e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission file number:
000-50865
MannKind Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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13-3607736
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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28903 North Avenue Paine
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91355
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Valencia, California
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(Zip Code)
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(Address of principal executive
offices)
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Registrants telephone number, including area code
(661) 775-5300
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.01 per share
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The Nasdaq Stock Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of June 30, 2007, the aggregate market value of the
voting stock held by non-affiliates of the registrant, computed
by reference to the last sale price of such stock as of such
date on the Nasdaq Global Market, was approximately $301,878,953.
As of March 10, 2008, there were 101,418,675 shares of
the registrants Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrants definitive Proxy Statement, or
the Proxy Statement, for the 2008 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this
Form 10-K,
are incorporated by reference in Part III,
Items 10-14
of this Annual Report on
Form 10-K.
MANNKIND
CORPORATION
Annual Report on
Form 10-K
For the Fiscal Year Ended December 31, 2007
TABLE OF CONTENTS
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Forward-Looking
Statements
Statements in this report that are not strictly historical in
nature are forward-looking statements. These statements include,
but are not limited to, statements about: the progress or
success of our research, development and clinical programs, the
timing of completion of enrollment in our clinical trials, the
timing of the interim analyses and the timing or success of the
commercialization of our Technosphere Insulin System, or any
other products or therapies that we may develop; our ability to
market, commercialize and achieve market acceptance for our
Technosphere Insulin System, or any other products or therapies
that we may develop; our ability to protect our intellectual
property and operate our business without infringing upon the
intellectual property rights of others; our estimates for future
performance; our estimates regarding anticipated operating
losses, future revenues, capital requirements and our needs for
additional financing; and scientific studies and the conclusions
we draw from them. In some cases, you can identify
forward-looking statements by terms such as
anticipates, believes,
could, estimates, expects,
goal, intends, may,
plans, potential, predicts,
projects, should, will,
would, and similar expressions intended to identify
forward-looking statements. These statements are only
predictions or conclusions based on current information and
expectations and involve a number of risks and uncertainties.
The underlying information and expectations are likely to change
over time. Actual events or results may differ materially from
those projected in the forward-looking statements due to various
factors, including, but not limited to, those set forth under
the caption Risks and Uncertainties That May Affect
Results and elsewhere in this report. Except as required
by law, we undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise.
Technosphere®
and
MedTone®
are our registered trademarks in the United States. We have also
applied for or registered company trademarks in other
jurisdictions, including Europe and Japan. This document also
contains trademarks and service marks of other companies that
are the property of their respective owners.
PART I
Unless the context requires otherwise, the words
MannKind, we, company,
us and our refer to MannKind Corporation
and its subsidiary.
OVERVIEW
MannKind Corporation is a biopharmaceutical company focused on
the discovery, development and commercialization of therapeutic
products for diseases such as diabetes and cancer. Our lead
investigational product candidate, the Technosphere Insulin
System, is currently in Phase 3 clinical trials in the United
States, Europe and Latin America to study its safety and
efficacy in the treatment of diabetes. This dry powder therapy
consists of our proprietary Technosphere particles onto which
insulin molecules are loaded. These loaded particles are then
aerosolized and inhaled into the deep lung using our proprietary
MedTone inhaler. We believe that the performance
characteristics, unique kinetics, convenience and ease of use of
our Technosphere Insulin System may have the potential to change
the way diabetes is treated.
We believe that a distinguishing characteristic of the
Technosphere Insulin System is that it produces a profile of
insulin levels in the bloodstream that approximates the insulin
profile normally seen in healthy individuals immediately
following the beginning of a meal, but which is absent in
patients with diabetes. Specifically, Technosphere Insulin is
rapidly absorbed into the bloodstream following inhalation,
reaching peak levels within 12 to 14 minutes. As a result of
this rapid absorption, most of the glucose-lowering activity of
Technosphere Insulin occurs within the first three hours of
administration which is generally when glucose
becomes available from a meal instead of the much
longer duration of action observed when insulin is injected
subcutaneously. We believe that the relatively short duration of
action of Technosphere Insulin reduces the need for patients to
snack between meals in order to manage ongoing blood glucose
excursions. In our clinical trials, we have observed that
patients using the Technosphere Insulin System have achieved
significant reductions in post-meal glucose excursions and
significant improvements in overall glucose control, as measured
by decreases in glycosylated hemoglobin, or A1C, levels, without
the weight gain typically associated with insulin therapy.
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Our current development plans call for the completion of our
pivotal Phase 3 trials of the Technosphere Insulin System in the
third quarter of 2008. These trials include efficacy studies in
patients with type 1 and type 2 diabetes and a two-year, Phase 3
safety trial that compares the pulmonary function of diabetes
patients randomized to either Technosphere Insulin or standard
diabetes care. Once we have analyzed the data from our Phase 3
program and have achieved operational readiness in our
commercial manufacturing facility in Danbury, Connecticut, we
intend to file a new drug application, or NDA, for the
Technosphere Insulin System with the United States Food and Drug
Administration, or FDA. We will only be able to market the
Technosphere Insulin System once, and if, the FDA approves our
application.
Our Technosphere Insulin System utilizes our proprietary
Technosphere formulation technology, which is based on a class
of organic molecules that are designed to self-assemble into
small particles onto which drug molecules can be loaded.
Currently, we are conducting clinical trials to evaluate the
safety and efficacy of another Technosphere-based product for
the treatment of diabetes and are developing additional
formulations of active compounds loaded onto Technosphere
particles, including even for treatment of obesity.
In addition to our Technosphere platform, we are developing
therapies for the treatment of different types of cancer. We are
currently conducting clinical trials of our therapeutic cancer
vaccines. We are also engaged in the discovery and development
of drugs that selectively interfere with the cellular processes
associated with cancer cells.
We were incorporated in the State of Delaware in 1991. Our
principal executive offices are located at 28903 North Avenue
Paine, Valencia, California 91355, and our telephone number at
that address is
(661) 775-5300.
Our website address is
http://www.mannkindcorp.com.
Our filings with the Securities and Exchange Commission, or SEC,
including our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and any amendments to those reports are available free of charge
through our website as soon as reasonably practicable after
being electronically filed with or furnished to the SEC.
DIABETES
Diabetes is a major disease characterized by the bodys
inability to properly regulate levels of blood glucose, or blood
sugar. The cells of the body use glucose as fuel over the
24 hours of each day. Between meals, when glucose is not
being supplied from food, the liver releases glucose into the
blood to sustain adequate levels. Insulin is a hormone produced
by the pancreas that regulates the bodys blood glucose
levels. Patients with diabetes develop abnormally high levels of
glucose, a state known as hyperglycemia, either because they
produce insufficient levels of insulin or because they fail to
respond adequately to insulin produced by the body. Over time,
poorly controlled levels of blood glucose can lead to major
complications, including high blood pressure, blindness,
amputation, kidney failure, heart attack, stroke and death.
According to the United States Centers for Disease Control, or
CDC, approximately 20.8 million people in the United
States, or 7% of the population, suffered from diabetes as of
2005. The CDC estimated that 14.6 million cases of diabetes
were diagnosed and under treatment and that 1.5 million new
cases would be diagnosed in 2005. More troubling is the fact
that the incidence of diabetes is increasing. A study published
by Diabetes Care in 2006 projected that in 2050 there
would be 48.3 million people with diagnosed diabetes in the
United States. Diabetes extracts a heavy toll from those who
suffer from it. The CDC reported that diabetes was the sixth
leading cause of death listed on death certificates in 2002, but
that diabetes was likely to be underreported as a cause of
death. Overall, the CDC found that the risk of death among
people with diabetes is about twice that of people without
diabetes of similar age. The economic costs of diabetes are high
as well. The American Diabetes Association estimated that, in
2007, the total cost of diabetes in the United States was
$174 billion, an increase of 32% since 2002. This amount
includes $28 billion of direct costs for drug treatment for
glucose control, of which approximately $6 billion were for
insulin and delivery supplies and approximately $9 billion
were for non-insulin oral medications.
There are two major forms of diabetes, type 1 and type 2. Type 1
diabetes is an autoimmune disease characterized by a rapid and
complete loss of insulin secretion by the pancreas, so insulin
must be supplied from outside the body in order to sustain life.
In type 2 diabetes, the pancreas continues to produce insulin;
however, insulin-dependent cells become resistant toward the
insulin effect. Over time, the pancreas becomes increasingly
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unable to secrete adequate amounts of insulin to support
metabolism. According to the CDC, type 2 diabetes is the more
prevalent form of the disease, affecting approximately 90% to
95% of people diagnosed with diabetes.
Challenges
of treating diabetes
Since patients with type 1 diabetes produce no insulin of their
own, the primary treatment for type 1 diabetes is daily
intensive insulin therapy. Such patients usually require a daily
injection of long-acting, or basal, insulin along with an
injection of rapid- or fast-acting insulin at mealtimes.
When patients with type 2 diabetes are first diagnosed, the
initial therapy is typically lifestyle intervention (diet and
exercise) in order to try to normalize their blood glucose
levels. The disease usually progresses rather quickly and today,
treatment moves to various non-insulin oral medications. Often,
the first drug introduced is metformin, which acts to reduce the
glucose output of the liver. When this drug fails to reduce
blood glucose levels, other drugs are added. Some of these
additional medications act to increase the amount of insulin
produced by the pancreas; others increase the sensitivity of
muscle, fat and liver cells to the effects of insulin.
