our ability to satisfy the requirements to convert our conditional marketing authorization for PIXUVRI in the E.U. into full marketing authorization in the E.U. Any failure thereof, as well as any additional clinical trials or actions we may need to pursue to obtain approval in the E.U. or otherwise, may negatively affect our business, financial condition, operating results or prospects.
In March 2011, we initiated a randomized pivotal trial of PIXUVRI for the treatment of relapsed or refractory aggressive B-cell NHL. This post-approval commitment trial, referred to as PIX-R, or PIX306, compares a combination of PIXUVRI plus rituximab to a combination of gemcitabine plus rituximab in patients who have relapsed after one to three prior regimens for aggressive B-cell NHL and who are not eligible for autologous stem cell transplant. We cannot predict the outcome of PIX306. We may not be able to demonstrate the clinical benefit of PIXUVRI in patients who had previously received rituximab or that PIXUVRI is more clinically effective than treatments currently used in clinical practice. In addition, we do not anticipate that we will be able to submit the requisite PIX306 study report by June 2015, which is the present completion date agreed upon with the EMA in order to be eligible to convert the conditional marketing authorization for PIXUVRI in the E.U. into full marketing authorization in the E.U., and we have notified the EMA that we intend to seek an extension of such date by approximately one year. If we are unable to obtain agreement with the EMA concerning such extension and/or to submit the requisite PIX306 study report by any such extended date, or are otherwise unable to satisfy all applicable requirements, our conditional marketing authorization for PIXUVRI may be revoked. We may also need to take additional steps than those currently contemplated to obtain regulatory approval of PIXUVRI in the E.U. The expense to design and conduct clinical trials are substantial, and any failure of PIX306, as well as any additional clinical trials or actions we may need to pursue to obtain approval of PIXUVRI in the E.U. or otherwise, may negatively affect our business, financial condition, operating results or prospects.
We may be subject to fines, penalties, injunctions and other sanctions if we are deemed to be promoting the use of our products for non-FDA-approved, or off-label, uses.
Our business and future growth depend on the development, use and ultimate sale of products that are subject to FDA, EMA and or other regulatory agencies regulation, clearance and approval. Under the U.S. Federal Food, Drug, and Cosmetic Act and other laws, we are prohibited from promoting our products for off-label uses. This means that in the U.S., we may not make claims about the safety or effectiveness of our products and may not proactively discuss or provide information on the use of our products, except as allowed by the FDA.
Government investigations concerning the promotion of off-label uses and related issues are typically expensive, disruptive and burdensome, generate negative publicity and may result in fines or payments of settlement awards. For example, in April 2007, we paid a civil penalty of $10.6 million and entered into a settlement agreement with the U.S. Attorney’s Office for the Western District of Washington arising out of their investigation into certain of our prior marketing practices relating to TRISENOX, which was
34
divested to Cephalon in July 2005. As part of that settlement agreement and in connection with the acquisition of Zevalin, we also entered into a corporate integrity agreement with the Office of the Inspector General, Health and Human Services, which required us to establish a compliance committee and compliance program and adopt a formal code of conduct. If our promotional activities are found to be in violation of applicable law or if we agree to a settlement in connection with an enforcement action, we would likely face significant fines and penalties and would likely be required to substantially change our sales, promotion, grant and educational activities.
A failure to comply with laws and regulations that govern our cross-border conduct, as well as with healthcare fraud and abuse and anti-corruption and false claims laws and regulations, could result in substantial penalties and prosecution.
We are subject to risks associated with doing business outside of the U.S., which exposes us to complex foreign and U.S. regulations. For example, we are subject to regulations imposed by the Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws that generally prohibit U.S. companies and their intermediaries from offering, promising, authorizing or making improper payments to foreign government officials for the purpose of obtaining or retaining business. The SEC and U.S. Department of Justice have increased their enforcement activities with respect to the FCPA. Internal control policies and procedures and employee training and compliance programs that we have implemented to deter prohibited practices may not be effective in prohibiting our employees, contractors or agents from violating or circumventing our policies and the law.
In addition, we are subject to various state and federal fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and federal False Claims Act. There are similar laws in other countries. These laws may impact, among other things, the sales, marketing and education programs for our drugs. The federal Anti-Kickback Statute prohibits persons from knowingly and willingly soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal healthcare program. The federal False Claims Act prohibits persons from knowingly filing, or causing to be filed, a false claim to, or the knowing use of false statements to obtain payment from the federal government. Suits filed under the False Claims Act can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. Many states have also adopted laws similar to the federal Anti-Kickback Statute and False Claims Act.
We are unable to predict whether we could be subject to actions under any of the foregoing or similar laws and regulations, or the impact of such actions. If we were to be found to be in violation of these laws or regulations, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from government healthcare reimbursement programs and the curtailment or restructuring of our operations, all of which could have a material adverse effect on our business and results of operations.
We are dependent on third parties for a number of critical operational activities including, in particular, for the manufacture, testing and distribution of products and product candidates and associated activities. Any failure or delay in these undertakings by third-parties could harm our business.
Our business is dependent on the performance by third parties of their responsibilities under contractual relationships, including, in particular, for the manufacture, testing and distribution of products and product candidates and associated activities. We do not have internal analytical laboratory or manufacturing facilities to allow the testing or production of drug products in compliance with current Good Manufacturing Practices, or cGMPs. As a result, we are reliant on third parties to supply us in a timely manner with manufactured products, and, with respect to certain of our compounds, we are dependent on a single manufacturer. We depend on these third parties to conduct their operations in compliance with cGMPs or similar standards imposed by the U.S. and/or applicable foreign regulatory authorities, including the FDA and EMA. Any of such regulatory authorities may take action against a contract manufacturer who violates cGMPs. Failure of our manufacturers to comply with FDA, EMA or other applicable regulations may cause us to curtail or stop the manufacture of such products until we obtain regulatory compliance. We also rely on third-party vendors for certain warehousing, transportation, distribution, order processing and cash collection services. In addition, with respect to certain steps in the distribution chain of our products and product candidates, we rely on single vendors. The use of single vendors for various manufacturing and distribution activities could expose us to an interruption in service related to these individual, independent vendors. As a result, engaging in operations subject to this concentration risk could harm our business.
If the third parties on which we depend were to default on the performance of their contractual obligations to us or otherwise fail in properly executing their activities on our behalf, including, but not limited to, those relating to the manufacture, testing, distribution and other operational activities, our business could be harmed.
35
We face direct and intense competition from our competitors in the biotechnology and pharmaceutical industries, and we may not compete successfully against them.
Competition in the oncology market is intense and is accentuated by the rapid pace of technological and product development. We anticipate that we will face increased competition in the future as new companies enter the market. Our competitors in the U.S. and elsewhere are numerous and include, among others, major multinational pharmaceutical companies, specialized biotechnology companies and universities and other research institutions. Specifically:
|
In Europe, PIXUVRI faces competition from existing treatments for adults with multiply relapsed or refractory aggressive B-cell NHL. For example, patients are currently being treated with bendamustine, oxaliplatin and gemcitabine, although these particular agents do not have regulatory approval in Europe for the foregoing indication. If we were to pursue bringing PIXUVRI to market in the U.S. (which is not currently part of our near-term plan), PIXUVRI would face similar competition. In addition, PIXUVRI may face competition in the E.U. (and, if applicable in the future, the U.S.) if new anti-cancer drugs with reduced toxicity and/or increased efficacy are developed and marketed in the E.U. and/or the U.S. |
|
If we are successful in bringing pacritinib to market, pacritinib will face competition from ruxolitinib (Jakafi®) and new drugs targeting similar diseases that may be developed and marketed. |
|
If we are successful in bringing tosedostat to market, tosedostat will face competition from currently marketed products, such as cytarabine, Dacogen®, Vidaza®, Clolar®, Revlimid®, Thalomid® and new anti-cancer drugs that may be developed and marketed. |
|
If we are successful in bringing Opaxio to market, we will face direct competition from oncology-focused multinational corporations. Opaxio will compete with other taxanes. Many oncology-focused multinational corporations currently market or are developing taxanes, epothilones, and other cytotoxic agents, which inhibit cancer cells by a mechanism similar to taxanes, or similar products. Such corporations include, among others, Bristol-Myers Squibb Co., which market paclitaxel and generic forms of paclitaxel; Sanofi-Aventis U.S. LLC, which markets docetaxel; Genentech, Inc., Hoffmann-La Roche Inc. and Astellas Pharma US, Inc., which market Tarceva™; Genentech, Inc. and Hoffmann-La Roche Inc., which market Avastin™; Eli Lilly & Company, which markets Alimta®; and Celgene Corporation, which markets Abraxane™. In addition, other companies such as Telik, Inc. are also developing products, which could compete with Opaxio. |
Many of our competitors, particularly the multinational pharmaceutical companies, either alone or together with their collaborators, have substantially greater financial and technical resources and substantially larger development and marketing teams than us, as well as significantly greater experience than we do in developing, manufacturing and marketing products. As a result, products of our competitors might come to market sooner or might prove to be more effective, less expensive, have fewer side effects or be easier to administer than ours. In any such case, sales of our current or future products would likely suffer and we might never recoup the significant investments we are making to develop these product candidates.
If any of our license agreements for intellectual property underlying our compounds are terminated, we may lose the right to develop or market that product.
We have acquired or licensed intellectual property from third parties, including patent applications and patents relating to intellectual property for PIXUVRI, pacritinib and tosedostat. We have also licensed the intellectual property for our drug delivery technology relating to Opaxio, which uses polymers that are linked to drugs known as polymer-drug conjugates. Some of our product development programs depend on our ability to maintain rights under these arrangements. Each licensor has the power to terminate its agreement with us if we fail to meet our obligations under these licenses. We may not be able to meet our obligations under these licenses. If we default under any license agreement, we may lose our right to market and sell any products based on the licensed technology and may be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection. Bankruptcy may result in the termination of agreements pursuant to which we license certain intellectual property rights.
If we are unable to acquire additional product candidates, our future product portfolio and potential profitability could be harmed.
One component of our business strategy is the in-licensing and acquisition of drug compounds developed by other pharmaceutical and biotechnology companies or academic research laboratories. PIXUVRI, pacritinib, tosedostat and Opaxio have all been in-licensed or acquired from third-parties. Competition for new promising compounds and commercial products can be intense. If we are not able to identify future in-licensing or acquisition opportunities and enter into arrangements on acceptable terms, our future product portfolio and potential profitability could be harmed.
We hold rights under numerous patents that we have acquired or licensed or that protect inventions originating from our research and development, and the expiration of any one or more of these patents may allow our competitors to copy the inventions that are currently protected.
We dedicate significant resources to protecting our intellectual property, which is important to our business. We have filed numerous patent applications in the U.S. and various other countries seeking protection of inventions originating from our research
36
and development, and we have also obtained rights to various patents and patent applications under licenses with third parties and through acquisitions. Patents have been issued on many of these applications. We have pending patent applications or issued patents in the U.S. and foreign countries directed to PIXUVRI, pacritinib, tosedostat, Opaxio and other product candidates. However, the lives of these patents are limited. Patents for the individual products extend for varying periods according to the date of the patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The patent status of our compounds follows:
|
Our PIXUVRI-directed patents currently in force in Europe expire from 2015 through 2023. Certain of such European patents are also subject to Supplementary Protection Certificates that extend the life of the applicable patents such that they will instead expire from 2020 to 2027. In addition, we are seeking to obtain Supplementary Protection Certificates for certain other of our PIXUVRI-directed European patents that, if obtained, could provide extensions of the applicable patents through 2027. However, no assurances can be made that such extensions will be granted. Our PIXUVRI-directed U.S. patents expired in 2014, and although we have a pending PIXUVRI-directed U.S. patent application (which, if granted, would expire in 2023), we have to date been unable to obtain issuance of a patent for such application (and no assurances can be made that we will ever receive such patent). Our PIXUVRI-directed patents outside of Europe and the U.S. expire from 2015 to 2023. |
|
Our U.S. and various foreign pacritinib-directed patents expire from 2026 through 2029. |
|
Our tosedostat-directed U.S. and Canadian patents expire from 2017 to 2018, while our tosedostat-directed patents in Mexico expire in 2018. |
|
Our U.S. and various foreign Opaxio-directed patents expire on various dates ranging from 2017 through 2018. |
|
Our U.S. and various foreign brostallicin-directed patents expire on various dates ranging between 2017 through 2021. |
In the absence of a patent, as in the case of PIXUVRI in the U.S., we will, to the extent possible, need to rely on unpatented technology, know-how and confidential information. Ultimately, the lack or expiration at any given time of a patent to protect our compounds may allow our competitors to copy the underlying inventions and better compete with us.
If we fail to adequately protect our intellectual property, our competitive position could be harmed.
Development and protection of our intellectual property are critical to our business. If we do not adequately protect our intellectual property, competitors may be able to practice our technologies. Our success depends in part on our ability to:
|
obtain and maintain patent protection for our products or processes both in the U.S. and other countries; |
|
protect trade secrets; and |
|
prevent others from infringing on our proprietary rights. |
The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal and factual questions. The U.S. Patent and Trademark Office has not established a consistent policy regarding the breadth of claims that it will allow in biotechnology patents. If it allows broad claims, the number and cost of patent interference proceedings in the U.S. and the risk of infringement litigation may increase. If it allows narrow claims, the risk of infringement may decrease, but the value of our rights under our patents, licenses and patent applications may also decrease. Patent applications in which we have rights may never issue as patents, and the claims of any issued patents may not afford meaningful protection for our technologies or products. In addition, patents issued to us or our licensors may be challenged and subsequently narrowed, invalidated or circumvented. Litigation, interference proceedings or other governmental proceedings that we may become involved in with respect to our proprietary technologies or the proprietary technology of others could result in substantial cost to us.
We also rely upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive. Third parties may independently develop such know-how or otherwise obtain access to our technology. While we require our employees, consultants and corporate partners with access to proprietary information to enter into confidentiality agreements, these agreements may not be honored.
Patent litigation is widespread in the biotechnology industry, and any patent litigation could harm our business.
Costly litigation might be necessary to protect a patent position or to determine the scope and validity of third-party proprietary rights, and we may not have the required resources to pursue any such litigation or to protect our patent rights. Any adverse outcome in litigation with respect to the infringement or validity of any patents owned by third parties could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using a product or technology. With respect to our in-licensed patents, if we attempt to initiate a patent infringement suit against an alleged infringer, it is possible that our applicable licensor will not participate in or assist us with the suit and as a result we may not be able to effectively enforce the applicable patents against the alleged infringers.
37
We may be unable to obtain or protect our intellectual property rights and we may be liable for infringing upon the intellectual property rights of others, which may cause us to engage in costly litigation and, if unsuccessful, could cause us to pay substantial damages and prohibit us from selling our products.
At times, we may monitor patent filings for patents that might be relevant to some of our products and product candidates in an effort to guide the design and development of our products to avoid infringement, but may not have conducted an exhaustive search. We may not be able to successfully challenge the validity of third-party patents and could be required to pay substantial damages, possibly including treble damages, for past infringement and attorneys’ fees if it is ultimately determined that our products infringe such patents. Further, we may be prohibited from selling our products before we obtain a license, which, if available at all, may require us to pay substantial royalties.
Moreover, third parties may challenge the patents that have been issued or licensed to us. We do not believe that PIXUVRI, pacritinib or any of the other compounds we are currently developing infringe upon the rights of any third parties nor are they infringed upon by third parties; however, there can be no assurance that our technology will not be found in the future to infringe upon the rights of others or be infringed upon by others. In such a case, others may assert infringement claims against us, and should we be found to infringe upon their patents, or otherwise impermissibly utilize their intellectual property, we might be forced to pay damages, potentially including treble damages, if we are found to have willfully infringed on such parties’ patent rights. In addition to any damages we might have to pay, we may be required to obtain licenses from the holders of this intellectual property, enter into royalty agreements or redesign our drug candidates so as not to utilize this intellectual property, each of which may prove to be uneconomical or otherwise impossible. Conversely, we may not always be able to successfully pursue our claims against others that infringe upon our technology and the technology exclusively licensed from any third parties. Thus, the proprietary nature of our technology or technology licensed by us may not provide adequate protection against competitors.
Even if infringement claims against us are without merit, or if we challenge the validity of issued patents, lawsuits take significant time, may, even if resolved in our favor, be expensive and divert management attention from other business concerns. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue our operations.
We are currently and may in the future be subject to regulatory or legal proceedings that could harm our financial condition and operating results.
We may be subject to regulatory matters or legal claims, including possible securities, consumer protection and other types of proceedings pursued by individuals, entities or regulatory bodies. As described in Part II, Item 1, Legal Proceedings, we are currently engaged in a number of pending legal matters. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. Adverse outcomes in some or all of such pending cases may result in significant monetary damages or injunctive relief against us. It is possible that our financial condition and operating results could be harmed in any period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable, and if an unfavorable ruling were to occur in any of the legal proceedings we are or may be subject to, our business, financial condition, operating results and prospects could be harmed. We are subject to a variety of claims and lawsuits from time to time, some of which arise in the ordinary course of our business. The ultimate outcome of litigation and other claims is subject to inherent uncertainties, and our view of these matters may change in the future.
Securities class action and shareholder derivative lawsuits are often instituted against issuers; we have been subjected to such actions and presently are subject to a derivative lawsuit. In addition, we recently settled a shareholder derivative lawsuit in May 2013 pursuant to which we agreed to implement certain corporate governance measures and were required to pay $1.4 million in plaintiffs’ attorneys’ fees and reimbursement of expenses, all of which amount was covered by our insurance.
We cannot predict with certainty the eventual outcome of pending litigation. Furthermore, we may have to incur substantial expenses in connection with such lawsuits and management’s attention and resources could be diverted from operating our business as we respond to the litigation. Our insurance is subject to high deductibles and there is no guarantee that the insurance will cover any specific claim that we currently face or may face in the future, or that it will be adequate to cover all potential liabilities and damages. In the event of an adverse outcome under any currently pending or future lawsuit, our business could be materially harmed.
Our net operating losses may not be available to reduce future income tax liability.
We have substantial tax loss carryforwards for U.S. federal income tax purposes, but our ability to use such carryforwards to offset future income or tax liability is limited under section 382 of the Internal Revenue Code of 1986, as amended, as a result of prior changes in the stock ownership of the company. Moreover, future changes in the ownership of our stock, including those resulting from issuance of shares of our common stock upon exercise of outstanding warrants, may further limit our ability to use our net operating losses.
38
Our operations in our European branches and subsidiaries make us subject to increased risk regarding currency exchange rate fluctuations.
We are exposed to risks associated with the translation of euro-denominated financial results and accounts into U.S. dollars for financial reporting purposes. The carrying value of the assets and liabilities, as well as the reported amounts of revenues and expenses, in our European branches and subsidiaries will be affected by fluctuations in the value of the U.S. dollar as compared to the euro. Changes in the value of the U.S. dollar as compared to the euro might have an adverse effect on our reported operating results and financial condition.
We may be unable to obtain the raw materials necessary to produce a particular product or product candidate.
We may not be able to purchase the materials necessary to produce a particular product or product candidate in adequate volume and quality. For example, paclitaxel, a material used to produce Opaxio, is derived from certain varieties of yew trees and the supply of paclitaxel is controlled by a limited number of companies. If any raw material required to produce a product or product candidate is insufficient in quantity or quality, if a supplier fails to deliver in a timely fashion or at all or if these relationships terminate, we may not be able to qualify and obtain a sufficient supply from alternate sources on acceptable terms, or at all.
Because there is a risk of product liability associated with our products, we face potential difficulties in obtaining insurance, and if product liability lawsuits were to be successfully brought against us, our business may be harmed.
Our business exposes us to potential product liability risks inherent in the testing, manufacturing and marketing of human pharmaceutical products. In particular, as a result of the commercialization of PIXUVRI, our risk with respect to potential product liability has increased. If our insurance covering a product or product candidate is not maintained on acceptable terms or at all, we might not have adequate coverage against potential liabilities. Our inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or limit the commercialization of any products we develop. A successful product liability claim could also exceed our insurance coverage and could harm our financial condition and operating results.
Since we use hazardous materials in our business, we may be subject to claims relating to improper handling, storage or disposal of these materials.
Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. We are subject to international, federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by the regulations, the risk of accidental contamination or injury from these materials cannot be eliminated completely. In the event of such an accident, we could be held liable for any damages that result and any such liability not covered by insurance could exceed our resources. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development or production efforts.
We depend on sophisticated information technology systems to operate our business and a cyber-attack or other breach of these systems could have a material adverse effect on our business.
We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations. The size and complexity of our information technology systems makes them vulnerable to a cyber-attack, malicious intrusion, breakdown, destruction, loss of data privacy or other significant disruption. Any such successful attacks could result in the theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. Cyber-attacks are becoming more sophisticated and frequent. We have invested in our systems and the protection of our data to reduce the risk of an intrusion or interruption, and we monitor our systems on an ongoing basis for any current or potential threats. There can be no assurance that these measures and efforts will prevent future interruptions or breakdowns. If we fail to maintain or protect our information technology systems and data integrity effectively or fail to anticipate, plan for or manage significant disruptions to these systems, we could have difficulty preventing, detecting and controlling fraud, have disputes with customers, physicians and other health care professionals, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property or suffer other adverse consequences, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
39
Risks Related To the Securities Markets
The market price of shares of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value of your investment in our securities to sudden decreases.
The market price for securities of biopharmaceutical and biotechnology companies, including ours, historically has been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. For example, during the 12-month period ended July 29, 2014, our stock price has ranged from a low of $1.01 to a high of $4.25. Fluctuations in the market price or liquidity of our common stock may harm the value of your investment in our common stock.
Factors that may have an impact, which, depending on the circumstances, could be significant, on the market price and marketability of our securities include:
|
announcements by us or others of results of clinical trials and regulatory actions; |
|
announcements by us or others of serious adverse events that have occurred during administration of our products to patients; |
|
announcements of technological innovations or new commercial therapeutic products by us, our collaborative partners or our present or potential competitors; |
|
our issuance of debt, equity or other securities, which we need to pursue to generate additional funds to cover our operating expenses; |
|
our quarterly operating results; |
|
developments or disputes concerning patent or other proprietary rights; |
|
developments in relationships with collaborative partners; |
|
acquisitions or divestitures; |
|
our ability to realize the anticipated benefits of pacritinib; |
|
litigation and government proceedings; |
|
adverse legislation, including changes in governmental regulation; |
|
third-party reimbursement policies; |
|
changes in securities analysts’ recommendations; |
|
short selling of our securities; |
|
changes in health care policies and practices; |
|
a failure to achieve previously announced goals and objectives as or when projected; |
|
halting or suspension of trading in our common stock on The NASDAQ Capital Market by NASDAQ or on the MTA by CONSOB, or the Borsa Italiana; and |
|
general economic and market conditions. |
Shares of common stock are equity securities and are subordinate to any preferred stock we may issue and to any existing or future indebtedness.
Shares of our common stock rank junior to any shares of our preferred stock that we may issue in the future and to our existing indebtedness, including our senior secured term loan agreement, or future indebtedness we may incur and to all creditor claims and other non-equity claims against us and our assets available to satisfy claims on us, including claims in a bankruptcy or similar proceeding. Our senior secured term loan agreement restricts, and any future indebtedness and preferred stock may restrict, payment of dividends on our common stock.
Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of our common stock, dividends are payable only when and if declared by our Board of Directors or a duly authorized committee of our Board of Directors, and as a corporation, we are restricted to making dividend payments and redemption payments out of legally available assets. We have never paid a dividend on our common stock and have no current intention to pay dividends in the future. Furthermore, our common stock places no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to shareholders generally.
40
We may not be able to maintain our listings on The NASDAQ Capital Market and the MTA in Italy, or trading on these exchanges may otherwise be halted or suspended, which may make it more difficult for investors to sell shares of our common stock and consequently may negatively impact the price of our common stock.
Maintaining the listing of our common stock on The NASDAQ Capital Market requires that we comply with certain listing requirements. We have in the past and may in the future fail to continue to meet one or more listing requirements. For example, in June 2012, we received a notification from The NASDAQ Stock Market LLC, or NASDAQ, indicating non-compliance with the requirement to maintain a minimum closing bid price of $1.00 per share and that we would be delisted if we did not timely regain compliance. We regained compliance through a reverse stock split in September 2012, but we could fail to meet the continued listing requirements as a result of a decrease in our stock price or otherwise.
If our common stock ceases to be listed for trading on The NASDAQ Capital Market for any reason, it may harm our stock price, increase the volatility of our stock price, decrease the level of trading activity and make it more difficult for investors to buy or sell shares of our common stock. Our failure to maintain a listing on The NASDAQ Capital Market may constitute an event of default under our senior secured term loan and any future indebtedness, which would accelerate the maturity date of such debt or trigger other obligations. In addition, certain institutional investors that are not permitted to own securities of non-listed companies may be required to sell their shares adversely affecting the market price of our common stock. If we are not listed on The NASDAQ Capital Market or if our public float falls below $75 million, we will be limited in our ability to file new shelf registration statements on SEC Form S-3 and/or to fully use one or more registration statements on SEC Form S-3. We have relied significantly on shelf registration statements on SEC Form S-3 for most of our financings in recent years, so any such limitations may harm our ability to raise the capital we need. Delisting from The NASDAQ Capital Market could also affect our ability to maintain our listing or trading on the MTA. Trading in our common stock has been halted or suspended on both The NASDAQ Capital Market and MTA in the past and may also be halted or suspended in the future due to market or trading conditions at the discretion of The NASDAQ Stock Market LLC, CONSOB or the Borsa Italiana (which ensures the development of the managed markets in Italy). Any halt or suspension in the trading in our common stock may negatively impact the market price of our common stock.