Generally, these oral medications are limited in their ability
to manage the disease effectively and tend to have significant
side effects, such as weight gain and hypertension. Ultimately,
many patients with type 2 diabetes will require insulin therapy
in order to maintain appropriate levels of blood glucose.
Recently, the American Diabetes Association and the European
Association for the Study of Diabetes published consensus
treatment guidelines that advocated the initiation of insulin
therapy after the failure of metformin. These groups emphasized
that the early addition and intensification of insulin therapy
was an important part of the treatment plan for patients with
type 2 diabetes.
Although insulin therapy is accepted as an effective means to
control glucose levels, the available insulin products have
limitations, including:
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the risk of severe hypoglycemia, which is abnormally low levels
of blood glucose that result from excessive insulin
administration. Hypoglycemia can result in loss of mental
acuity, confusion, increased heart rate, hunger, sweating and
faintness and, at very low glucose levels, loss of
consciousness, seizures, coma and death;
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the likelihood of weight gain;
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inadequate post-meal glucose control;
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the need for complex titration of insulin doses in connection
with meals; and
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the need for injections.
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Because of these limitations, patients tend not to comply with
the prescribed treatment regimens and are often under-treated.
More importantly, even when properly administered, subcutaneous
injections of insulin do not replicate the natural time-action
profile of insulin. In a person without diabetes, blood insulin
levels rise within several minutes of the entry into the
bloodstream of glucose from a meal. By contrast, injected
insulin enters the bloodstream slowly, resulting in peak insulin
levels in about 120 to 180 minutes for regular human insulin or
30-90
minutes for so-called rapid-acting insulin analogs.
The consequence of these slower acting insulins is that patients
do not have adequate levels of insulin present at the initiation
of a meal and tend to be over-insulinized between meals. This
lag in insulin delivery results in hyperglycemia early after
meal onset, followed by a tendency for hypoglycemia to develop
during the period between meals. Physicians who treat patients
with diabetes are concerned about the risks of hypoglycemia and,
as a result, tend to undertreat the chronic hyperglycemia that
is associated with the disease. However, the resultant extensive
hyperglycemia significantly contributes to many of the long-term
cardiovascular and other serious complications of diabetes.
The
Mannkind Solution Mimic Natural Insulin
Release
In our clinical trials to date, we have consistently observed
that our Technosphere Insulin System produces a profile of
insulin levels in the bloodstream that closely approximates the
early insulin secretion normally seen in healthy individuals
immediately following the beginning of a meal. The figure below,
from a study published in
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Diabetes in May 2004, illustrates the normal insulin
response measured in 17 healthy subjects in response to a
standardized meal. Note that the insulin levels rise quickly in
response to the glucose stimulus from the meal.
Post-meal insulin
levels in healthy subjects
For comparison purposes, the figure below shows the average
insulin response observed in 16 patients with type 2
diabetes who inhaled a dose of Technosphere Insulin prior to
eating a standardized meal (our study 003B). This comparison
illustrates the degree to which our Technosphere Insulin System
approximates the insulin profile of healthy individuals
following meal onset.
Post-meal insulin
levels with Technosphere
Insulin in patients with type 2 diabetes
This pharmacokinetic profile distinguishes our Technosphere
Insulin System from other insulin therapies. A 2004 review
article in the British Journal of Diabetes and Vascular
Diseases reviewed different studies of pulmonary insulin
products in development and compared their glucose-lowering
activity to that of injectable rapid-acting insulin analogs. The
graph below from this article shows that most pulmonary insulin
formulations have comparable time-action profiles to injectable
rapid-acting insulin. The one exception was the Technosphere
Insulin System, which was observed to have a much more rapid
onset of action than the other insulin therapies reviewed.
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Time-action profiles
of inhaled insulin systems
compared to a rapid-acting insulin analog
We believe the rapid action of Technosphere Insulin may be
related to the unique aspects of both the carrier molecule as
well as the way insulin is stabilized in our formulation. Our
Technosphere formulation technology is centered on a class of
pH-sensitive organic molecules that self-assemble into small
particles under mildly acidic conditions. Certain drugs, such as
insulin, can be loaded onto these particles by combining a
mildly acidic solution of the drug with a suspension of
Technosphere material, which is then dried to a powder. This
powder is then filled into plastic cartridges and packaged. To
administer Technosphere Insulin, a patient loads a cartridge
into our palm-sized inhaler. By inhaling through this device,
air is pulled through the cartridge, which aerosolizes the
powder and pulls the particles into the air current and out
through the mouthpiece. The individual particles within this
aerosol are small and have aerodynamic properties that enable
them to fly deep into the lungs. When the particles contact the
moist lung surface with its neutral pH, the Technosphere
particles dissolve immediately, releasing the insulin molecules
to diffuse across a thin layer of cells into the bloodstream. We
believe that the insulin absorption step is a passive process
that occurs without any active assistance or enhancement and
without disruption of either cell membranes or the tight
junctions between cells.
Significantly, when the Technosphere particles dissociate, we
believe that the insulin that is released is in a form that can
be more readily used by the body. In most pharmaceutical dosage
forms, regular human insulin exists as a hexamer, a complex of
six associated insulin molecules. In order to exert a
pharmacological effect, the hexamer must first dissociate into
three dimers complexes of two insulin
molecules which then further dissociate into
individual insulin molecules, or monomers. Only insulin monomers
can attach to the insulin receptor and exert a physiological
effect. Rapid-acting insulin analogs are designed to be fragile
hexamers that dissociate more quickly, thereby reducing the time
required to achieve an effect, but this is still far slower than
insulin that is released from a healthy pancreas. However, the
insulin released from Technosphere particles is already largely
in monomeric form. During the manufacture of Technosphere
Insulin, we cause hexameric insulin to dissociate into monomeric
insulin before being loaded onto Technosphere particles. When
Technosphere Insulin particles dissolve in the deep lung, the
insulin that is released diffuses across a thin layer of cells
to reach the bloodstream. Little change is required before the
insulin can rapidly exert its glucose-lowering effect in the
body.
More
natural insulin profile translates into better glucose
control
Post-meal
glucose excursions
In our efficacy trials involving patients with diabetes, we
observed that our Technosphere Insulin System produces a
significant decrease in glucose excursions after a meal. In one
trial (study 003B), we compared the effect of mealtime doses of
Technosphere Insulin on blood glucose levels to the effect of
mealtime doses of subcutaneous
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insulin. This study employed a cross-over design, so that
patients were treated with either Technosphere Insulin or
subcutaneous injections of insulin at mealtimes for
approximately one week and then, after a washout period, were
transferred to the other treatment for a further week. At the
end of each treatment period, patients were administered a
standardized meal and their blood insulin and glucose levels
were monitored for a
four-hour
period.
The graphs below show mean blood levels of insulin and glucose
following administration of the meal to patients at the end of
each treatment period. The panel on the left shows the
characteristically rapid absorption of insulin when Technosphere
Insulin is inhaled as compared to the much slower absorption
following the subcutaneous injection of insulin. The panel on
the right shows the corresponding post-meal excursions, or
changes from baseline, of glucose absorbed from the meal
following administration of either Technosphere Insulin or
subcutaneous insulin. These data show that Technosphere Insulin
was able to limit the excursion of blood glucose during the
post-meal period in patients in this trial to a greater extent
than insulin administered subcutaneously.
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Post-meal
insulin levels
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Post-meal
glucose excursions
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A1C
levels
In other efficacy trials, we studied the longer-term effects of
meal-time Technosphere Insulin on average blood glucose levels
in patients with type 2 diabetes. Average blood glucose levels
are determined by measuring the levels of glycosylated
hemoglobin, or A1C, in the blood. In studies 008 and 005, we
found that the use of Technosphere Insulin produced a
statistically significant, dose-dependent reduction in A1C
levels over an 8- to 12-week period compared to meal-time
placebo. Patients in these trials received basal insulin or oral
medications as background treatment. In other trials, we
compared the effect of Technosphere Insulin on A1C levels to
that of a rapid-acting insulin analog. In study 101, a
three-month, Phase 2 trial of 110 patients with type 1
diabetes, we observed significant reductions of A1C levels that
were similar to the reductions achieved using insulin aspart, a
rapid-acting insulin analog. Similarly, in study 014, a
six-month Phase 3 study of 308 patients with type 2
diabetes, both patient groups achieved similar and statistically
significant improvements in A1C levels.
We are continuing to study the effect of Technosphere Insulin on
A1C levels in comparison to rapid-acting insulin analogs in our
pivotal, Phase 3 trials of Technosphere Insulin. Study 009
compares the efficacy of mealtime use of Technosphere Insulin to
mealtime use of rapid-acting subcutaneous insulin for a
12-month
period in a population of approximately 509 patients with
type 1 diabetes who are also treated with a long-acting insulin
analog. Efficacy will be evaluated on the basis of changes in
A1C levels as well as changes in blood glucose levels after a
standardized meal. Study 102 compares the efficacy of mealtime
use of Technosphere Insulin to the twice-daily use of premixed
insulin (a mixture of intermediate-acting insulin and a
rapid-acting insulin analog) in a population of approximately
670 patients with type 2 diabetes for a
12-month
period. Efficacy will be evaluated on the basis of changes in
A1C levels as well as changes in blood glucose levels after a
standardized mixed meal. We expect to complete both of these
pivotal studies during 2008.
We have also completed the active treatment stage of a Phase 3
trial (study 103) that evaluated the efficacy of
Technosphere Insulin alone and in combination with metformin in
525 patients with type 2 diabetes who were not achieving
desired glucose control with a combination of metformin and
sulphonylurea, another oral diabetes medication. Efficacy was
evaluated on the basis of changes in A1C levels after
26 weeks of treatment as well as
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changes in blood glucose levels after a standardized mixed meal.
This was not a pivotal trial; rather it is intended to support
label expansion. A subset of patients from this trial, as well
as the pivotal trials, were given the option to enroll in a
follow-on study that will examine pulmonary function during the
period immediately following the withdrawal of Technosphere
Insulin.
We are also planning several Phase 3b clinical trials that will
examine the safety and efficacy of Technosphere Insulin in more
detail in order to provide the support for additional claims
that will permit us to better differentiate our product from
other diabetes therapies. The first of these trials is study
117, in which Technosphere Insulin in combination with insulin
glargine, a long-acting insulin, will be compared to a
rapid-acting insulin analog
(Humalog®)
in combination with insulin glargine over a 16-week treatment
period in patients with type 1 diabetes who are
sub-optimally
controlled with their current insulin regimen. This clinical
trial will employ a variety of methods, including continuous
glucose monitoring and self blood glucose monitoring, to give
the investigators many more glycemic data points than have been
available previously. This will allow for more aggressive use of
insulin dosage than in previous trials of our Technosphere
Insulin. The primary efficacy endpoint of this trial is change
in A1C levels over the 16-week treatment period. Secondary
endpoints include the percent of patients who reach A1C goals of
<6.5% and <7.0%. We expect to enroll approximately
230 patients in this trial, commencing in the second
quarter of 2008.
Favorable
safety profile in clinical trials to date
To date, our clinical trials indicate that our Technosphere
Insulin has a favorable safety profile. In some patients, we
have observed coughing, usually mild, of short duration and
becoming less common over time. The occurrence of mild cough is
well recognized with inhaled medications. Other adverse events
reported in our clinical trials have not differed significantly
from that seen with control treatments. In our first reported
Phase 3 clinical trial, study 014, we found that significantly
fewer patients in the Technosphere Insulin group (56 of
150 patients) experienced mild or moderate hypoglycemia
compared to the rapid-acting insulin analog group (83 of
158 patients) and there were no severe hypoglycemic
episodes.
The safety profile of Technosphere Insulin has also been
examined in a number of non-clinical studies. In studies of the
effect of Technosphere Insulin and Technosphere particles on
lung tissue, we have seen no effect. We have also conducted a
two-year carcinogenicity study in rats, in which we observed
that Technosphere Insulin and Technosphere particles alone were
well tolerated after daily inhalations for 104 consecutive
weeks. There were no indications that our product or the carrier
material alone had carcinogenic potential or caused cellular
proliferation in the lungs. The survival rates over the course
of the study were acceptable and comparable across all groups.
We also recently completed a six-month carcinogencity study in
transgenic mice. We found no macroscopic indications of
carcinogenicity in animals given daily subcutaneous injections
of Technosphere Insulin or Technosphere particles for 26
consecutive weeks. The analysis of the histology data from this
latter study will be completed later this year.
Weight
change
In studies 014 and 101, we assessed subjects weight over
the treatment period. In both studies, we observed a
statistically significant difference in the weight change over
the treatment period between the groups that received the
rapid-acting insulin analog (who gained weight during the study)
and the groups that received Technosphere Insulin (who lost
weight during the study). At the end of the treatment period
(12 weeks for study 101; 24 weeks for study 014), the
mean weight difference between groups was 2.2 pounds in study
014 and 3.7 pounds in study 101.
We believe that the observations of no weight gain, and even
weight loss, in patients using our Technosphere Insulin System
are a consequence of controlling blood glucose levels after a
meal more tightly than is possible with regular or rapid-acting
insulin. Meal digestion is somewhat variable, but lasts on
average approximately three hours. In our trials, we have
observed that over 70% of the glucose-lowering activity of
regular subcutaneous insulin is exerted much later than three
hours after a meal. At this point, patients run the risk of
becoming hypoglycemic. We believe that to avoid hypoglycemia
this situation encourages patients to eat snacks between meals,
contributing to the weight gain often associated with insulin
therapy. By contrast, approximately 75% of the action of
Technosphere Insulin is exerted within the first three hours
after a meal. After this point, there is little insulin
present to cause
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hypoglycemia, thereby alleviating the need to snack. We believe
that this phenomenon may explain why we have seen no
therapy-related weight gain in our clinical trials to date.
Lung
function
Beginning with studies 008 and 005, we have assessed the
pulmonary function of patients that received Technosphere
Insulin. In these studies, we found that there was no clinically
or statistically significant difference between the baseline
values and the final test results for Technosphere Insulin
patients. In studies 101 and 014, we compared pulmonary function
in patients that received Technosphere Insulin to that of
patients that received injections of rapid-acting insulin
analog. At the end of the treatment period in each study, there
was no difference between measures of pulmonary function for the
two groups of patients, as measured by forced expiratory volume,
or
FEV1,
(the volume of air that can be forced out in one second) and
forced vital capacity, or FVC, (a measure of pulmonary
capacity). In study 101, we also included measurements of DLCO
(the diffusion capacity for carbon monoxide) and, again, we
observed no difference between the two groups of patients at the
end of the treatment period. In study 014, patients were
followed for an additional six months after the treatment period
ended. When
FEV1
and FVC measures were obtained after the withdrawal period, we
again saw no difference between the two groups.
We are nearing completion of study 030 a two-year,
pivotal, Phase 3 safety trial that incorporates two design
strategies. The first component is a randomized, open-label
trial comparing pulmonary function in two groups of patients
with diabetes. One group of patients is being treated with
Technosphere Insulin and the other group of patients is being
treated with existing oral
and/or
injectable therapies. The second component is a comparison of
pulmonary function in the patients with diabetes who are not
treated with Technosphere Insulin to a group of 125 subjects
without diabetes. A total of 2,050 subjects were enrolled in
this study. The last patient/last visit for study 030 will take
place in September 2008.
We have an ongoing program of safety surveillance and adverse
event reporting for the purpose of evaluating the ongoing safety
data related to the use of our Technosphere Insulin System. All
of our clinical trials are monitored by an independent data
safety monitoring board that meets at regular intervals to
review safety data. To date, the data safety monitoring board
has fully endorsed continuation of the trials as planned. Our
safety data are necessarily preliminary until we have completed
longer-term safety trials.
Convenient
and easy to use
To facilitate the delivery of Technosphere-formulated drugs to
the deep lung, we developed an inhaler that utilizes single-use,
disposable, plastic cartridges containing drug-loaded powder.
Our MedTone inhaler is light and easy to use, and fits in the
palm of the patients hand, which we believe facilitates
patient compliance. To administer a dose, the patient opens the
device, inserts a cartridge of Technosphere Insulin powder into
the inhaler, inserts the mouthpiece into the mouth and takes a
deep breath, thereby drawing the aerosolized particles deep into
the lungs. The inhaler incorporates an airflow regulator that is
designed to ensure a sufficient airflow from use to use, even in
patients with restricted airflow capacity. In addition, the
inhaler is breath actuated, which means that the patient does
not need to coordinate a breath with any manipulation of the
device, such as priming or pumping. In our clinical trials of
our Technosphere Insulin System, patients have reported a high
level of satisfaction with the MedTone inhaler.
We believe the ease of use of the MedTone inhaler complements
the time-action profile of the Technosphere Insulin powder to
produce a highly convenient system. Because insulin is
transferred to the bloodstream rapidly with our therapy, we
believe that the optimal and most convenient time for patients
to take a dose of Technosphere Insulin is right at the start of
a meal. In contrast, with subcutaneous regular insulin it is
recommended that the user try to time an injection 15 to 45
minutes before the expected mealtime, raising issues such as
miscalculation of time or unanticipated change in meal
availability, which could result in adverse events.
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Another
Potential MannKind Solution Mimic Natural GLP-1
Secretion
In a healthy person, the consumption of a meal triggers the
release of insulin by the pancreas. However, the insulin
response is much less robust if the same amount of glucose is
administered by intravenous injection, effectively by-passing
the intestinal tract. When glucose is administered
intravenously, the intestinal tract is not stimulated to release
incretins, which are hormones that stimulate the release of
insulin by the pancreas. One such incretin is glucagon-like
peptide-1, or GLP-1. In addition to its effect on the pancreas,
GLP-1 slows stomach emptying and reduces food intake. The
incretin effect the robust release of insulin in
response to meal consumption is much less pronounced
in patients with type 2 diabetes. This observation has suggested
that augmenting the GLP-1 signal may be a useful strategy to
help treat type 2 diabetes.
Under normal circumstances, GLP-1 is short-lived in the
bloodstream; half the amount that is released by the intestinal
tract is inactivated in about two minutes. Much of the
circulating GLP-1 is degraded by an enzyme known as dipeptidyl
pepitidase-4, or DPP-4. The rapid degradation of GLP-1 by DPP-4
represents a challenge for the use of exogenous GLP-1 in the
treatment of type 2 diabetes. Some drug manufacturers have
responded to this challenge developing forms of GLP-1 that are
resistant to DPP-4 degradation. Exenatide was the first
so-called incretin mimetic to be marketed. Exenatide is a
peptide derived from lizard venom that is sufficiently similar
to human
GLP-1 to
have comparable effects, but it is much more resistant to DPP-4
degradation than human GLP-1. The marketed formulation of
exenatide is indicated for twice-daily injection; however, a
once-weekly injection is under development. Other drug
manufacturers have developed drugs that inhibit DPP-4 activity.