Future sales or other dilution of our equity may harm the market price of shares of our common stock or preferred stock.
We expect to issue additional equity securities to fund our operating expenses as well as for other purposes, including in connection with acquisitions or other strategic transactions we may undertake from time to time. The market price of our shares of common stock or preferred stock could decline as a result of sales of a large number of shares of our common stock or preferred stock or similar securities in the market, or the perception that such sales could occur in the future.
Anti-takeover provisions in our charter documents, in our shareholder rights plan, or rights plan, and under Washington law could make removal of incumbent management or an acquisition of us, which may be beneficial to our shareholders, more difficult.
Provisions of our amended and restated articles of incorporation and bylaws may have the effect of deterring or delaying attempts by our shareholders to remove or replace management, to commence proxy contests or to effect changes in control. These provisions include:
|
elimination of cumulative voting in the election of directors; |
|
procedures for advance notification of shareholder nominations and proposals; |
|
the ability of our Board of Directors to amend our bylaws without shareholder approval; and |
|
the ability of our Board of Directors to issue shares of preferred stock without shareholder approval upon the terms and conditions and with the rights, privileges and preferences as the Board of Directors may determine. |
Pursuant to our rights plan, an acquisition of 20 percent or more of our common stock by a person or group, subject to certain exceptions, could result in the exercisability of the preferred stock purchase right accompanying each share of our common stock (except those held by a 20 percent shareholder, which become null and void), thereby entitling the holder to receive upon exercise, in lieu of a number of units of preferred stock, that number of shares of our common stock having a market value of two times the exercise price of the right. The existence of our rights plan could have the effect of delaying, deterring or preventing a third party from making an acquisition proposal for us and may inhibit a change in control that some, or a majority, of our shareholders might believe to be in their best interest or that could give our shareholders the opportunity to realize a premium over the then-prevailing market prices for their shares. In addition, as a Washington corporation, we are subject to Washington’s anti-takeover statute, which imposes restrictions on some transactions between a corporation and certain significant shareholders. These provisions, alone or together, could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control.
41
Stock Repurchases in the Second Quarter
The following table sets forth information with respect to purchases of our common stock during the three months ended June 30, 2014:
Period |
Total Number of Shares Purchased (1) |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
April 1 – April 30, 2014 |
|
54 |
|
|
$ |
3.07 |
|
|
|
— |
|
|
|
— |
|
May 1 – May 31, 2014 |
|
163 |
|
|
$ |
2.71 |
|
|
|
— |
|
|
|
— |
|
June 1 – June 30, 2014 |
|
729 |
|
|
$ |
3.02 |
|
|
|
— |
|
|
|
— |
|
Total |
|
946 |
|
|
$ |
2.97 |
|
|
|
— |
|
|
|
— |
|
(1) |
Represents purchases of shares in connection with satisfying tax withholding obligations on the vesting of restricted stock awards to employees granted under the Plan. |
None.
Not applicable.
Not applicable.
42
Exhibit Number |
|
Exhibit Description |
|
Location |
|
|
|
|
|
2.1 |
|
Agreement and Plan of Merger by and between |
|
Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, filed on June 17, 2003. |
|
|
|
||
2.2 |
|
Acquisition Agreement by and among Cell |
|
Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on June 14, 2005. |
|
|
|
||
2.3 |
|
Acquisition Agreement among Cell Therapeutics, Inc., Cactus Acquisition Corp., Saguaro Acquisition Company LLC, Systems Medicine, Inc. and Tom Hornaday and Lon Smith dated July 24, 2007. |
|
Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, filed on July 27, 2007. |
|
|
|
||
2.4 |
|
Second Amendment to the Acquisition Agreement, dated as of August 6, 2009, by and among Cell Therapeutics, Inc. and each of Tom Hornaday and Lon Smith, in their capacities as Stockholder Representatives. |
|
Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on August 7, 2009. |
|
|
|
||
3.1 |
|
Amended and Restated Articles of Incorporation. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on June 24, 2008. |
|
|
|
||
3.2 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on September 4, 2008. |
|
|
|
||
3.3 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series F Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on February 9, 2009. |
|
|
|
||
3.4 |
|
Amendment to Amended and Restated Articles of Incorporation. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on March 27, 2009. |
|
|
|
||
3.5 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 1 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on April 13, 2009. |
|
|
|
||
3.6 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 2 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on August 21, 2009. |
|
|
|
||
3.7 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Certificate of Designation, Preferences and Rights of Series ZZ Junior Participating Cumulative Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form 8-A, filed on December 28, 2009. |
3.8 |
|
|
||
|
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 3 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on January 19, 2010. |
3.9 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 4 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on April 5, 2010. |
|
|
|
||
3.10 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 5 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on May 27, 2010. |
|
|
|
||
3.11 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 6 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on July 27, 2010. |
|
|
|
||
3.12 |
|
Amendment to Amended and Restated Articles of Incorporation. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on September 17, 2010. |
|
|
|
43
Exhibit Number |
|
Exhibit Description |
|
Location |
3.13 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 7 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on October 22, 2010. |
|
|
|
||
3.14 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 8 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on January 18, 2011. |
|
|
|
||
3.15 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 9 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed on January 18, 2011. |
|
|
|
||
3.16 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 10 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on February 24, 2011. |
|
|
|
||
3.17 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 11 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed on February 24, 2011. |
|
|
|
||
3.18 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 12 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on May 2, 2011. |
|
|
|
||
3.19 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on May 18, 2011. |
3.20 |
|
|
||
|
|
Amendment to Amended and Restated Articles of Incorporation.
|
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on June 17, 2011. |
3.21 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 13 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on July 6, 2011. |
|
|
|
||
3.22 |
|
Amendment to Amended and Restated Articles of Incorporation. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on November 15, 2011. |
|
|
|
||
3.23 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 14 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on December 14, 2011. |
|
|
|
||
3.24 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 15-1 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on May 31, 2012. |
|
|
|
||
3.25 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 16 Preferred Stock. |
|
Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on June 5, 2012. |
|
|
|
||
3.26 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 15-2 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on August 1, 2012. |
|
|
|
||
3.27 |
|
Amendment to Amended and Restated Articles of Incorporation. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on August 31, 2012. |
|
|
|
||
3.28 |
|
Amendment to Amended and Restated Articles of Incorporation. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on September 4, 2012. |
|
|
|
||
3.29 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 17 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on October 11, 2012. |
|
|
|
||
3.30 |
|
Amendment to Amended and Restated Articles of Incorporation. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on June 26, 2013. |
|
|
|
44
Exhibit Number |
|
Exhibit Description |
|
Location |
3.31 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 18 Preferred Stock. |
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on September 18, 2013. |
|
|
|
||
3.32 |
|
Articles of Amendment to Amended and Restated Articles of Incorporation; Designation of Preferences, Rights and Limitations of Series 19 Preferred Stock.
|
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on November 15, 2013. |
|
|
|
||
3.33 |
|
Amendment to Amended and Restated Articles of Incorporation.
|
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on May 22, 2014. |
|
|
|
||
3.34 |
|
Amendment to Amended and Restated Articles of Incorporation.
|
|
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on June 2, 2014. |
|
|
|
||
3.35 |
|
Second Amended and Restated Bylaws. |
|
Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed on February 22, 2010.
|
|
|
|
||
3.36 |
|
Amendment No. 1 to Second Amended and Restated Bylaws. |
|
Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed on May 22, 2014. |
|
|
|
||
|
|
|
||
3.37 |
|
Amended and Restated Bylaws.
|
|
Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed on June 2, 2014.
|
|
|
|
||
4.1 |
|
Shareholder Rights Agreement, dated December 28, 2009, between Cell Therapeutics, Inc. and Computershare Trust Company, N.A. |
|
Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form 8-A, filed on December 28, 2009. |
|
|
|
||
4.2 |
|
First Amendment to Shareholder Rights Agreement, dated as of August 31, 2012, between Cell Therapeutics, Inc. and Computershare Trust Company, N.A., as Rights Agent. |
|
Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on September 4, 2012. |
|
|
|
||
4.3 |
|
Second Amendment to Shareholder Rights Agreement, dated as of December 6, 2012, between Cell Therapeutics, Inc. and Computershare Trust Company, N.A., as Rights Agent. |
|
Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on December 7, 2012. |
|
|
|
||
4.4 |
|
Class B Common Stock Purchase Warrant, dated April 13, 2009. |
|
Incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed on April 13, 2009. |
|
|
|
||
4.5 |
|
Common Stock Purchase Warrant, dated May 11, 2009. |
|
Incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2009. |
|
|
|
||
4.6 |
|
Form of Common Stock Purchase Warrant, dated May 27, 2010. |
|
Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed on May 27, 2010. |
|
|
|
||
4.7 |
|
Form of Common Stock Purchase Warrant, dated July 27, 2010. |
|
Incorporated by reference to Exhibit 4.6 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 6, 2010. |
|
|
|
||
4.8 |
|
Form of Common Stock Purchase Warrant, dated October 22, 2010. |
|
Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed on October 22, 2010. |
|
|
|
||
4.9 |
|
Form of Common Stock Purchase Warrant, dated May 3, 2011. |
|
Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed on May 2, 2011. |
4.10 |
|
Form of Common Stock Purchase Warrant, dated July 5, 2011. |
|
Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed on July 6, 2011. |
|
|
|
||
4.11 |
|
Form of Common Stock Purchase Warrant, dated December 13, 2011. |
|
Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed on December 14, 2011. |
|
|
|
||
4.12 |
|
Form of Warrant to Purchase Common Stock, dated May 29, 2012. |
|
Incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed on May 31, 2012. |
45
Exhibit Number |
|
Exhibit Description |
|
Location |
|
|
|
||
4.13 |
|
Form of Warrant to Purchase Common Stock, dated July 30, 2012. |
|
Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on August 1, 2012. |
|
|
|
||
4.14 |
|
Warrant Agreement, dated March 26, 2013, by and between Cell Therapeutics, Inc. and Hercules Technology Growth Capital, Inc. |
|
Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on March 28, 2013. |
|
|
|
||
10.1† |
|
Manufacturing and Supply Agreement, dated as of April 15, 2014, by and between Cell Therapeutics, Inc. and DSM Fine Chemicals Austria Nfg GmbH & Co KG. |
|
Filed herewith. |
|
|
|
||
10.2 |
|
Form of Indemnity Agreement for officers and directors. |
|
Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on June 2, 2014. |
|
|
|
||
10.3 |
|
CTI BioPharma Corp. 2007 Equity Incentive Plan, effective as of June 20, 2003 and amended and restated as of May 30, 2014. |
|
Incorporated by reference to Exhibit 4 to the Registrant’s Registration Statement on Form S-8 filed on June 4, 2014. |
|
|
|
||
15 |
|
Letter regarding Unaudited Interim Financial Information. |
|
Filed herewith. |
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
Filed herewith. |
|
|
|
||
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
Filed herewith. |
|
|
|
||
32 |
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
Filed herewith. |
|
|
|
||
101. INS |
|
XBRL Instance |
|
Filed herewith. |
|
|
|
||
101. SCH |
|
XBRL Taxonomy Extension Schema |
|
Filed herewith. |
|
|
|
||
101. CAL |
|
XBRL Taxonomy Extension Calculation |
|
Filed herewith. |
|
|
|
||
101. DEF |
|
XBRL Taxonomy Extension Definition |
|
Filed herewith. |
|
|
|
||
101. LAB |
|
XBRL Taxonomy Extension Labels |
|
Filed herewith. |
|
|
|
||
101. PRE |
|
XBRL Taxonomy Extension Presentation |
|
Filed herewith. |
† |
Portions of these exhibits have been omitted pursuant to a request for confidential treatment. |
46
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:
|
|
CTI BIOPHARMA CORP. |
||
|
|
(Registrant) |
||
|
|
|
|
|
Dated: August 4, 2014 |
|
By: |
|
/s/ James A. Bianco, M.D. |
|
|
|
|
James A. Bianco, M.D. |
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
Dated: August 4, 2014 |
|
By: |
|
/s/ Louis A. Bianco |
|
|
|
|
Louis A. Bianco |
|
|
|
|
Executive Vice President, |
|
|
|
|
Finance and Administration |
47
Exhibit 10.1
** |
Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. |
**** |
Indicates that the amount of information omitted was a page or more in length, and such information has been filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. |
Manufacturing and Supply Agreement for Pacritinib
between
Cell Therapeutics, Inc.
3101 Western Ave., Suite #600
Seattle, WA 98121, USA
(hereinafter called “Customer”)
and
DSM Fine Chemicals Austria Nfg GmbH & Co KG
St. Peter Strasse 25, 4021 Linz, Austria
(hereinafter called “DSM”)
PREAMBLE
Whereas, DSM is a company engaged inter-alia in the processing, manufacturing and supply of registered starting materials, intermediates and active pharmaceutical ingredients (“API“) and is interested in producing commercial quantities of Product (as defined below) for Customer;
Whereas, Customer is interested in purchasing commercial quantities of Product from DSM on a non-exclusive basis pursuant to the terms and conditions of this Agreement;
Whereas, the parties desire that this Agreement will determine general terms and conditions for the Manufacture and supply of Product (as defined below) by DSM for Customer and hereby agree as follows:
NOW, THEREFORE, DSM and Customer hereby agree as follows:
1.DEFINITIONS.