Sitagliptin was the first drug of this class to be approved.
This drug is available as a once-daily pill.
With both incretin mimetic and DPP-4 inhibitor therapy, the
objective is to augment the GLP-1 signal to the pancreas and
other target organs. However, this approach does not truly
reestablish the incretin effect the robust release
of insulin following meal consumption that is lost
in type 2 diabetes. These types of drugs act to increase the
duration of elevated GLP-1 levels in the bloodstream, but they
do not restore or simulate the short burst of GLP-1 that is
released by the gut in response to meal ingestion.
Unlike incretin mimetics and DPP-4 inhibitors, our GLP-1
therapy MKC253, a proprietary formulation of human
GLP-1 loaded onto Technosphere particles is intended
to mimic gut physiology more closely. In a Phase 1 clinical
trial involving 26 healthy subjects, inhalation of MKC253
produced a sharp pulse of GLP-1 in the bloodstream that peaked
in less than three minutes after inhalation. Administering human
GLP-1 in this manner was found to produce the desired response.
We observed a GLP-1-induced release of insulin from the pancreas
that peaked within six minutes of inhalation. The insulin
response increased in proportion to the dose of MKC253 that was
inhaled. In subjects that received the highest dose of MKC253
(1.5 mg of GLP-1), blood glucose levels were observed to
decrease for a period of approximately 20 minutes after
administration. All of the subjects that participated in this
trial were fasted prior to administration of MKC253; thus, these
results support the hypothesis that inhalation of MKC253 may be
able to simulate the incretin effect that is lost in patients
with type 2 diabetes.
The primary objective of this Phase 1a trial was to evaluate the
tolerability of ascending doses of MKC253 as determined by the
incidence and severity of reported adverse events. At all dose
levels, MKC253 was well tolerated. Even in subjects that
achieved plasma GLP-1 concentrations in excess of 100 pmol/L,
the nausea and vomiting characteristically associated with such
levels was not observed. This lack of side effects may be
another benefit of administering MKC253 in a pulsatile manner
rather than administering a longer acting formulation of a GLP-1
analogue that lingers in the bloodstream for hours or days.
Currently, we are conducting a second Phase 1 trial that will
assess the safety of MKC253 as well as its effect on post-meal
glucose excursions in patients with type 2 diabetes. Until we
have conducted a full program of clinical trials, we will not be
able to reach definitive conclusions about the safety and
efficacy of MKC253.
CANCER
Cancer is the unregulated proliferation of cells that have the
capacity to spread to other sites in the body. A neoplasm is an
uncontrolled growth of abnormal cells. A neoplasm is considered
benign if it does not spread; if it invades other tissues,
however, it is considered malignant. The term cancer refers to a
malignant neoplasm.
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The first goal of cancer treatment is to eradicate the cancer.
Typically, this goal is pursued using treatment
methods surgery, radiation and
chemotherapy that can be highly toxic and may offer
little clinical benefit. In the past decade or so, newer
treatment methods have begun to emerge, such as:
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cytokines biological response modifiers that exert a
variety of effects on cellular processes, some of which are
anti-tumor in nature;
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monoclonal antibodies or passive immunotherapy large
molecules that cause the destruction of specific types of cancer
cells or the blood vessels that supply growing tumors;
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active immunotherapy using approaches that attempt
to induce the immune system to kill tumor cells instead of
tolerating them; and
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other targeted drug therapies small molecules that
selectively interfere with a cellular process associated with
cancer cells.
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Our cancer program is focused on the latter two therapy
areas immunotherapy and small molecule targeted drug
therapy.
Cancer
immunotherapy
Our cancer immunotherapy program utilizes the bodys immune
system to help eradicate tumor cells. The immune system is a
network of cells and organs that defends the body against
infection and abnormal cells, such as tumor cells. A key element
of the immune system is its ability to distinguish between
healthy cells and foreign or diseased cells that do not belong
in the body. The immune system accomplishes this task by
recognizing distinctive molecules called epitopes on the surface
of each cell as either normal or abnormal, and responding to
them appropriately. Any substance capable of being recognized by
the immune system is known as an antigen. An antigen can be all
or part of a pathogenic organism or it can be a by-product of
diseased cells. Certain specialized cells of the immune system
(antigen-presenting cells or APC) sample antigens found in the
body and present the epitopes associated with foreign antigens
to other cells of the immune system, known as T-cells, whose
function is to destroy any cell that expresses the same epitope;
this process is known as cell-mediated immunity. In this way,
the immune system can launch a very specific response to
infection or disease.
Our approach uses DNA- and peptide-based compounds that
correspond to tumor-associated antigens that are expressed in a
range of tumors. We select as target antigens molecules that
either play a role in disease progression or that are very
selectively expressed by tumor cells. A patients immune
system is first primed by DNA-based compounds, or
plasmids, that are injected directly into the patients
lymph nodes. This is designed to sensitize the immune system to
the tumor-associated antigens encoded by the plasmids. After a
period of time, the patients lymph nodes are then injected
with synthetic peptides that are designed to boost
or greatly amplify the immune response to the target antigens.
The immune response is maintained by repeated immunization
cycles. This prime-boost regimen is designed to provoke a potent
cell-mediated immune response that destroys cancer cells along
with the underlying blood supply to tumors.
Our lead product candidate in this program, MKC1106-PP, is
intended for the treatment of several solid-tumor cancers,
including ovarian, colorectal, pancreatic, renal, breast,
non-small cell lung and prostate carcinomas, glioblastoma and
melanoma. In 2007, we commenced an open label Phase 1 clinical
trial that is designed to evaluate the safety, tolerability and
pharmacological response of MKC1106-PP in cancer patients with a
variety of tumor types. At present, this study is continuing to
enroll patients.
MKC1106-PP consists of three components: a plasmid that encodes
pharmacological active elements from two tumor-associated
antigens, known as PRAME and PSMA, and two synthetic peptides,
one an analog of a PRAME epitope and one an analog of a PSMA
epitope. In addition to melanoma, PRAME is expressed in
carcinomas such as lung, breast, ovarian, renal, pancreatic and
colorectal. PSMA was originally isolated from prostate carcinoma
cells and later shown also to be expressed in the blood vessels
that supply several types of carcinoma, including breast, lung,
ovarian, pancreatic, renal and colorectal carcinoma and melanoma.
In January 2008, we received clearance from the FDA to initiate
an open-label Phase1/2 clinical trial of our second
immunotherapy product candidate, MKC1106-MT. This trial will
evaluate the tolerability and clinical
12
responses to the therapy in patients with advanced melanoma.
MKC1106-MT consists of a plasmid that encodes portions of two
antigens known as Melan-A and tyrosinase, and two synthetic
peptides, one an analog of a Melan-A epitope and one an analog
of a tyrosinase epitope. Melan-A and tyrosinase are antigens
commonly expressed by melanoma tumor cells.
We believe that our cancer immunotherapy approach addresses
several deficiencies inherent in earlier approaches to cancer
immunotherapy, including:
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Specificity. Instead of targeting the dominant
epitopes expressed by cancerous cells to which the immune system
is tolerant, we preferentially target cancer epitopes to which
the immune system appears not to have developed a tolerance. Our
approach is to identify appropriate target epitopes on the
cancer cell surface and design plasmid and peptide analogs to
activate an immune response against such epitopes.
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Administration. In contrast to the
conventional subcutaneous or intramuscular route of
administration, our compounds are delivered directly into the
patients lymph nodes, sites rich in T-cells and APC. We
believe that this delivery method ensures that T-cells are
exposed to greater concentrations of antigen for a longer period
of time than would occur after administration by other routes,
since cells within lymph nodes are ultimately responsible for
the induction, amplification and regulation of an immune
response. In our preclinical studies, we have observed that
intra-lymph node injection was superior to other routes of
administration, producing a much larger number of specific
T-cells for a variety of target antigens. In addition, because
the plasmid is rapidly degraded, we believe that intranodal
administration yields plasmid distribution and uptake that is
highly selective for the APC within lymph nodes, thereby
improving not only the efficacy but also the safety of DNA
plasmid vaccination.
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Potency and duration of response. Because
T-cell responses are transient and relatively limited, the
potential window to induce a therapeutic immune response is
narrow. Our non-clinical studies indicate that the magnitude of
the T-cell response can be modulated by the duration and the
protocol for achieving antigen exposure. We found that the most
robust T-cell responses were obtained when exposure to antigen
persisted in the lymph node and when different immunization
regimens (prime-boost approaches) were used. Specifically,
repeated administration of the plasmid, followed by the
peptides, produced greater proliferation of specific T-cells
against PRAME and PSMA than did other immunization schedules. To
maintain a therapeutic response, it is anticipated that at least
two treatment cycles with MCK1106-PP or -MT will need to be
administered in patients with tumors that express these
antigens. However, subjects may remain in the clinical trials
for up to six additional treatment cycles as long as signs of
tumor progression are not exhibited.
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Composition. In contrast to other approaches
based on tumor cells, immune cells, tumor lysates or microbes,
our strategy encompasses
off-the-shelf,
synthetic molecules that are not infective and cannot
self-replicate. Both recombinant DNA and peptides can be easily
manufactured, characterized and formulated as sterile, stable
materials suitable for clinical use.
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Targeted
Drug Therapy
As part of our effort to develop innovative cancer therapies, we
have built a drug discovery group that qualifies targets for
high-throughput screening, identifies and optimizes lead
compounds and develops initial preclinical data. Potential
compounds are further assessed by the pharmacology and
toxicology group that supports all of our product development
efforts.
Our drug discovery efforts, though focused on cancer targets,
are directed at several biochemical signaling pathways that may
play a role in a number of diseases, including inflammatory
diseases and cancer. One of these pathways is known as the
unfolded protein response, or UPR, a response to stress or
changes in cellular conditions during which proteins cease
functioning correctly. The UPR is intended to restore the normal
function of the cell by halting protein production while
molecular chaperones remove improperly folded
proteins. When cellular stress continues for an extended period
of time, the role of the UPR changes from restoring normal
function to initiating programmed cell death, which is also
known as apoptosis. In this manner, the improperly functioning
cell is removed from the body. However, in myeloma cells and
possibly other malignancies, the UPR does not work
13
effectively. In these cells, an enzyme known as IRE-1 activates
a gene (XBP-1) that enhances molecular chaperone activity and
protein degradation. The result is that the tumor cells escape
apoptosis.
Using our IRE-1 assay, we have identified a novel lead class of
compounds that selectively antagonize IRE-1 in vitro. This
class also inhibits XBP-1 activity in tumor cells and animal
models. At present, we are optimizing the current lead
compounds. In February 2008, we finalized the terms of a
research award from the Multiple Myeloma Research Foundation
that will help to support our optimization and preclinical
studies of an IRE-1 antagonist. Under this award, we will
receive up to $1.0 million over the next two years.
Another signaling pathway that we have studied intensively
involves a protein known as ITK, which is found in T-cells and
certain other immune cells but not in any other tissue. ITK is
activated by receptor molecules on the surface of T-cells and,
when activated, triggers a number of intracellular events that
lead to the migration and proliferation of T-cells. The fact
that ITK mediates these responses, along with its predominant
expression in T-cells, makes ITK a potential molecular target
for intervention in T-cell leukemias and lymphomas.
Our drug discovery group has identified and optimized a unique
class of molecules that selectively inhibit ITK in vitro
and in vivo. We have begun to evaluate the nonclinical safety
and pharmacology of lead compounds. In March 2008, we finalized
the terms of a research award from the Leukemia &
Lymphoma Society that will help to support our development of
potential ITK clinical candidates. Under this award, we will
receive up to $1.0 million during 2008.
OUR
STRATEGY
Our objective is to develop products primarily in the major
therapeutic areas of diabetes and cancer. Our strategy is to
achieve this objective by doing the following:
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Establish our Technosphere Insulin System as the preferred
mealtime therapy within the broad population of people with
diabetes. We believe the advantages in terms of
safety, efficacy and convenience of our Technosphere Insulin
System, as compared to subcutaneous or other inhaled insulin
products, will enable us to capture a significant portion of the
existing insulin-using diabetes market. Our target markets also
include patients with type 2 diabetes who are currently using
conventional therapies other than insulin, including:
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patients currently using diet and exercise therapy but who are
having difficulty achieving proper blood glucose control and who
otherwise would have started non-insulin oral
medications; and
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patients currently using non-insulin medications.
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Expand our proprietary Technosphere formulation technology
for the delivery of other peptide hormones. We
believe that MKC253 represents the first in a series of
Technosphere formulations of peptide hormones that have the
potential to demonstrate clinical advantages over existing
therapeutic options in diabetes, endocrine disorders and obesity.
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Commercialize our Technosphere portfolio with a partner who
shares our commitment to improving the lives of patients with
diabetes. We are evaluating potential
collaboration opportunities with large pharmaceutical companies
in the United States, Europe and Japan to provide marketing,
sales and financial resources to commercialize and sell our
Technosphere Insulin System. We have not licensed or transferred
any of our rights to this product or to our platform technology.
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Develop novel approaches to treating cancer using our
immunotherapy and drug discovery platforms. We
are currently conducting a Phase 1 and a Phase 1/2 clinical
trial of our investigational cancer immunotherapy product
candidates. Our goal is to continue to evaluate the safety and
efficacy of this approach while advancing our targeted drug
therapy programs into preclinical development.
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SALES AND
MARKETING
Our efforts to date have primarily been directed at developing
products for a number of different markets. We currently have no
sales or distribution capabilities and have no experience as a
company in marketing or selling pharmaceutical products.
However, we have built a strategic marketing group and are
actively engaged in the
14
commercial activities that would normally be undertaken in
preparation for launch of a pharmaceutical product, such as
conducting market research studies. In a quantitative attribute
study conducted in 2007, 685 physicians were surveyed, including
401 primary care physicians and 284 endocrinologists. A total of
210 physicians were located in the United States; the remaining
participants were located in the United Kingdom, Germany,
France, Spain and Italy. The purpose of the study was to
understand and quantify the degree to which Technosphere Insulin
would be prescribed by primary care physicians and
endocrinologists. Technosphere Insulin was not identified by
name; instead, it was only described as a dry powder insulin
that had the following attributes when compared to a
rapid-acting insulin analog:
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Faster onset of action, reaching peak blood levels in
12-15
minutes;
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Lower total post-meal glucose excursions and lower
two-hour
post-meal glucose when used in combination with basal insulin;
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Comparable reductions in A1C levels;
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Lower incidence of hypoglycemia; and
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Less weight gain.
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Study participants were also told that this product was
administered at the start of a meal with a palm-sized inhaler
and that the most common adverse event reported during clinical
trials was cough, generally mild, non-productive and of a
transient nature.
The research confirmed that Technosphere Insulin is seen as a
significant therapeutic improvement over existing rapid-acting
insulin therapies. If and when this product is made available,
the physicians who participated in this study reported that they
expected to decrease their use of other insulins (primarily
rapid-acting analogs), exenatide and oral agents. In particular,
the results obtained from the United States participants
indicated:
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Over half of these physicians see Technosphere Insulin as an
improvement over existing rapid-acting insulin therapies;
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37% of the primary care physicians and 31% of the
endocrinologists see Technosphere Insulin as an important or
major therapeutic improvement over existing rapid-acting insulin
therapies; and
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Primary care physicians indicated significant interest in using
Technosphere Insulin as the second, third or fourth therapeutic
intervention, even more so than endocrinologists.
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Similar results were obtained from European study participants.
We are continuing to study the market opportunities for
innovative diabetes therapies and will be conducting further
assessments of the market potential for Technosphere Insulin.
In order to commercially market any of our products, we need
either to develop an internal sales team, continue to expand our
marketing infrastructure or collaborate with third parties who
have greater sales and marketing capabilities and have access to
potentially large markets. Although we believe that establishing
our own sales and marketing organizations in North America would
have substantial advantages, we recognize that this may not be
practical for our diabetes products and that collaborating with
companies with established sales and marketing capabilities in a
particular market or markets may be a more effective alternative
for some products. To date, we have retained worldwide
commercialization rights for all of our products, including our
lead product, the Technosphere Insulin System. We believe that
this will give us flexibility if we enter into collaborations to
provide the necessary sales and marketing support.
We are evaluating potential collaboration opportunities to
assist us in the development and commercialization of our
Technosphere Insulin System in the United States, Europe and
Japan, and we may also create parallel in-house sales and
marketing operations in certain key markets, particularly in the
United States.
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MANUFACTURING
AND SUPPLY
In November 2007, we entered into a long-term supply agreement
with N. V. Organon pursuant to which Organon will manufacture
and supply specified quantities of recombinant human insulin to
us. The initial term of this supply agreement will end on
December 31, 2012 and will be automatically extended for
consecutive two-year periods unless (i) we fail to provide
a forecast of our insulin requirements for the two-year
extension period to Organon at least 24 months before any
automatic extension or (ii) either party provides
23-months
advance written notice to the other party of its desire to
terminate the agreement. We and Organon each have normal and
customary termination rights, including (a) for material
breach of the agreement by the other party, (b) due to the
liquidation or bankruptcy of the other party or (c) upon
90-days
advance written notice if the parties are unable to agree after
mediation on the consequences of any changes to the product
specifications required by any controlling regulatory authority.
We may terminate the supply agreement upon
30-days
advance written notice to Organon if certain regulatory
authorities fail to approve or withdraw approval of our
Technosphere Insulin System. If we terminate the supply
agreement following failure to obtain or maintain regulatory
approval of the Technosphere Insulin System or either party
terminates the agreement following the parties inability
to agree after any regulatory authority-mandated changes to
product specifications that relate specifically to the use of
insulin in Technosphere Insulin, we will be required to pay
Organon a specified termination fee if Organon is unable to sell
certain quantities of insulin to other parties. We believe that
Organon has sufficient capacity to provide us with sufficient
quantities of insulin to support our needs through the initial
stages of commercialization. We must rely on our insulin
supplier to maintain compliance with relevant regulatory
requirements including current Good Manufacturing Practices, or
cGMP.
We have a long-term supply agreement with Vaupell, Inc. for the
manufacture and supply of our MedTone inhaler and the cartridges
that are inserted into it. We are in the process of qualifying a
second manufacturer to supply us with commercial quantities of
these components. We rely on our manufacturers to comply with
relevant regulatory requirements, including compliance with
Quality System Regulations, or QSRs. We believe our
manufacturers have the capacity to meet our clinical trial and
commercial requirements.