Definitions. As used in this Agreement, the following terms shall have the corresponding meanings set forth below:
1.1 |
Affiliate shall mean (i) organisations that directly or indirectly control a party hereto, (ii) organisations that are directly or indirectly controlled by a party hereto or (iii) organisations that are directly or indirectly controlled by the ultimate parent company of a party hereto. For the purposes of this definition, the word “control” (including, with |
correlative meaning, the terms “controlled by” or “under the common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such entity, whether by the ownership of fifty percent (50%) or more of the voting stock of such entity, or by contract or otherwise. |
1.2 |
“Applicable Laws” means all laws, regulations and standards of any governmental or regulatory authority that are applicable to the circumstances including cGMP. |
1.2 |
Batch Record or Master Batch Record means the mutually agreed upon final batch production and control records for Product prepared in accordance with cGMP. |
1.3 |
Contract Results shall have the meaning ascribed to it in Section 18.2. |
1.4 |
Critical Raw Materials shall have the meaning ascribed to it in Section 5. |
1.5 |
Critical Raw Material Specifications shall have the meaning ascribed to it in Section 5. |
1.6 |
Damages shall have the meaning ascribed to it in Section 17.1. |
1.7 |
Deviation shall have the meaning set forth in the Quality Agreement. |
1.8 |
Disclosing Party shall have the meaning ascribed to it in Section 19.1. |
1.9 |
Effective Date shall mean March 17, 2014 |
1.10 |
Firm Order Period shall have the meaning ascribed to it in Section 4.1. |
1.11 |
cGMP means the current Good Manufacturing Practices pursuant to (a) the U.S. Federal Food, Drug and Cosmetics Act as amended (21 USC 301 et seq.), (b) relevant U.S. regulations found in Title 21 of the U.S. Code of Federal Regulations (including but not limited to Parts 11, 210 and 211, (c) Commission Directive 2003/94/EC of 08 October 2003, and (d) the EC Guide to Good Manufacturing Practice for Medicinal Drug Products, including respective guidance documents and any comparable laws, rules or regulations of any agreed upon foreign jurisdiction, as each may be amended from time to time. cGMP also includes adherence to any applicable product license requirements, to the current requirements of the United States Pharmacopoeia/National Formulary, the current requirements of the European Pharmacopoeia and the relevant current International Conference on Harmonization (ICH) guidance documents, including and without limitation to ICH Guidance Q7A Good Manufacturing Practice Guide for Active Pharmaceutical Ingredients. |
1.12 |
Intellectual Property shall mean anything that is protected by any patents, trademarks, copyrights, trade secrets, know-how and all other intellectual and industrial property rights (whether registered or unregistered and including rights in any application for any of the foregoing), including without limitation, work product, inventions, ideas, improvements, discoveries, enhancements, modifications, data, results, formulae, instructions, processes, protocols, |
techniques, methodologies, testing and control procedures, and information of every other kind and description. |
1.13 |
Manufacture, Manufacturing or Manufactured means all activities related to the manufacturing of Product, or any ingredient thereof in accordance with the terms and conditions of this Agreement and the Quality Agreement, which may include manufacturing Product or supplies for development or commercial sale, packaging Product, in-process and final testing and release of Product, or any component or ingredient thereof, quality assurance activities related to manufacturing and release of Product and regulatory activities related to any of the foregoing. |
1.14 |
Manufacturing Process shall mean the production process for the product as previously agreed by the parties in writing prior to commencement of the validation of the commercial process step. |
1.15 |
Major Change shall have the meaning set forth in the Quality Agreement. |
1.16 |
Original Customer Intellectual Property shall have the meaning ascribed to it in Section 18.1. |
1.17 |
Original DSM Intellectual Property shall have the meaning ascribed to it in Section 18.1. |
1.18 |
Party means DSM or Customer, and when used in the plural, means DSM and Customer together. |
1.19 |
Product means pacritinib drug substance or API. |
1.20 |
Production Facility means the production facilities of DSM located in Linz, Austria. |
1.21 |
Quality Agreement means the document, to be agreed between the Parties in good faith promptly at the Effective Date, specifying quality related details of the particular goods and services to be provided, the main contacts, reporting arrangements, allocation and limits of responsibility for the two parties, inter-alia. If there are contradictions between the provisions of this Agreement and those of the Quality Agreement, the provisions of this Agreement will take precedence unless otherwise agreed between the parties in writing, making express reference to this Agreement. |
1.22 |
Receiving Party shall have the meaning ascribed to it in Section 19.1. |
1.23 |
Regulatory Agency means the FDA, the EMA, or any comparable national or territorial regulatory entity having substantially the same functions. |
1.24 |
Specifications means the specifications for the Product as described in a future Exhibit to be incorporated into this Agreement following completion of development work. |
1.25 |
Regulatory Standards means (i) the laws, statutes, ordinances, codes, rules and regulations which have been enacted by a Regulatory Agency applicable to the equipment and facilities used in the Manufacture, packaging and storage of the |
Product and (ii) any laws, statutes, ordinances, codes, rules and regulations which have been enacted by a Regulatory Agencythat apply to DSM’s Manufacture, packaging, handling, storage and shipping of Product. |
1.26 |
Rejected Product shall have the meaning ascribed to it in Section 12.1. |
1.27 |
Rejection Notice shall have the meaning ascribed to it in Section 12.1. |
1.28 |
Term means the period from the Effective Date until termination or expiration of this Agreement in accordance with Section 21. |
2.OBJECT
2.1DSM will Manufacture the Product and sell the Product to Customer and Customer will buy the Product and related services from DSM subject to the terms and conditions set forth in this Agreement.
2.2This Agreement will form the basis of purchase orders of Customer to DSM. Any pre-printed terms set forth on any purchase order shall be disregarded and if there are contradictions between this Agreement and those of a purchase order then the provisions of this Agreement shall take precedence, unless specifically agreed in writing and signed by both Parties.
3.BINDING QUANTITY COMMITMENTS
3.1During the Term and upon the terms and subject to the conditions of this Agreement, Customer, for and on behalf of itself, its Affiliates, sublicensees, licensees, contractors and collaborators, as well as for and on behalf of those third parties that are designated by Customer and agreed upon by DSM (such consent not to be unreasonably withheld) (“Third Party Designees””), agrees to purchase from DSM, and DSM shall Manufacture and supply to Customer quantities of Product as specified in the respective Project Addendums, provided that DSM shall not be obliged to Manufacture and supply more than ** of Product in any given **, or as otherwise agreed by the parties in writing. The first Project Addendum covering ** is attached to this Agreement as Exhibit A-1. Subsequent Project Addendum's shall be sequentially numbered as A-2, A-3, etc.
3.2Notwithstanding the foregoing, Customer shall have the right, in an effort to ensure a secure supply of Product, to enter into a commercial-scale supply contract with a company other than DSM for the supply of Customer’s, its Affiliates, subsidiaries, licensees, sublicensees, collaborators, Third Party Designees and contractors’ worldwide commercial supply requirements of Product (the “Second Source”).
3.3Notwithstanding anything to the contrary, Customer shall have the right to require DSM to Manufacture Product for and supply Product directly to Customer’s Affiliates, sublicensees, licensee, contractors, collaborators and Third Party Designees; provided, however, that if Customer requires DSM to supply such Product, Customer shall remain liable to DSM in all respects in accordance with this Agreement with respect to such orders. The Manufacture and supply of Product to such Affiliates, sublicensees, licensees, contractors, collaborators and Third Party Designees will be in accordance with the terms and conditions of this Agreement, including without limitation the sales prices which will be agreed between the parties as described in Exhibit B (Pricing), provided that DSM will invoice such Affiliates, sublicensees, licensee, contractors, collaborators and Third Party Designees directly, and Customer shall
furnish DSM with forecasts and orders which include forecasts and orders for all such Affiliates, sublicensees, collaborators and Third Party Designees. Such Affiliates, sublicensees, licensee, contractors, collaborators and Third Party Designees shall designate the delivery destination for the Product, and pay DSM directly for orders of Product that have been accepted by the respective Affiliate, sublicensee, licensee, contractors, collaborator or Third Party Designee. All Product supplied to Affiliate, sublicensee, licensee, contractors, collaborator or Third Party Designee shall provide such Affiliate, sublicensee, licensee, contractors, collaborator or Third Party Designee the same rights and remedies regarding the Product, such as conformance to the warranties set forth herein, audit rights, conformance to the Quality Agreement, as is available to Customer hereunder.
4. |
FORECASTING AND PURCHASE ORDERS |
4.1 Forecasts.
As of the Effective Date and ** thereafter Customer shall deliver to DSM a written, non-binding, rolling ** forecast (the “Forecast”) of such estimated quantities. After delivery of the initial Forecast, the Forecast shall be updated by Customer on a ** basis, which update shall include the next successive ** added to the last period of the previous Forecast. Although the Forecast is non-binding, Customer understands that DSM shall use the Forecast for planning purposes (including raw material acquisitions and investment in equipment and other resources) in order to make available the production capacity required to Manufacture and supply the forecasted amounts of the drug substance within the time frames specified therein. Any key raw materials ordered in good faith ** portion of the Forecast but before a binding written purchase order is issued shall be invoiced to Customer at actual cost with no markup.
4.2Initial Supply; Purchase Orders.
(a)To initiate DSM’s Manufacture and supply of quantities of the drug substance under this Agreement, Customer must issue a binding written purchase order for its purchase of Product produced in ** at least ** prior to the scheduled initiation of production of Product thereunder or such shorter time as may be agreed upon by the Parties in writing (the “Minimum Lead Time”) in accordance with the terms and pricing of the applicable Exhibit. In the event a product order is submitted less than ** prior to initiation of production DSM shall use commercially reasonable efforts to accommodate such order and delivery timelines. In no event shall DSM be obliged to reschedule any production campaigns for products of third parties in the Production Facility.
(b)Within ** of receipt of a purchase order, DSM shall notify Customer in writing of its acceptance of the purchase order. If DSM fails to respond ** of receipt of the purchase order, the purchase order shall be deemed accepted.
(c)If a purchase order has more than a ** increase from the amounts specified in the ** portion of the Forecast or **, DSM will be required only to use commercially reasonable efforts to fill such excess or accommodate such shorter lead-time.
(d)For each such purchase of drug substance, the purchase order shall specify: (i) quantity requested; (ii) the requested delivery date; and (iii) shipping instructions and address.
(e)Each purchase order shall give rise to a contract for the purchase of such drug substance under the terms and conditions set forth in this Agreement, to the exclusion of any additional or contrary terms set forth in any purchase order, unless otherwise explicitly agreed to in writing by the Parties.
(f) No purchase order of Customer shall be for a quantity below **.
4.3Release of drug substance. DSM shall notify Customer when (i) the Manufacture of drug substance is complete, (ii) all Batch Records have been reviewed by DSM, (iii) all testing is completed, reviewed, and drug substance meets Specifications (certificate of analysis), (iv) all
Deviations have been adequately reviewed and approved, and (v) drug substance has been released by DSM in accordance with the Quality Agreement. DSM shall ensure that release occurs within ** after Manufacturing is complete. This does not include the Customer review of manufacturing documentation including batch records, deviations, test data, etc which is required prior to Customer release.
4.4 Cancellation Penalties. **
Additionally Customer shall reimburse DSM for any out of pocket expenses (raw materials etc.) which are not cancellable.
4.5Delay; Third Party Supplier.
(a)If DSM is or will be unable, for any reason (including an event of Force Majeure under Section 20 hereof), to supply the drug substance in accordance with the quantities and/or delivery dates specified by Customer in a purchase order received by DSM , DSM shall promptly notify Customer in writing of such circumstance. If the quantities are within ** of the Forecast and such delivery dates ** then DSM's inability to supply will be deemed a "Failure to Supply" and DSM shall within ** shall provide Customer the cause of such Failure to Supply and shall propose a plan of remediation.
(b)If such Failure to Supply will continue or does continue for a period of ** or more consecutive business days, and DSM is unable in the Facility or any qualified alternate facility (if any) to Manufacture the Product in quantities necessary to cure the Failure to Supply, then Customer may, at its discretion and upon written notice to DSM if such Failure to Supply will continue for more than **, terminate this Agreement pursuant to Section 20, provided that the period of Failure to Supply shall count towards the notice period requirement in such Section 20. In such a case and, upon Customer’s request, DSM shall at its expense assist in the transition the Manufacturing Process and Specifications to Third Party Supplier, in order to allow Customer to promptly resume its supply of drug substance by way of such Third Party Supplier. In the event that DSM shortens the campaign to meet the required delivery date, DSM shall provide the drug substance **.
(c)DSM shall promptly notify Customer when DSM can resume supply of drug substance in accordance with this Agreement and provide Customer with a firm date for delivery of the drug substance in accordance with Customer’s needs. Upon receipt of notice, Customer, at its discretion, may continue production of the drug substance if Customer is self-manufacturing the drug substance or continue the contract with Third Party Supplier under the terms and conditions of that contract; but Customer will use reasonable commercial efforts to resume supply to DSM within **.
5.RAW MATERIALS
With the exception of the Validation Campaign as governed by the first Project Addendum attached hereto as Exhibit A-1. DSM shall pass through costs of all raw materials at actual cost with no additional markup. DSM shall invoice Customer the costs of raw materials immediately upon receipt of the vendor's invoice and Customer shall pay DSM's invoice within ** from receipt of such invoice.
6. Manufacture OF PRODUCT
DSM shall manufacture the Product according to the Product Specifications, the Master Batch Record, the Quality Agreement, the Manufacturing Process and all Applicable Laws, rules and regulations at the Production Facility.
7. IMPLEMENTATION OF MAJOR CHANGES
7.1Changes to the Manufacturing Process shall be made in accordance with the terms of the Quality Agreement and this Section 7.
7.2If DSM wishes to implement a Major Change to the Manufacturing Process, DSM shall notify Customer of the nature of the change in writing and the expected timing of implementation no less than ** before implementation.
Not later than ** after receipt of such notification, Customer will inform DSM either (i) that it is unwilling to receive the Product produced after implementation of the Major Change, or (ii) that it will evaluate the implications of the Major Change and initiate any actions such as use-tests, qualification or re-registration needed to be able to accept the Product produced after implementation of the Major Change for use on a regular basis.
Not later than ** after the information of the Major Change has been notified and Customer has decided to evaluate the implications, Customer shall notify DSM of the results of such evaluation. If after the above evaluation has been carried out, Customer concludes that it is prepared to accept the Product from the modified process, the parties will confer and agree on the date on which regular delivery of the Product from the modified process may begin. This date will be confirmed in writing. Customer shall act reasonably and in good faith in connection with its determination as to whether to accept the Major Change.
7.3If any of the necessary actions referred to in Section 7.2 (such as re-registration in certain countries) are likely to be time-consuming, Customer reserves the right to request DSM to build-up and maintain a bridging-stock of Product produced before implementation of the Major Change to cover the time needed for completion of such actions.
7.4If Customer reasonably requests a Major Change, DSM shall implement such Major Change, provided that (i) this can be done safely and with resources readily available at DSM and (ii) the implementation in the Production facility is technically feasible and commercially reasonable for DSM. DSM and Customer will mutually agree to the price for the implementation of the major change before initiation of this work based upon the principle that the Customer will reimburse DSM the costs incurred in connection with the implementation.
7.5DSM and Customer shall negotiate in good faith an appropriate allocation of the costs and benefits to be incurred from such changes, provided that, both parties hereby agree in writing.
8. REWORKING
Reworking of Product shall be conducted in accordance with the Quality Agreement.
9. RELEASE OF PRODUCT BY DSM
Release of Product shall be conducted in accordance with the Quality Agreement. Customer shall have the right to reject Product that does not meet cGMP and the quality control and release testing requirements agreed upon by DSM and Customer in the Quality Agreement or this Agreement.
10. RECORDS, RECORD RETENTION, RETENTION SAMPLE, DATA FEEDS
10.1DSM shall keep all Manufacturing records and analytical results pertaining to Manufacture of each batch of Product supplied to Customer on file per terms specified in the Quality Agreement. DSM will notify Customer of its intention to destroy the records beyond the period defined in the Quality Agreement to determine if further retention is required.
10.2Confidential Information and Intellectual Property of Customer which is included in the Batch Records and Master Batch Records shall be treated as Confidential Information of Customer and shall not be used or disclosed by DSM other than for the purposes of permitting DSM to exercise its rights or fulfil its obligations under this Agreement and, where necessary, for disclosure to the relevant Regulatory Agencies in order to comply with regulatory requirements relating to the Manufacturing of Product by DSM.
10.3Audit. ** duly-authorized employees, agents and representatives of Customer shall be granted access for a maximum of up to ** (unless otherwise agreed to by DSM in writing) upon reasonable prior written notice and at reasonable times during regular business hours to (i) the portion of the Facility where DSM performs Manufacturing, (ii) relevant personnel involved in Manufacturing and (iii) Manufacturing and inventory records, in each case solely for the purpose of inspecting and verifying that DSM is Manufacturing in accordance with cGMPs, the Specifications and this Agreement. Customer, or external auditor acting on behalf of Customer and reasonably acceptable to DSM (subject to executing a confidentiality agreement with DSM on DSM’s standard form), shall have right to perform reasonable inventory audits at the Manufacturing facility **; provided additional inventory audits shall be at a fee. Customer will provide reasonable written notice to DSM prior to inventory audits. In the event of preapproval inspections or for cause audits, there is no limit on period of audit, which can occur in addition to the ** audits.
10.4Service Compliance. Customer may query or more fully audit DSM's processes or systems for compliance with Customer's requirements or applicable statues or regulations (by way of example, DSM’s SOPs, IT processes or controls). Customer and DSM will work together to address any deficiency. If a plan for addressing the deficiency cannot be put in place within **, Customer may terminate the affected portion of services or Project Addendum per the termination provisions of this Agreement.
10.5 DSM will supply ** inventory updates via email or secure server on key raw materials, intermediates, and API as required by Customer. Such reports shall include the following information:
- |
** |
DSM and customer may add additional information upon mutual written agreement between the parties
11. DELIVERY, PACKAGING, TITLE, RISK OF LOSS
11.1DSM will preserve, package, handle, and pack all drug substance so as to protect the drug substance from loss or damage, in conformance with standard commercial practices, the Specifications, the Quality Agreement, Applicable Laws, DSM SOPs, and other applicable standards. Unless otherwise agreed by the Parties in writing DSM shall package and ship the Product **, per agreed shipping configuration. DSM shall ship or store ** and Customer shall take ownership of the product within ** from the finalization of the relevant production campaign.
11.2DSM shall, at its expense, prepare and package the Product for delivery so as to protect the Product from loss or damage in accordance with the packaging specification and batch record.
11.3Risk of loss associated with the Product ordered under the Purchase Orders shall pass to Customer upon **. DSM shall not ship any Product that does not conform to the Specifications. Each shipment of Product shall be accompanied by all documentation defined in the Quality Agreement.
11.4DSM shall provide free of charge appropriate storage facilities for the Product from Manufacture until delivery to Customer for a period of up to **. If Customer fails to take the Product within ** from the agreed delivery date, the relevant Product shall be deemed delivered, and DSM shall be entitled to invoice the shipment, and Customer shall pay the purchase price for the Product. Furthermore Customer shall pay to DSM **. Storage and handling of raw materials, starting material, intermediates, and all other items supporting the production of the product will be stored by DSM at no cost to Customer. A separate warehouse agreement must be executed before storage of material in DSM's GMP warehouse facility in Linz, which shall be attached hereto and incorporated by reference.
12.PRODUCT ACCEPTANCE
12.1All shipments of Product shall be deemed accepted by Customer unless Customer, acting reasonably and in good faith, gives written notice of rejection (hereafter referred to as a “Rejection Notice”) to DSM within ** (i) after delivery of such Product or, (ii) where the defect is unable to be discovered at such time, after discovery by Customer of such defect where Customer can establish with reasonably competent and credible evidence with reasonable certainty that the defect resulted from DSM’s breach of its obligations and existed at the time of delivery of the Product (the “Rejected Product”). Subject to the provisions of Section 12, Customer has the right to reject and return, at the expense of DSM, any portion of any shipment of Rejected Product, without invalidating any remainder of such shipment.
12.2The Rejection Notice shall state in reasonable detail the reason why the Product is rejected. Any Rejection Notice shall be accompanied by copies of all written reports relating to tests, studies or investigations performed to that date by or for Customer on the Rejected Product. Customer shall also have the right to report any shortages in shipment in such Rejection Notice,
12.3Upon receipt of such Rejection Notice and DSM’s written request, Customer shall return, at DSM’s sole expense, the Rejected Product or samples thereof to DSM. Title to and risk of loss associated with the Rejected Product shall transfer to DSM upon delivery of the Rejected Product to a carrier. **. If it is later determined by the parties or by an independent laboratory or consultant mutually agreed to by the parties that Customer was unreasonable in rejecting the Rejected Product, **, as evidenced by adequate documentation. If it is determined that Customer’s rejection was reasonable, **.
12.4The test results or basis for rejection generated by Customer (or a Third Party Designee) shall be conclusive, unless DSM (acting reasonably and in good faith) notifies Customer, within ** of receipt by DSM of the Rejection Notice that it disagrees with such test results. In the event of Customer’s receipt of such a notice, representative samples of the batch of the Rejected Product in question shall be submitted to a mutually acceptable independent laboratory or consultant (if not a laboratory analysis issue) for analysis or review, the costs of
which shall ultimately be paid (i) by Customer should the independent laboratory or consultant determine that Customer’s rejection of the Product was unreasonable or (ii) by DSM should the independent laboratory or consultant determine that Customer’s rejection of the Product was reasonable. The findings of the laboratory or consultant shall be final and conclusively binding on the parties as to whether the rejection was justified, absent manifest error.
12.5If any Product is rejected by Customer, Customer’s duty to pay all amounts payable to DSM in respect of the Rejected Product shall be (i) suspended until such time as it is determined by an independent laboratory or consultant that the Products in question were unreasonably rejected by Customer or (ii) waived and null and void if it is determined by an independent laboratory or consultant that the Rejected Products were reasonably rejected by Customer. If only a portion of an order is rejected, only the duty to pay the amount allocable to such portion shall be suspended or waived, as applicable.
13.REPLACEMENT OF REJECTED PRODUCT
In the event any Product is appropriately rejected by Customer, or if there is any shortage of Product in the shipment, DSM shall upon Customer’ request, use best efforts to replace such Product with conforming Product or refund the purchase price (at Customers sole discretion) for the affected or missing Product as soon as reasonably possible given other existing manufacturing commitments of DSM in the Production Facility and the lead times for the raw materials. This replacement of production shall be done in conjunction with a future manufacturing campaign whenever possible. DSM shall be fully responsible for all costs associated with replacing the Product.
14.PRICES AND PAYMENT TERMS.
14.1The purchase price payable by Customer to DSM for ** as well as the agreed process for the negotiation and determination of the final prices for subsequent manufacturing campaigns during the Term are set forth in Exhibit A-1.
14.2For each shipment of Product, DSM will send an invoice to the invoice address given on the relevant purchase order stating with reference to this Agreement the amount due (including any applicable VAT). The invoice will not be issued before the certificate of analysis and all other documentation described in Section 10.3 has been dispatched.
14.3Invoices issued by DSM hereunder shall include all information as stated in the EU invoicing guideline as well as all relevant information required by other local rules and regulations as the case may be.
14.4Customer will make payment in full for each shipment of product within ** of receipt of DSM’s invoice, unless Customer has provided a Rejection Notice under Section 12 for such shipment, by bank transfer to an account to be designated by DSM. Notwithstanding the foregoing, for ** payment shall be made in accordance with the first Project Addendum as per Exhibit A-1
14.5The Product Price, and any other fees or charges by DSM to Customer pursuant to this Agreement do not include value added, sales, use, consumption, or excise taxes of any taxing authority. The amount of such taxes, if any, will be added on the invoices submitted to Customer by DSM pursuant to this Agreement as a separate line item and Customer shall pay the amount of such taxes to DSM in accordance with the payment provisions of this Agreement. If Customer must withhold from any payment to DSM under this Agreement any taxes required
to be withheld by Customer under the Applicable Laws of any country, state, territory or jurisdiction, such amount shall be paid to the appropriate taxing authorities. Upon request, Customer shall provide DSM with documentation of such withholding as is reasonably available to allow DSM to document such tax withholdings for purposes of claiming tax credits and similar benefits.
14.6Inspections of DSM's facilities used in the Manufacture of Product, including the Production Facility, shall be conducted as specified in the Quality Agreement.
15.REGULATORY MATTERS
15.1Regulation of Manufacturing Process. If DSM is required by the FDA, or EMA, to validate or re-validate Manufacturing Processes that will impact the Manufacturing of Product, DSM shall notify Customer and consult with Customer regarding the required activities prior to implementation. DSM shall be responsible for the costs of any such validation or re-validation that is required due to the non-compliance of the Facility with cGMP, due to DSM’s breach of this Agreement or due to DSM’s negligence or wilful misconduct.
15.2Correspondence. DSM will notify Customer in writing no later than ** from receipt of any correspondence from a Regulatory Agency, which relates to the Product, or any correspondence pertaining to or affecting the Manufacturing of Product, including, license status of DSM, importation or exportation of Product, or DSM’s quality systems or procedures. In addition, DSM will cooperate with Customer to provide to the Regulatory Agencies all documents and information requested by such authority, including without limitation DSM’s protocols, standard operating procedures and other written processes and procedures, equipment specifications, and licenses and drug master files, and shall submit to all inquiries, audits and inspections by the Regulatory Agencies. Customer acknowledges that it may be permitted to cross-reference rather than have copies of certain proprietary documents of DSM which are required for submission to regulatory authorities with respect to the Product.