Currently, we obtain the raw material from which we produce
Technosphere particles from Evonik Industries (formerly Degussa
AG), a major chemical manufacturer with facilities in Europe and
North America. We are in the process of evaluating a second
manufacturer to supply us with commercial quantities of this raw
material. We also have the capability of manufacturing this
chemical ourselves in our Danbury, Connecticut facility, which
is now treated as a
back-up
facility. Like us, our third-party manufacturers are subject to
extensive governmental regulation.
We formulate and fill the Technosphere Insulin powder into
plastic cartridges and blister package the cartridges in a
manufacturing suite in our Danbury facility. Although our
Danbury facility has adequate capacity to meet our clinical
trial needs, we are currently expanding our manufacturing
facility in order to increase our filling and packaging
capacity. The construction phase is scheduled to be completed in
the second half of 2008; equipment installation and validation
will continue into 2009. When completed and validated, the
expanded facility is expected to have the capacity to supply our
anticipated needs for the initial years of commercialization. We
believe that our building improvements to date have been
adequately validated and that the facility continues to
substantially conform with cGMP. As well, during the fourth
quarter of 2007, our quality management systems were audited and
certified to be in conformance with the ISO 13485 and ISO 9001
standards.
INTELLECTUAL
PROPERTY AND PROPRIETARY TECHNOLOGY
Our success will depend in large measure on our ability to
obtain and enforce our intellectual property rights, effectively
maintain our trade secrets and avoid infringing the proprietary
rights of third parties. Our policy is to file patent
applications on what we deem to be important technological
developments that might relate to our product candidates or
methods of using our product candidates and to seek intellectual
property protection in the United States, Europe, Japan and
selected other jurisdictions for all significant inventions. We
have obtained, are seeking, and will continue to seek patent
protection on the compositions of matter, methods and devices
flowing from our research and development efforts. We have also
in-licensed certain technology.
Our Technosphere drug delivery platform, including our
Technosphere Insulin product, enjoys patent protection relating
to the particles, their manufacture, and their use for pulmonary
delivery of drugs. We have additional
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patent coverage relating to the treatment of diabetes using our
Technosphere Insulin product. Recently we have been granted
patent coverage for our inhaler cartridges, the form in which
our insulin product will be sold to the consumer. We have
additional pending patent applications, and expect to file
further applications, relating to the drug delivery platform,
methods of manufacture, the Technosphere Insulin product and its
use, MKC253 and other Technosphere-based products, inhalers and
inhaler cartridges. Overall we own 29 issued patents and over
135 pending applications in the United States and select
jurisdictions around the world related to our Technosphere
platform. These include composition and method of treatment
patents providing protection for Technosphere Insulin that will
remain in force into 2020, as will our inhaler patents, and a
patent on inhaler cartridges that that will remain in force into
2023.
In addition, we own or have in-licensed intellectual property
relating to several drug targets of interest in the treatment of
cancer and other fields. Patents and patent applications in this
area are drawn to drug screening methods, methods of treatment,
and chemical structures of inhibitors of these targets. Our
cancer immunotherapy program is built on proprietary methods for
the selection, design and administration of epitopes, as well as
the plasmids and peptides that are the active ingredients of our
products. Overall we own 13 issued patents and over 155 pending
applications in the United States and select jurisdictions
around the world related to our immunotherapy program.
The fields of pulmonary drug delivery and cancer therapies are
crowded and a substantial number of patents have been issued in
these fields. In addition, because patent positions can be
highly uncertain and frequently involve complex legal and
factual questions, the breadth of claims obtained in any
application or the enforceability of issued patents cannot be
confidently predicted. Further, there can be substantial delays
in commercializing pharmaceutical products, which can partially
consume the statutory period of exclusivity through patents.
In addition, the coverage claimed in a patent application can be
significantly reduced before a patent is issued, either in the
United States or abroad. Statutory differences in patentable
subject matter may limit the protection we can obtain on some of
our inventions outside of the United States. For example,
methods of treating humans are not patentable in many countries
outside of the United States. These and other issues may limit
the patent protection we will be able to secure internationally.
Consequently, we do not know whether any of our pending or
future patent applications will result in the issuance of
patents or, to the extent patents have been issued or will be
issued, whether these patents will be subjected to further
proceedings limiting their scope, will provide significant
proprietary protection or competitive advantage, or will be
circumvented or invalidated. Furthermore, patents already issued
to us or our pending applications may become subject to disputes
that could be resolved against us. In addition, patent
applications in the United States filed before November 29,
2000 are currently maintained in secrecy until the patent
issues, although in certain countries, including the United
States, for applications filed on or after November 29,
2000, applications are generally published 18 months after
the applications priority date. In any event, because
publication of discoveries in scientific or patent literature
often trails behind actual discoveries, we cannot be certain
that we were the first inventor of the subject matter covered by
our pending patent applications or that we were the first to
file patent applications on such inventions.
Although we own a number of domestic and foreign patents and
patent applications relating to our Technosphere-based
investigational products and our cancer products under
development, we have identified certain third-party patents
having claims relating to pulmonary insulin delivery that may
trigger an allegation of infringement upon the commercial
manufacture and sale of our Technosphere Insulin System. We have
also identified third-party patents disclosing methods and
compositions of matter related to DNA-based vaccines that also
may trigger an allegation of infringement upon the commercial
manufacture and sale of our cancer immunotherapy. We believe
that we are not infringing any valid claims of any patent owned
by a third party. However, if a court were to determine that our
inhaled insulin product or cancer immunotherapies were
infringing any of these patent rights, we would have to
establish with the court that these patents were invalid in
order to avoid legal liability for infringement of these
patents. Proving patent invalidity can be difficult because
issued patents are presumed valid. Therefore, in the event that
we are unable to prevail in an infringement or invalidity action
we will either have to acquire the third-party patents outright
or seek a royalty-bearing license. Royalty-bearing licenses
effectively increase costs and therefore may materially affect
product profitability. Furthermore, if the patent holder refuses
to either assign or license us the infringed patents, it may be
necessary to cease manufacturing the product entirely
and/or
design around the patents. In either event, our business would
be harmed and our profitability could be materially adversely
17
impacted. If third parties file patent applications, or are
issued patents claiming technology also claimed by us in pending
applications, we may be required to participate in interference
proceedings in the United States Patent and Trademark Office, or
USPTO, to determine priority of invention. We may be required to
participate in interference proceedings involving our issued
patents and pending applications.
We also rely on trade secrets and know-how, which are not
protected by patents, to maintain our competitive position. We
require our officers, employees, consultants and advisors to
execute proprietary information and invention and assignment
agreements upon commencement of their relationships with us.
These agreements provide that all confidential information
developed or made known to the individual during the course of
our relationship must be kept confidential, except in specified
circumstances. These agreements also provide that all inventions
developed by the individual on behalf of us must be assigned to
us and that the individual will cooperate with us in connection
with securing patent protection on the invention if we wish to
pursue such protection. There can be no assurance, however, that
these agreements will provide meaningful protection for our
inventions, trade secrets or other proprietary information in
the event of unauthorized use or disclosure of such information.
We also execute confidentiality agreements with outside
collaborators. However, disputes may arise as to the ownership
of proprietary rights to the extent that outside collaborators
apply technological information to our projects that are
developed independently by them or others, or apply our
technology to outside projects, and there can be no assurance
that any such disputes would be resolved in our favor. In
addition, any of these parties may breach the agreements and
disclose our confidential information or our competitors might
learn of the information in some other way. If any trade secret,
know-how or other technology not protected by a patent were to
be disclosed to or independently developed by a competitor, our
business, results of operations and financial condition could be
adversely affected.
COMPETITION
The pharmaceutical and biotechnology industries are highly
competitive and characterized by rapidly evolving technology and
intense research and development efforts. We expect to compete
with companies, including the major international pharmaceutical
companies, and other institutions that have substantially
greater financial, research and development, marketing and sales
capabilities and have substantially greater experience in
undertaking preclinical and clinical testing of products,
obtaining regulatory approvals and marketing and selling
biopharmaceutical products. We will face competition based on,
among other things, product efficacy and safety, the timing and
scope of regulatory approvals, product ease of use and price.
Diabetes
treatments
We believe our Technosphere Insulin System provides us with
important competitive advantages in the delivery of insulin when
compared with currently known alternatives. However, new drugs
or further developments in alternative drug delivery methods may
provide greater therapeutic benefits, or comparable benefits at
lower cost, than our Technosphere Insulin System. There can be
no assurance that existing or new competitors will not introduce
products or processes competitive with or superior to our
product candidates.
We have set forth below more detailed information about certain
of our competitors. The following is based on information
currently available to us.
Inhaled
and oral insulin delivery systems
In January 2006, the FDA and the European Medicines Evaluation
Agency approved
Exubera®,
developed by Pfizer, Inc. in collaboration with Nektar
Therapeutics, for the treatment of adults with type 1 and type 2
diabetes.
Exubera®
was slow to gain market acceptance and, in October 2007, Pfizer
announced that it was returning the rights to the product to
Nektar. Nektar subsequently announced that it was actively
seeking to enter into a new partnership for the sales and
marketing of
Exubera®
as well as its next generation inhaled insulin. This latter
product is currently in Phase 1 trials; Nektar is reportedly
targeting approval of this product for 2011.
In January 2008, Novo Nordisk A/S announced that it was halting
development of its inhaled insulin product, having reached the
conclusion that it did not have adequate commercial potential.
Notwithstanding the termination
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of this program, Novo Nordisk stated that it intended to
increase research and development activities targeted at
inhalation systems for long-acting formulations of insulin and
GLP-1.