15.3Compliance with Laws; Authorizations. In performing this Agreement, DSM shall (i) comply with all Regulatory Standards and (ii) obtain all releases, licenses, permits or other authorization required by any Regulatory Agency.
16.REPRESENTATIONS AND WARRANTIES; RECALL.
16.1Production Facilities. DSM represents and warrants that upon commencement of the Manufacture of the Product: (i) the Production Facility shall be in compliance with all applicable requirements of the Regulatory Standards, and (ii) DSM has obtained all licenses, authorizations and approvals required by any applicable national, federal, state or local Regulatory Authority for the production of the Product at the Production Facility.
16.2Manufacture of the Product. Except as otherwise set forth by written agreement of the Parties, DSM represents and warrants that all Product shall be Manufactured, tested, stored and released in strict conformance with (i) the Quality Agreement, (ii) all applicable requirements of the Regulatory Standards and Specifications including cGMP as appropriate for Product, (iii) all mutually agreed upon standard operating procedures, and (iv) the terms of the Project Addendum and this Agreement.
16.3 Product. DSM represents and warrants that the Product shall (i) strictly comply with the Specifications, and (ii) be sold free and clear of any liens, claims or encumbrances. DSM
represents and warrants that the Batch Records will conform with applicable regulatory requirements
16.4DSM represents and warrants that If any DSM inventions and/or intellectual property rights are incorporated into the Manufacturing of Product, the use of such inventions and/or rights shall not infringe or conflict with any patent or other proprietary right of any third party and there is no claim or basis therefor that might impair the use of such inventions and/or rights by Customer to Manufacture Product.
16.5DSM warrants and represents that DSM is not now, nor has DSM ever been, an individual, corporation, partnership, association or entity that has been debarred by a Regulatory Authority, including, but not limited to, pursuant to 21 U.S.C. §335 (a) and any foreign equivalents (a “Debarred Person”) or disqualified as a Clinical Investigator by a Regulatory Authority, including, but not limited to, pursuant to 21 C.F.R. §312.70 or §812.119 and their foreign equivalents (a “Disqualified Person”). DSM further warrants and represents that none of DSM’s employees or affiliates have ever been debarred or disqualified, nor has any Debarred/Disqualified Person performed or rendered, or will be permitted to perform or render, any services undertaken pursuant to this Agreement. DSM further warrants and represents that DSM has no knowledge of any circumstances which may affect the accuracy of the foregoing warranties and representations, including, but not limited to, FDA investigations of, or debarment proceedings against DSM or any other person or entity performing services pursuant to this Agreement. DSM shall immediately notify Customer if it becomes aware of any change in circumstances that would render any of the foregoing representations or warranties untrue or misleading in any material respect during the Term of the Agreement and any extensions thereto and Customer shall have the right to immediately terminate this Agreement upon notice.
16.6FCPA and Foreign Equivalents. It is the intent of the Parties that no payments or transfers of value shall be made which have the purpose or effect of public or commercial bribery, or acceptance or acquiescence in extortion, kickbacks or other unlawful or improper means of obtaining business. Both parties agree to comply with all anticorruption laws, rules, regulations and decrees applicable to such party (collectively, “Legislation”), including but not limited to the United States Foreign Corrupt Practices Act, as amended (the “FCPA”), the UK Anti-Bribery Act (the “UK Anti-Bribery Act”), and any implementing legislation under the Council Framework Decision 2003/568/JHA of 22 July 2003 of the EEC and OECD Convention Against the Bribery of Foreign government officials in International Business Transactions (“OECD Convention”). It is understood that the FCPA, the UK Anti-Bribery Act and OECD Convention prohibit certain improper payments involving government employees and require compliance with certain accounting standards and internal controls. It is further understood that the FCPA, UK Anti-Bribery Act and OECD Convention attribute liability to companies if the company should have known, or was wilfully blind, regarding violations committed on its behalf.
16.7Disclaimer of Other Warranties. OTHER THAN THE WARRANTIES SPECIFICALLY SET FORTH IN THIS SECTION 16, DSM MAKES NO OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, CONCERNING THE QUALITY OF THE PRODUCT SUPPLIED HEREUNDER WHETHER OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. DSM HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED. DSM FURTHER DISCLAIMS ALL WARRANTIES IN RESPECT OF THE FORMULATION, COMPOSITION, USE, OR DISTRIBUTION OF THE PRODUCT OR IN RESPECT OF THE MARKETING AND SALE OF THE PRODUCT OR ANY FINAL MEDICINAL PRODUCT CONTAINING THE PRODUCT TO THIRD PARTIES. CUSTOMER ASSUMES ALL RISK AS TO THE RESULT OF THE USE OF THE PRODUCT OR ANY FINAL MEDICINAL PRODUCT CONTAINING THE PRODUCT,
WHETHER USED SINGLY OR IN COMBINATION WITH OTHER SUBSTANCES, OTHER THAN THE RISK OF HARM RESULTING FROM DSM’S BREACH UNDER THIS AGREEMENT.
16.8 Warranty of Customer. Customer represents and warrants that DSM’s Manufacture of Product hereunder in accordance with the Manufacturing Process and other technology, each to the extent provided by Customer to DSM does not infringe or conflict with any patent or other proprietary right of any third party and there is no claim or basis therefor that might impair the use of such inventions and/or rights by DSM to Manufacture Product.
16.9 |
Recall. |
Customer (or a Third Party Designee) shall be responsible for conducting any recall of Product, and DSM shall co-operate with and give all reasonable assistance to Customer in conducting any such recall to the extent it relates to the Product. DSM shall bear the expense, subject to the limitation of DSM's liability as set forth below in Section 17.4, of any recall resulting from a breach of its obligations, representations or warranties hereunder and/or of the Quality Agreement and/or from its negligence or willful misconduct. Otherwise, Customer shall bear such recall expenses. Notwithstanding the foregoing, to the extent such recall or similar action is due to both Parties’ breach of their respective representations, warranties or obligations hereunder or under the Quality Agreement or from their negligence, then each Party shall share in such costs in proportion to the damages or losses caused by such Party’s respective breach or negligence. In the event of such recall or similar action, each Party shall use commercially reasonable efforts to mitigate the costs associated therewith.
In the case of a disagreement as to the existence or level of nonconforming Product in connection with a recall under this Section 16.8, then the matter shall by mutual agreement of the parties be referred to a mutually acceptable independent laboratory or consultant in accordance with Section 12.4 above. The decision of the a mutually acceptable independent laboratory or consultant shall be final and binding on the Parties with regards to nonconforming Product, except to the extent the basis for such recall relates primarily to a violation of GMP or a breach of a Party’s representations, warranties or obligations under this Agreement, in which case such disagreement shall be resolved by binding arbitration in accordance with Section 23.
17.LIABILITY AND INDEMNIFICATION
17.1Except as otherwise provided in this Section 17, DSM will indemnify and hold Customer harmless from any liability, loss, damage of any kind, attorneys’ fees, cost and expense (hereinafter collectively referred to as “Damages”) incurred by Customer resulting from claims by a third party, other than a Customer Affiliate, arising from:
(a) |
DSM’s failure to conform to its representations and warranties contained in this Agreement, |
(b) |
DSM’s other breaches of this Agreement or the Quality Agreement, |
(c) |
DSM’s its Affiliates or its or their directors, officers, employees, agents or subcontractors’ negligence or willful misconduct, or |
(d) |
illness, injury or death arising from DSM’s breach of any representation and warranty set forth in Section 16.1 through Section 16.5, |
(e) |
any manufacturing procedures, methods or techniques (or component thereof) that are incorporated into the Manufacturing Process or Specifications by DSM for which Customer did not provide written consent, or |
(f) |
the infringement of any patent or other proprietary rights of any third party by DSM's use of manufacturing procedures, methods or techniques for which the Customer did not provide consent, |
except to the extent caused by the negligence or willful misconduct of Customer or its affiliates or agents, or any act or failure to act for which Customer is obligated to indemnify DSM under Section 17.2 below.
17.2Except as otherwise provided in this Section 17, Customer will indemnify and hold DSM harmless from any Damages incurred by DSM resulting from claims by a third party, other than a DSM Affiliate, arising from:
(a) |
Customer’s failure to conform to its representations and warranties contained in this Agreement, |
(b) |
Customer’s other breaches of this Agreement, |
(c) |
The infringement of third party intellectual property rights to the extent that DSM applies the Manufacturing Procedure or any other technology provided by Customer to DSM for the Manufacture of Product hereunder, |
(d) |
Customer’s negligence or willful misconduct, |
(e) |
Any actual or alleged adverse reaction to a Product or any medicinal product containing the Product, or claim of illness, injury or death caused by the use of any Product or any medicinal product containing the Product (to the extent such illness, injury or death was not caused by DSM’s breach of this Agreement, including Sections 16.1 to 16.3 with respect to such Product) and/or |
(f) |
Any claim by any employee of DSM or its subcontractors who performed services pursuant to this Agreement of illness, injury or death arising out of Customer’s failure to inform DSM of information concerning health risks that was known to Customer and that involves or relates to the Manufacture of Product or Customer-supplied Material, including but not limited to any information regarding occupational exposure limits, toxicology studies and reports, and other health related data. |
except to the extent caused by the negligence or willful misconduct of DSM or its affiliates or agents, or any act or failure to act for which DSM is obligated to indemnify Customer under Section 17.1 above.
17.3Neither Party shall be liable to the other for indirect, incidental, special, punitive or consequential damages of any kind.
17.4Except for
(a)a party’s indemnification obligations under Sections 17.1(d), 17.1(e), 17.1 (f), 17.2 (c), 17.2(e) or 17.2(f) of this Agreement, or
(b)gross negligence or willful misconduct, or
(c)remedies as set forth in Section 12 of this Agreement for Rejected Product
in no event shall in any calendar year the collective, aggregate liability or indemnity obligation of either Party and its Affiliates and its and their respective directors, officers, employees and agents under this Agreement exceed the purchase price paid or payable by Customer to DSM for Product in the calendar year in which the event causing the damage arose. .
17.5Each Party agrees to buy and shall maintain adequate liability insurance coverage in accordance with pharmaceutical industry standards for damages arising in connection with this Agreement throughout the Term, and for a period of at least ** thereafter. Each Party shall submit to the other Party evidence of such insurance upon request. Such insurance may consist of commercially reasonable primary, umbrella and excess insurance policies, including deductibles and self-insured retentions.
17.6Customer and DSM shall promptly notify the other Party of any claim, action or demand being made against it in respect of any matter for which such Party is or may be liable hereunder. The Parties agree to render each other reasonable assistance in the defense of any claim, action or demand made hereunder and shall fully cooperate with the other Party and its legal representatives in the investigation of any matter which is the subject of liability or indemnification. A Party seeking indemnification shall not unreasonably withhold its approval of the settlement of any claim, liability or action covered by the indemnification provisions. Notwithstanding the foregoing, the failure to give timely notice to the indemnifying Party shall not release the indemnifying Party from any liability to the Party seeking indemnification to the extent the indemnifying Party is not prejudiced thereby.
17.7It is the good faith intention of the parties to renegotiate and amend this Section 17 on or before ** (valid for ** starting from ** onwards). In the event the parties cannot agree on an amendment of this Section 17 by **, Customer shall be entitled to terminate this Agreement by giving corresponding written notice on or before **.
18.INTELLECTUAL PROPERTY
18.1. Intellectual property belonging to each of the parties independently from the agreements between them:
(a) all Confidential Information and Intellectual Property owned by or licensed to DSM from third parties prior to the Effective Date or thereafter developed by DSM independently from this Agreement (“Original DSM Intellectual Property”) shall at all times remain the property or in the control of DSM and no rights in or to any such Original DSM Intellectual Property shall vest in Customer;
(b) all Confidential Information and Intellectual Property owned by or licensed to Customer from third parties, including the Product, prior to the Effective Date or thereafter developed by Customer independently from this Agreement (“Original Customer Intellectual Property”) shall at all times remain the property or in the control of Customer, and no rights in or to any such Original Customer Intellectual Property shall vest in DSM;
18.2 Subject to Section 18.3 hereunder all Intellectual Property obtained under this Agreement, whether it is conceived, generated, made, or reduced to practice, as the case may be, by DSM or Customer, will be the sole and exclusive property of Customer (hereinafter, “Contract Results”), and DSM shall assign to Customer all of its right, title and interest in and to any Contract Results and DSM shall co-operate with Customer in seeking applicable patent coverage therefore. **.
18.3 DSM agrees to disclose all Contract Results promptly to Customer, and DSM hereby assigns its right, title and interest in and to any such Contract Results, in order to establish the ownership of such Contract Results and to obtain whatever protection for such
Contract Results, including patent and copyright rights in any and all countries as Customer may determine.
18.4Notwithstanding anything herein to the contrary, DSM shall not use any DSM Background Technology without the written consent of a duly authorized officer of Customer. In the event DSM utilizes any DSM Background Technology in the course of a Project, without such consent by Customer, DSM shall grant to Customer an irrevocable, perpetual, fully paid-up, royalty-free, worldwide, transferable, non-exclusive license, with the right to sublicense, under DSM Background Technology to make, have made, use, sell, offer for sale, import or otherwise dispose of Product.
19.CONFIDENTIALITY
19.1Confidentiality of information disclosed by one of the parties hereto (the ‘Disclosing Party’) to the other (the ‘Receiving Party’) is governed by Section 19.2.
19.2All information regarding the Disclosing Party’s business in general given or known to the Receiving Party by the Disclosing Party hereunder and the existence and contents of this Agreement is considered “Confidential Information” of the Disclosing Party. Notwithstanding anything to the contrary, all information regarding the Product and Manufacturing Process is deemed Confidential Information of Customer. During the term of this Agreement and for ** thereafter, unless any written consent by the Disclosing Party or written agreement between the parties provides otherwise, the Receiving Party must treat such Confidential Information in strict confidence as it would treat its own proprietary information. The Receiving Party may not divulge such Confidential Information to any third party except to the extent required to obtain official licenses from local or national authorities or to comply with legal requirements. The Receiving Party must ensure that such Confidential Information is not used for any purpose other than that set forth in this Agreement except when
(a) such information is public knowledge or after disclosure hereunder becomes public knowledge through no fault of the Receiving Party
(b)such information can be shown by the Receiving Party to have been in its possession on a non-confidential basis prior to receipt hereunder
(c)such information is received by the Receiving Party from any third party for use or disclosure by the Receiving Party without obligation to the Disclosing Party, or
(d)the Receiving party can show that such information was developed independently by the Receiving party or any of its Affiliates without use of, or reference or access to the Disclosing Party’s Confidential Information.
The burden of proof regarding the existence of any of the above contingencies will lie with the Receiving Party.
Notwithstanding the foregoing, the restrictions of non-disclosure of Confidential Information shall not apply to the extent needed to exercise or enforce its rights under this Agreement, or as required by law or regulations (including but not limited to those promulgated by the Securities and Exchange Commission) or applicable stock exchange rules, or in the event disclosure is required in connection with the audit or review of a Party’s financial statements or tax returns.
19.3In the context of this section Affiliates, contractors and Third Party Designees will not be considered as third parties provided that they assume the secrecy obligations set forth in this Agreement and are therefore bound to the secrecy obligations of the respective party hereto. Each party shall be liable towards the other party for the compliance of its Affiliates contractors and Third Party Designees with the secrecy and non-use obligations hereunder.
19.4Both Parties agree that upon termination or expiration of this Agreement, or, at the other’s request, and subject only to any applicable regulatory requirements, it shall (and shall cause its directors, officers, employees, contractors, agents, representatives and advisors to) return to the other Party all parts of the other Party’s Confidential Information and return or destroy any copies thereof made by it, its Affiliates and their respective directors, officers, employees, contractors, agents or representatives. However, each Party may retain one (1) copy of the other Party’s Confidential Information for archival purposes. Section 19 shall remain binding on the parties during the Term of this Agreement and for a period of ** after the expiration or termination of this Agreement, regardless of the cause of such expiration or termination or from last disclosure, whichever is longer.
19.5Each Party acknowledges that disclosure or distribution of the other Party’s Confidential Material or use of the other Party’s Confidential Material contrary to the terms of this Agreement may cause irreparable harm for which damages at law may not be an adequate remedy, and agrees that the provisions of this Agreement prohibiting disclosure or distribution of the other Party’s Confidential Material or use contrary to the provisions hereof may be specifically enforced by a court of competent jurisdiction without the necessity of proving actual damages in addition to any and all other remedies available at law or in equity.
20.FORCE MAJEURE
20.1Neither Party shall be liable for any damage, loss, cost or expense arising out of or in connection with any breach of this Agreement to the extent such breach is due to force majeure.
20.2In this Section, force majeure shall mean any and all circumstances beyond the reasonable control of the Party concerned, including, without limitation, acts of God (such as earthquake, flood, storm or lightning), fire, explosion, war, terrorism, riot, civil disturbance, sabotage, accident, epidemic, strike, lockout, slowdown, labour disturbances, lack of or failure of transportation, breakdown of plant or essential equipment or machinery, emergency repair or maintenance, breakdown of public utilities, etc.
20.3The Party invoking force majeure shall inform the other Party thereof as soon as possible. The Parties shall consult each other in order to minimize the other Party’s damage and costs and all other negative effects of the force majeure event on the performance of the Party invoking force majeure.
20.4Notwithstanding anything to the contrary, Customer may cancel without penalty (and shall have no obligation to pay any amounts attributable to the minimum commitment (set forth in Section 3.1) or firm purchase orders applicable to any period following the date of the force majeure event) (a) any and all purchase orders in the event DSM is unable to fulfil an outstanding purchase order within ** of its scheduled delivery date due to a force majeure event and/or (b) this Agreement if the force majeure event affects DSM’s ability to perform pursuant to this Agreement for more than an aggregate of ** in any single calendar year or any consecutive period of **. Provided that this Agreement has not been terminated in accordance with 20.4(b)
hereof, upon cessation of such force majeure event, the affected Party shall promptly resume performance on all purchase orders which have not been terminated.
21.TERM AND TERMINATION
21.1This Agreement will enter into force on the Effective Date and will remain in force until five (5) years from the Effective Date, unless the Parties agree to terminate earlier or to extend it in writing. Thereafter, this Agreement shall renew for successive two (2) year periods each unless notice of termination is given by either Party no later than two (2) years prior to the expiration of the original term or any renewal period thereof.
21.2Either party may terminate this Agreement for material breach by the other party, if the breaching party has not corrected such material breach within sixty (60) days of receipt of written notice thereof from the non-breaching party.
21.3Either party may terminate this Agreement at any time with immediate effect by written notice to the other
(a) |
if the other party is or will in the near future be dissolved, liquidated, bankrupt, or |
(b) |
if there is a change of control in such a way to render it unacceptable for the first party upon a reasonable assessment to continue this Agreement; a party affected by any such development must inform the other thereof without undue delay. For clarity Customer will not exercise this termination right in connection with the envisaged contribution of DSM to a Joint Venture which will be owned by JLL Partners and Royal DSM NV. |
21.4Notwithstanding the provisions of Section 21.1 above, Customer may terminate this Agreement in the event of any of the following:
(a) |
If Customer fails to receive market approval from either the FDA or MAA by ** or fails to maintain regulatory approval by either the FDA or EMA at any time once such approval is received, Customer may terminate the this Agreement. . |
(a) |
Upon thirty (30) days’ prior written notice to DSM, in the event Customer provides DSM a Rejection Notice pursuant to Section 12 (including shortages) three (3) or more times in any twelve (12) month period or in respect of two consecutive shipments. |
(b) |
Pursuant to Section 7.5 (Major Changes), Section 16.5 (Debarment) and/or Section 20.4 (Force Majeure). |
(d) |
As set forth in Exhibit B (Pricing). |
21.5Each party will remain liable to the other after expiry or termination for all obligations it incurred prior to such expiry or termination.
21.6Rights and Obligations Upon Termination.
(a) |
Return of Inventory and Confidential Information. In the event of any termination, DSM shall return to Customer: (i) all Customer property (including but not limited to raw materials, equipment, samples, and data) at Customer’s |
expense, unless such termination shall have been as a result of a breach of this Agreement by DSM in accordance with Section 21.2 or termination by Customer in accordance with 21.3(a), in which case such property shall be returned at DSM’s expense, except to the extent required to be retained by law or to comply with such Party’s continuing obligations hereunder; and (ii) all Confidential Information of Customer and shall make no further use of such Confidential Information without the prior written consent of Customer. |
(b) |
Upon termination of this Agreement by DSM pursuant to Section 21.2 and 21.3, and upon termination of this Agreement by Customer pursuant to Section 21.4 (a) Customer shall take delivery and pay for all Product that is subject to an open binding purchase order, pay all monies due and owing pursuant to this Agreement and reimburse DSM for its costs for all material, work in process, finished Product and all other outstanding inventory (meaning all raw materials that are specifically required and purchased by DSM for the manufacture of the Product) to the extent that such items were reasonably acquired by DSM to meet its obligations hereunder in a timely manner. DSM shall use commercially reasonable efforts to mitigate the costs for Customer. |
(c) |
Technology Transfer. Upon Customer’s request and provided that the Agreement was not terminated by DSM in accordance with Section 21.2 due to Customer’s breach, DSM, at DSM's expense, will reasonably assist Customer with the transfer of the Manufacturing Process, Methods and Specifications associated with the Product to Customer or its designee. For clarity such technical assistance of DSM shall in no event exceed thirty (30) man days. |
21.7Sections 10, 15, 16, 17, 18, 19, 21, 22, 23, 24 and other terms that by their nature are intended to survive will survive expiry or termination of this Agreement and continue to be enforceable.
22.MISCELLANEOUS
22.1This Agreement represents the complete and entire understanding between the Parties regarding the subject matter hereof and supersedes all prior negotiations, representations or agreements, either written or oral, regarding this subject matter. This Agreement may be amended only in writing, signed by both Parties. This Agreement may be executed in one or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. Any photocopy, facsimile or electronic reproduction of the executed Agreement shall constitute an original.
22.2Any assignment of this Agreement, in whole or in part, by either Party shall require the written prior consent of the other Party, which shall not be unreasonably withheld. An assignment of this Agreement to an Affiliate shall be possible without the consent of the other party, provided that the original party shall remain fully liable (together with the Affiliate) for the proper fulfilment of all obligations under this Agreement by such Affiliate
22.3In the event any provision of this Agreement is deemed to be void under any law, the remaining provisions of this Agreement shall not be affected and the void provision shall be deemed to have been replaced by such valid and enforceable provision that most closely reflects the original intention of the parties.
22.4Failure by DSM or Customer to enforce the terms and conditions of the Agreement shall not affect or impair such terms or conditions, or the right of DSM or Customer to avail itself of such remedies as it may have for any breach of such terms or conditions under the provisions of this Agreement, in equity or at law.
22.5DSM shall not utilize a third party to manufacture any portion or all of the Product without first obtaining Customer’ written consent, which consent will not be unreasonably withheld. In the event that DSM is authorized to utilize a third party in the manufacture of Product, such third party shall be approved by DSM’s and Customer’ Quality Assurance departments and be identified within the Quality Agreement. Any third party contract entered into by DSM and that third party shall contain a provision that allows Customer to audit such third party’s facilities and relevant records DSM agrees that it shall remain liable for the performance of DSM’s obligations hereunder in the event that DSM is authorized to use a third party to perform DSM’s obligations on its behalf. It shall be deemed reasonable for Customer to withhold consent to DSM’s utilization of a third party to manufacture any portion of the Product in the event that such utilization would have a substantial likelihood of (a) impairing or jeopardizing any pending or actual regulatory approval for the Manufacture of the Product, (b) adversely affecting the regulatory status of the Product or (c) materially delaying delivery schedules, increasing the pricing or adversely affecting the quality of the Product.
22.6In the event of a disclosure required by law, governmental regulation or the rules of any recognized stock exchange or quotation system, the Parties shall coordinate with each other with respect to the timing, form and content of such required disclosure to the extent practicable under the circumstances, and, if so requested by the other Party, the Party subject to such obligation shall use commercially reasonable efforts to obtain an order protecting to the maximum extent possible the confidentiality of such provisions of this Agreement as reasonably requested by the other Party. If the Parties are unable to agree on the form or content of any required disclosure, such disclosure shall be limited to the minimum required, as determined by the disclosing Party in consultation with its legal counsel.
23.GOVERNING LAW AND ARBITRATION
23.1This Agreement and all subsequent agreements arising from or related to this Agreement shall be subject to the laws of England and Wales, excluding principles of conflict of laws and the United Nations Convention on the International Sale of Goods.
23.2All disputes, controversies or claims arising out of or in connection with this Agreement shall be submitted to the International Court of Arbitration of the International Chamber of Commerce and] shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. The arbitral tribunal shall be composed of three arbitrators, one arbitrator being appointed by each party to the dispute, and an additional arbitrator appointed by the mutual consent of all such arbitrators. The place of arbitration shall be London, England. The arbitral procedure shall be conducted in the English language.