In March 2008, Eli Lilly and Company announced that it too was
terminating the development of its
AIR®
inhaled insulin system. Lilly stated that this decision resulted
from increasing uncertainties in the regulatory environment and
after a thorough evaluation of the evolving commercial and
clinical potential of its product compared to existing medical
therapies.
There are also several companies that are pursuing development
of products involving the oral delivery of insulin. Biocon
Limited is currently in Phase 2 trials of IN-105, a tablet for
the oral delivery of insulin. Emisphere Technologies, Inc. has
also developed an oral formulation of insulin. A Phase 2 trial
of the Emisphere investigational product was completed in the
fall of 2006. Other companies are evaluating alternative means
of delivering insulin orally. Generex Biotechnology Corporation
is currently conducting Phase 3 trials in North America of its
liquid formulation of insulin that is sprayed onto the buccal
mucosa. This product,
Oral-lyntm,
is currently available for sale in certain countries, including
Ecuador and India. Biodel Inc. is currently conducting Phase 1
trials of an oral formulation of insulin
(VIAtabtm)
designed to be administered sublingually. We are not aware that
the timelines to commercialization for any of these
investigational products have been made available publicly.
Non-insulin
medications
We expect that our Technosphere Insulin System will compete with
currently available non-insulin medications for type 2 diabetes.
These products include the following:
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Sulfonylureas (including
Glucotrol®,
Diabeta®,
Glynase®,
Micronase®,
and
Amaryl®),
also called oral hypoglycemic agents, prompt the pancreas to
secrete insulin. This class of drugs is most effective in
individuals whose pancreas still have some working pancreas
cells.
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Meglitinides (including
Prandin®
and
Starlix®)
are taken with meals and reduce the elevation in blood glucose
that generally follows eating. If these drugs are not taken with
meals, blood glucose will drop dramatically and inappropriately.
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Biguanides (including
Glucophage®,
Glucophage®
XR, and
Fortamet®)
lower blood glucose by improving the sensitivity of cells to
insulin (i.e., by diminishing insulin resistance).
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Thiazolidinedione (including
Avandia®
and
Actos®)
improves the uptake of glucose by cells in the body.
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Alpha-glucosidase inhibitors (including
Prandase®,
Precose®
and
Glyset®)
lower the amount of glucose absorbed from the intestines,
thereby reducing the rise in blood glucose that occurs after a
meal.
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Inhibitors of dipeptidyl peptidase IV
(Januvia®)
are a class of drugs that work by blocking the degradation of
GLP-1, which is a naturally occurring incretin.
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Incretin mimetics
(Byetta®)
work by several mechanisms including stimulating the pancreas to
secrete insulin when blood glucose levels are high. This class
of drug would also compete directly with MKC253, our proprietary
formulation of GLP-1 loaded onto Technosphere particles.
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Injected
insulin
In the subcutaneous insulin market, our competitors have made
considerable efforts in promoting rapid acting injectable
insulin formulations.
Humalog®,
which was developed by Eli Lilly and Company, and
NovoLog®,
which was developed by Novo Nordisk A/S, are the two principal
injectable insulin formulations with which we expect to compete.
Biodel, Inc. is conducting Phase 3 trials of
VIAjecttm,
its proprietary diluent that is combined with freeze-dried human
insulin to create a rapid-acting insulin formulation.
Cancer
treatments
For many types of cancer, chemotherapy remains a significant
component of the treatment regimen. Increasingly, however, drugs
and antibodies that specifically target the damaged mechanisms
of malignant cells
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are being used to treat cancer. One such cancer therapy is
Rituxan®
(Biogen IDEC/Genentech/Roche), an antibody that targets a
protein found on B-cell lymphoma cells. Genentech, Inc. and
Roche have also partnered to market two other successful
antibodies:
Avastin®,
which targets the new blood vessels that supply tumors, and
Herceptin®,
which targets a protein expressed in breast tumor cells.
Erbitux®
(ImClone/Bristol-Myers Squibb/Merck Serono), which targets a
growth factor associated with malignant growth, is another
antibody that has been approved for the treatment of certain
types of cancer.
The armamentarium of cancer treatments has been strengthened in
recent years by several drugs that target specific molecular
aberrations in tumor cells. One such drug is
Gleevec®,
developed and marketed by Novartis AG, which was initially
approved for use in chronic myeloid leukemia. The drug has
subsequently been approved for use in additional types of
cancer. Similarly,
Tarceva®
(OSI Pharmaceuticals/Genentech) was initially approved for
non-small cell lung cancer; label-expanding studies later
allowed the drug to be indicated for pancreatic cancer.
Velcade®,
developed by Millenium Pharmaceuticals and Ortho Biotech, acts
by inhibiting protein degradation, thereby inducing apoptosis.
It was initially approved for use in multiple myeloma; its label
now includes an indication for mantle cell lymphoma.
Our cancer therapies may face competition from the products
described above as well as from other brands. In addition, our
cancer immunotherapy products may face direct competition from
one or more therapeutic cancer vaccines that are currently in
late-stage development. These imuunotherapy products include:
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Amolimogene (MGI Pharma, Inc.), a DNA-based therapeutic vaccine
that is in Phase 3 trials for the treatment of cervical
dysplasia;
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GV1001 (Pharmexa A/S), a peptide-based therapeutic vaccine in
Phase 3 trials for the treatment of pancreatic cancer (and other
solid tumors);
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MAGE-A3 Antigen-Specific Cancer Immunotherapeutic
(GlaxoSmithKline), a peptide-based product in Phase 3 trials for
the treatment of non-small cell lung cancer;
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TroVax®
(Oxford BioMedica plc), a virus-based vaccine that encodes an
antigen found on the surface of many tumor types, now in Phase 3
trials for renal cell carcinoma; and
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GVAXtm
(Cell Genesys Inc.) is a whole-cell vaccine that uses
inactivated prostate tumor cells. This vaccine is being
evaluated for the treatment of prostate cancer in a Phase 3
trial.
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An approach being evaluated by several immunotherapy developers
is to use proteins or whole cells derived from tumors as the
basis for a personalized vaccine to treat the cancer. These
so-called autologous vaccines are exemplified by:
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BIOVAXIDtm
(Accentia Biopharmaceuticals),
Specifidtm
(Favrille, Inc.) and
MyVax®
(Genitope Corporation), each of which in Phase 3 trials for
non-Hodgkins lymphoma, use proteins harvested from tumor
cells.
Oncophage®
(Antigenics Inc.) is also derived from patients tumor
cells. Oncophage has been evaluated in Phase 3 trials in kidney
cancer and melanoma; currently, it is being evaluated in a Phase
1/2
trial for recurrent glioma;
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OncoVAX®
(Vaccinogen, Inc.), a vaccine formed from patients tumor
cells that are irradiated and injected back into the patient;
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M-Vax (AVAX Technologies, Inc.) is another autologous vaccine.
In this approach, whole melanoma cells are harvested and
reformulated into the vaccine. In 2000, M-Vax was approved in
Australia for the treatment of melanoma. Subsequently, it was
withdrawn from the market. Currently, it is being evaluated in a
Phase 3 trial in the United States;
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Provenge®
(Dendreon Corporation) is a vaccine composed of autologous APC
that are loaded with an antigen from prostate tumor cells then
re-injected into patients. In May 2007, Dendreon received an
approvable letter from the FDA in respect to its
application for the approval of
Provenge®
in which the FDA requested that Dendreon provide additional
survival data in order to support its claims that
Provenge®
is effective.
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GOVERNMENT
REGULATION AND PRODUCT APPROVAL
The FDA and comparable regulatory agencies in state, local and
foreign jurisdictions impose substantial requirements upon the
clinical development, manufacture and marketing of medical
devices and new drug products. These agencies, through
regulations that implement the Federal Food, Drug, and Cosmetic
Act, as amended, or FDCA, and other regulations, regulate
research and development activities and the development,
testing, manufacture, labeling, storage, shipping, approval,
advertising, promotion, sale and distribution of such products.
In addition, if our products are marketed abroad, they also are
subject to export requirements and to regulation by foreign
governments. The regulatory clearance process is generally
lengthy, expensive and uncertain. Failure to comply with
applicable FDA and other regulatory requirements can result in
sanctions being imposed on us or the manufacturers of our
products, including hold letters on clinical research, civil or
criminal fines or other penalties, product recalls, or seizures,
or total or partial suspension of production or injunctions,
refusals to permit products to be imported into or exported out
of the United States, refusals of the FDA to grant approval of
drugs or to allow us to enter into government supply contracts,
withdrawals of previously approved marketing applications and
criminal prosecutions.
The steps typically required before an unapproved new drug
product for use in humans may be marketed in the United States
include:
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Preclinical studies that include laboratory evaluation of
product chemistry and formulation, as well as animal studies to
assess the potential safety and efficacy of the product. Certain
preclinical tests must be conducted in compliance with good
laboratory practice regulations. Violations of these regulations
can, in some cases, lead to invalidation of the studies, or
requiring such studies to be repeated. In some cases, long-term
preclinical studies are conducted while clinical studies are
ongoing.
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Submission to the FDA of an investigational new drug
application, or IND, which must become effective before human
clinical trials may commence. The results of the preclinical
studies are submitted to the FDA as part of the IND. Unless the
FDA objects, the IND becomes effective 30 days following
receipt by the FDA.
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Approval of clinical protocols by independent institutional
review boards, or IRBs, at each of the participating clinical
centers conducting a study. The IRBs consider, among other
things, ethical factors, the potential risks to individuals
participating in the trials and the potential liability of the
institution. The IRB also approves the consent form signed by
the trial participants.