23.3Each party shall bear its own attorneys’ fees and associated costs and expenses. Any award rendered by the arbitrators shall be in writing, shall be the final binding disposition on the merits, and shall not be appealable to any court in any jurisdiction. Judgment on an award rendered may be entered in any court of competent jurisdiction, or application may be made to any such court for a judicial acceptance of the award and an order of enforcement, as appropriate. Any award may be recognized and enforced in accordance with the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The parties waive
any right they may enjoy under the law of any nation to apply to the courts of such nation for relief from the provisions of this Section 16 or from any decision of the arbitrators. In the event a court of competent jurisdiction determines that this Agreement is invalid or unenforceable for any reason, this provision shall not be affected thereby and shall be given full effect without regard to the invalidity or unenforceability of the remainder of this Agreement. Notwithstanding anything herein seemingly to the contrary, any party may seek injunctive relief from a court of competent jurisdiction to prevent or limit damage to that party’s intellectual property.
24NOTICES
24.1Any communication which is required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally with receipt acknowledged, faxed with transmission confirmed, or delivered by a reputable commercial courier service with receipt acknowledged, to the recipient at the address notified below, or any other recipients or addresses as may be notified to the Party sending the notice. A communication duly signed, scanned (in pdf or other form) and sent by e-mail to the correct business e-mail address of the then-current holders of the positions listed below shall also be deemed to have been duly given. Where the then-current holder of the relevant position is not known, a communication shall be sent to the managing director or the board.
If to DSM to: |
If to Customer to: |
DSM Fine Chemicals Austria Nfg GmbH & Co KG St. Peter Strasse 25, 4021 Linz, Austria |
Cell Therapeutics, Inc. 3101 Western Ave, Suite #600 Seattle, WA 98121 USA |
Attn.: Business Director |
Attn: Head of Manufacturing |
Fax: |
Fax: (206) 272-4415 |
Copy to: General Counsel |
Copy to: Legal Affairs |
Fax: |
Fax: (206) 272-4397 |
|
|
24.2This provision shall not apply to communications between the Parties made in the ordinary course of business.
25.PARTIES INDEPENDENT
In making and performing this Agreement, the parties act and shall act at all times as independent entities and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between DSM and Customer. Except as specifically provided herein, at no time shall either party make commitments or incur any charges or expenses for or in the name of the other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate as of on the day and year written.
Cell Therapeutics, Inc.
By: /s/ James A. Bianco, .
Name: James A. Bianco, M.D.
Title: _President & CEO_____
Date: _March 27, 2014______
DSM Fine Chemicals Austria Nfg GmbH & Co KG
By: ____/s/ Michael Stanek____ |
/s/ Klaus Hilber |
Name: _Michael Stanek_______ |
Klaus Hilber |
Title: __ Business Director_____ |
General Counsel |
Date: __April 10, 2014________
PROJECT ADDENDUM A-1
****
DSM Fine Chemicals Austria Nfg GmbH
By: |
/s/ Michael Stanek |
Name: Michael Stanek
Title: |
Business Director |
Cell Therapeutics, Inc.
By: |
/s/ James Bianco |
Name: James A. Bianco, M.D.
Title: |
President & CEO |
Exhibit B - Pricing Sheet
**
In the event the parties cannot agree on the pricing for further campaigns, despite good faith negotiations, by September 30, 2015 or a mutually agreed later date, Customer is entitled to terminate this Agreement at any time by giving thirty (30) days written notice to the other party.
PROJECT ADDENDUM A-2
****
DSM Fine Chemicals Austria Nfg GmbH
By: /s/ Michael Stanek/s/ Klaus Hilber
Name: Michael StanekKlaus Hilber
Title: B. DirectorGeneral Counsel
Cell Therapeutics, Inc. (“CTI”)
By: /s/ Bruce Bennett
Name: Bruce Bennett
Title: SVP Global Pharm Op
****
Exhibit 15
August 4, 2014
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated August 4, 2014 on our review of interim financial information of CTI BioPharma Corp. (formerly known as Cell Therapeutics, Inc.) for the three- and six-month periods ended June 30, 2014 and 2013, and included in the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2014, is incorporated by reference in the Registration Statements of Cell Therapeutics, Inc. on Form S-3 (File Nos. 333-177506, 333-182330, 333-183037, 333-192748, and 333-192749) and on Form S-8 (File Nos. 333-65200, 333-58957, 333-35919, 333-97015, 333-106568, 333-106571, 333-112791, 333-118016, 333-146624, 333-152168, 333-158260, 333-162955, 333-170044, 333-178158, 333-184004, 333-189611, and 333-196510).
Yours very truly,
/s/ Marcum LLP
Marcum LLP
San Francisco, California
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECURITIES EXCHANGE ACT OF 1934 RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James A. Bianco, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CTI BioPharma Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the 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 the registrant’s board of directors (or persons performing the equivalent functions) of internal control over financial reporting:
(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: August 4, 2014 |
|
By: |
|
/s/ James A. Bianco, M.D. |
|
|
|
|
James A. Bianco, M.D. |
|
|
|
|
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECURITIES EXCHANGE ACT OF 1934 RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Louis A. Bianco, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CTI BioPharma Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the 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 the registrant’s board of directors (or persons performing the equivalent functions) of internal control over financial reporting:
(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: August 4, 2014 |
|
By: |
|
/s/ Louis A. Bianco |
|
|
|
|
Louis A. Bianco |
|
|
|
|
Executive Vice President, |
|
|
|
|
Finance and Administration |
EXHIBIT 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, James A. Bianco, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as an officer of CTI BioPharma Corp., that, to my knowledge, the Quarterly Report of CTI BioPharma Corp. on Form 10-Q for the fiscal quarter ended June 30, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of CTI BioPharma Corp.
A signed original of this written statement required by Section 906 has been provided to Cell Therapeutics, Inc. and will be retained by CTI BioPharma Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: August 4, 2014 |
|
By: |
|
/s/ James A. Bianco, M.D |
|
|
|
|
James A. Bianco, M.D. |
|
|
|
|
President and Chief Executive Officer |
I, Louis A. Bianco, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as an officer of CTI BioPharma Corp., that, to my knowledge, the Quarterly Report of CTI BioPharma Corp. on Form 10-Q for the fiscal quarter ended June 30, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of CTI BioPharma Corp.
A signed original of this written statement required by Section 906 has been provided to CTI BioPharma Corp. and will be retained by CTI BioPharma Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: August 4, 2014 |
|
By: |
|
/s/ Louis A. Bianco |
|
|
|
|
Louis A. Bianco |
|
|
|
|
Executive Vice President, |
|
|
|
|
Finance and Administration |
I>#`KGL1B7V&_,[6R6.:UK;=;M`_^;BM=;^-NIC
M^?I;E>]^YF8`+PKU'D,C5@1=*W]O_7?-<<-R;W
MY@O?Y@QPXU'4S4,N79I&]EPW9?&?@ECG2CEQ.B 9F=MY%XOM>DIL(%BFK^W21JA=`4201".6W$*2HJ@(SUR/G
M3X3MG+90,;8OQ_%#_KGW6?1DA=>$R:^:^^T_4WT!$DCZCK!C.H&,;J"(V+4)
M=E\TZAW=>$A`TIJ0\<&P@#ARLLQK`F]7;Z::`B1L6#G51G9,+\PC^S-"=G)L
MQ,@X8QZQ)]CNNT,]Q*IDJ9^N2C4&2!5Y< 27(N\.0`JC4R;;$.(4Z!J4@U!("C!`(Q1$_1_-NC
M&!3-P-0;%$W!%((P!Y\Q)J@EA!E2$0;`HR0J>)W0$V:,,ZJ!0%"5(8DW&*I2
M),6@*D=R4QBJ4B2!H"I#4DNH2I$4@ZH<24RA*D42"*`1)1F26D)5BJ085.5(
M;HJ^JA1)(*C*D,02_1.GR`YMFR9-5-(_O>H>U#_5GE>UC=1>V:()[)X-3U9/
MRR``:N`D>TT
M[;_?M9V00*LN?<'8/O=P[KGV97GSW#;HB4G%19?AP/,Q8ETN"MY5&?[]Z_YJ
M@9'2M"MH(SJ6X1>F\,WJ\Z?E7LA'53.F$3!T*L.UUGU*B,IKUE+EB9YUL%,*
MV5(-4UD1U4M&"QO4-B3T_9BTE'?8,:3R$@Y1ECQG=R+?M:S3CD2RAFK0KVK>
MJR-;FU]"UU+YN.NO
2!=(.SB"QLD.VF#2I*QIT]9)6RW;K"^XT\WYGC"V
MENPL_CZGL?/FS&7GY.)%&CNUL&-K.[;2U.#9DRD*0Y/L(&,<8[Z4%3]F\=%]
M0.?#:8,25-,,&G*H&AAQZ8/(#DMQS-TJV_````__\#`%!+`P04``8`"```
M`"$`J:@$8L\%``"C%P``&````'AL+W=O
"@SE>T9","G
MT]2R-$"1XMOX_5KOA]/.%=$FC'W!`.X\5_WPL98I7:=\Z8>V^0]!3*7")%PE
M@6^5A,'/A8.%&@S?T^`-3T(61C^GX.%T1G4^%$/Q]-BUKPZ4'!#NKX4L8+:%
MS%(6`>*^+0OH(<>\EX/&H8#N82V_/O'HT?L*\I<*DB$D=AT-H8C\#40R03R@
M-W$$C=9SE(,LCO&4?IQ&AI!X7"(YK]RX0`B`,":!^^)(,(AHSCRU;HR0P("$
M%)'?0Q!JD&0Y-0G>N3#+:5&$3V^<(209%U4(E@0TGIOQF$5"3XW0@CVQG)8$
M6[08O6V&D&"D%3%!H[D9Y4)K22A%:RA)L$6)TYMF"(E&2J'/+2%S&HZUCH04
M;!!3IV7;3PZRR%F*9`A!>A+9D93WPPMDEQ0BM=0TN"+5HZ+=)"R&TA?9L5"0?Q#SR*@6DN%VM$6[1F
M#BHS[ESDE<#3PJ3&2#M7.3`>Q\9.)FHQR^'OK^*(MHCIZD"]%$8)%O)PQ@RM
M'0&IB+DN/TI-^NWB`I.M$O0PC57HQ5#4$`,F-3F
HMSY-4##<
M2C:'7M2A5"\1B5A<.3'\:VJC?\,!+143"G8&JE4QBX7H\CWI1']7ZY`:F-98
M.)7/-FQ+"[7Q]4X^I]PJQ5="$W=UBY_GU4-22V-"2S+TD(6";4R+G&[_\P[U
M5B-)L4!:$$V>0&L0+2^`52O2=0&U=8C-_J:K"?M+,0RM("IYB&F"NZYE<[;-
MF'/Q2`(AWV92V03`CV3+*CEC*#.G/%!50E\NKN=I7HKFM9!H-#G"9E$+C)3A
M.*R4K5>U4^.NZ-5$C0R"_74!KK$R\11"8:\Y5)?N\!<""1?C*Y\A.!B*>;&L
M]R.7EJ,F8P9&:=B$%A?'-PLKI1JY/HTE)'%2U$/62-HGKV-T`8RXRDO=,%<\
MP_#@/83(]]%3N:.@UZW@("A%L62EX)8FFG!VV9*-R2;M#<51\)A@AS4;U2&D
M;]N"/ZPAERDD,>TJ*)YI[^!W!98&X8Q0*VE2H)JIS6DK
HZK6L&36G%8XU>
MF&!")5TG/+(&-E8R@J,@MQ6G0.QTCTGR;8G
QH22<["6&+Q(G$,+[95"6)G[#(1NPH
MM0CK,,UFY`4#%XGO`50SH@I..J=#B;!P/.\#3MI_6>5U`K3>;F^>5^0$#AR+
MPDTL/."#+Z&_G;Y,:H+D#=BB;)!1.DBSUVOOY?W6GSN1Q^<9
MEJ+)WM3SJKS7"TBR_L:N,XH(2S%Q_M#UUK4FS%O7SQ%8CE=$K>1L45_;F-_Q
M#+&Y7>LAM2"PN:,:`^HZQ="Z"[04(ABYJM4$DZ1R#-14B"?M.<-EH880
?\W9?G3KG6.[@4F\9PR1;?/F`'_KF/#SK?FYZ>&DP_'F`ET0E/)KWEB#>
M-4U_^:">KE]?.SW]#P``__\#`%!+`P04``8`"````"$`9UHYO;0#``#["P``
M&````'AL+W=O
)6C=EFU\>7,=8
MKL5%H9(&1`,6+(B-%4*V?YRG"X4:9%($J3G%]0\DIF)SJTAFIB2_E02FHKA5
MC$P,T-`$O0^HQ$L7S(<<9#:@EF1]#B=!&J76Y#>&`&5!X)MSSPU!G"1I;`H*
M0Q"F69@,`@,M^@B:$L-I&J'-K$5=:PEPL"#T_;Q+:H&
MF1F$T:%0_,JKZ]VF4V**Q$K#6DF2H&J-JI?>=(8"J
MD=I0A@"J1F:]HC`$81JCJ\!`FYEHZH/V?N57@RS$ZS[0QTI+=,(R.V'C8.!;
M)3,WHJFUM8MQ-(JNZ32HH*GY0,9ZM<5C;?OU63-4^C"SIKTQ%2CS$VOJN:F(
MDPA9-5