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Adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product. Clinical trials involve
the administration of the drug to healthy volunteers or to
patients under the supervision of a qualified medical
investigator according to an approved protocol. The clinical
trials are conducted in accordance with protocols that detail
the objectives of the study, the parameters to be used to
monitor participant safety and efficacy or other criteria to be
evaluated. Each protocol is submitted to the FDA as part of the
IND. Human clinical trials are typically conducted in the
following four sequential phases that may overlap or be combined:
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In Phase 1, the drug is initially introduced into a small number
of individuals and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion. Phase 1
clinical trials are often conducted in healthy human volunteers
and such cases do not provide evidence of efficacy. In the case
of severe or life-threatening diseases, the initial human
testing is often conducted in patients rather than healthy
volunteers. Because these patients already have the target
disease, these studies may provide initial evidence of efficacy
that would traditionally be obtained in Phase 2 clinical trials.
Consequently, these types of trials are frequently referred to
as Phase 1/2 clinical trials. The FDA receives reports on
the progress of each phase of clinical testing and it may
require the modification, suspension or termination of clinical
trials if it concludes that an unwarranted risk is presented to
patients or healthy volunteers.
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Phase 2 involves clinical trials in a limited patient population
to further identify any possible adverse effects and safety
risks, to determine the efficacy of the product for specific
targeted diseases and to determine dosage tolerance and optimal
dosage.
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Phase 3 clinical trials are undertaken to further evaluate
dosage, clinical efficacy and to further test for safety in an
expanded patient population at geographically dispersed clinical
study sites. Phase 3 clinical trials usually include a broader
patient population so that safety and efficacy can be
substantially established. Phase 3 clinical trials cannot begin
until Phase 2 evaluation demonstrates that a dosage range of the
product may be effective and has an acceptable safety profile.
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Phase 4 clinical trials are performed if the FDA requires, or a
company pursues, additional clinical trials after a product is
approved. These clinical trials may be made a condition to be
satisfied after a drug receives approval. The results of Phase 4
clinical trials can confirm the effectiveness of a product
candidate and can provide important safety information to
augment the FDAs voluntary adverse drug reaction reporting
system.
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Concurrent with clinical trials and preclinical studies,
companies also must develop information about the chemistry and
physical characteristics of the drug and finalize a process for
manufacturing the product in accordance with drug cGMP
requirements. The manufacturing process must be capable of
consistently producing quality batches of the product and the
manufacturer must develop methods for testing the quality,
purity, and potency of the final products. Additionally,
appropriate packaging must be selected and tested and chemistry
stability studies must be conducted to demonstrate that the
product does not undergo unacceptable deterioration over its
shelf-life.
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Submission to the FDA of an NDA based on the clinical trials.
The results of pharmaceutical development, preclinical studies,
and clinical trials are submitted to the FDA in the form of an
NDA for approval of the marketing and commercial shipment of the
product. Under the Pediatric Research Equity Act of 2003, or
PREA, NDAs are required to include an assessment, generally
based on clinical study data, of the safety and efficacy of
drugs for all relevant pediatric populations. The statute
provides for waivers or deferrals in certain situations but we
can make no assurances that such situations will apply to us or
our product candidates.
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Medical products containing a combination of new drugs,
biological products, or medical devices are regulated as
combination products in the United States. A
combination product generally is defined as a product comprised
of components from two or more regulatory categories
(e.g., drug/device, device/biologic, drug/biologic). Each
component of a combination product is subject to the
requirements established by the FDA for that type of component,
whether a new drug, biologic, or device. In order to facilitate
pre-market review of combination products, the FDA designates
one of its centers to have primary jurisdiction for the
pre-market review and regulation of the overall product. The
determination whether a product is a combination product or two
separate products is made by the FDA on a
case-by-case
basis. We have had discussions with the FDA about the status of
our Technosphere Insulin System as a combination product and we
have been told that the FDA considers our product a combination
drug/device. There have been some indications from the FDA that
the review of any future marketing applications for our
Technosphere Insulin System will involve reviews within the
Division of Metabolism and Endocrinology Products and the
Division of Pulmonary and Allergy Products, both within the
Center for Drug Evaluation and Research, as well as review
within the Center for Devices and Radiological Health, the
Center within the FDA that reviews Medical Devices. Although the
FDA has not made a final decision in this regard, we currently
understand that the Division of Metabolic and Endocrine Products
will be the lead group and obtain consulting reviews from the
other two FDA groups if we submit an NDA.
The testing and approval process requires substantial time,
effort and financial resources. In February 2008, the FDA
released a draft guidance document that provides recommendations
for the development of drugs and therapeutic biologics for the
treatment and prevention of diabetes. We reviewed this draft
guidance document as it applies to our programs for Technosphere
Insulin and MKC253 and we believe that our clinical development
programs are consistent with this draft guidance. Nonetheless,
we cannot be certain that any approval of our products will be
granted on a timely basis, if at all. If any of our products are
approved for marketing by the FDA, we will be subject to
continuing regulation by the FDA, including record-keeping
requirements, reporting of adverse experiences with the product,
submitting other periodic reports, drug sampling and
distribution requirements, notifying the FDA and gaining its
approval of certain manufacturing or labeling changes, and
complying with certain electronic records and signature
requirements. Prior to and following approval, if granted, all
manufacturing sites are subject to inspection by the FDA and
other national regulatory bodies and must comply with cGMP, QSR
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and other requirements enforced by the FDA and other national
regulatory bodies through their facilities inspection program.
Foreign manufacturing establishments must comply with similar
regulations. In addition, our drug-manufacturing facilities
located in Danbury and the facilities of our insulin supplier,
the supplier(s) of our Technosphere material and the supplier(s)
of our MedTone inhaler and cartridges are subject to federal
registration and listing requirements and, if applicable, to
state licensing requirements. Failure, including those of our
suppliers, to obtain and maintain applicable federal
registrations or state licenses, or to meet the inspection
criteria of the FDA or the other national regulatory bodies,
would disrupt our manufacturing processes and would harm our
business. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, money
and effort in the area of production and quality control to
ensure full compliance. Currently, we believe we are operating
under all of the necessary guidelines and permits.
It is not yet clear to what extent we will be subject to
regulations governing pre-market approval or clearances of
medical devices separate from approval requirements governing
drugs. We currently expect that our inhaler will be approved as
part of the NDA for our Technosphere Insulin System. No
assurances exist that we will not be required to obtain separate
device clearances or approval for use of our inhaler with our
Technosphere Insulin System. This may result in our being
subject to medical device review user fees and to other device
requirements to market our inhaler and may result in significant
delays in commercialization. Even if the device component is
approved as part of our NDA for the Technosphere Insulin System,
numerous device regulatory requirements still apply to the
device part of the drug-device combination. These include:
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product labeling regulations;
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general prohibition against promoting products for unapproved or
off-label uses;
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corrections and removals (e.g., recalls);
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establishment registration and device listing;
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general prohibitions against the manufacture and distribution of
adulterated and misbranded devices; and
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the Medical Device Reporting regulation, which requires that
manufacturers report to the FDA if their device may have caused
or contributed to a death or serious injury or malfunctioned in
a way that would likely cause or contribute to a death or
serious injury if it were to recur.
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Further, the company we have contracted to manufacture our
MedTone inhaler and cartridges will be subject to the QSR, which
requires manufacturers to follow elaborate design, testing,
control, documentation and other quality assurance procedures
during the manufacturing process of medical devices, among other
requirements.
Failure to adhere to regulatory requirements at any stage of
development, including the preclinical and clinical testing
process, the review process, or at any time afterward, including
after approval, may result in various adverse consequences.
These consequences include action by the FDA or another national
regulatory body that has the effect of delaying approval or
refusing to approve a product; suspending or withdrawing an
approved product from the market; seizing or recalling a
product; or imposing criminal penalties against the
manufacturer. In addition, later discovery of previously unknown
problems may result in restrictions on a product, its
manufacturer, or the NDA holder, or market restrictions through
labeling changes or product withdrawal. Also, new government
requirements may be established or they may change at any time
that could delay or prevent regulatory approval of our products
under development. For example, in response to recent events
regarding questions about the safety of certain approved
prescription products, including the lack of adequate warnings,
the FDA and Congress are currently considering new regulatory
and legislative approaches to advertising, monitoring and
assessing the safety of marketed drugs, including legislation
providing the FDA with authority to mandate labeling changes for
approved pharmaceutical products, particularly those related to
safety. We also cannot be sure that the current Congressional
and FDA initiatives pertaining to ensuring the safety of
marketed drugs or other developments pertaining to the
pharmaceutical industry will not adversely affect our
operations. We cannot predict the likelihood, nature or extent
of adverse governmental regulation that might arise from future
legislative or administrative action, either in the United
States or abroad.
In addition, the FDA imposes a number of complex regulations on
entities that advertise and promote drugs, which include, among
other requirements, standards for and regulations of
direct-to-consumer
advertising, off-label
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promotion, industry sponsored scientific and educational
activities, and promotional activities involving the Internet.
Such advertising and promotional activities are also being
scrutinized by the FDA and Congress as a result of recent
concerns that have been raised about the safety of marketed
drugs. The FDA has very broad enforcement authority under the
FDCA, and failure to comply with these regulations can result in
penalties, including the issuance of a warning letter directing
us to correct deviations from FDA standards, a requirement that
future advertising and promotional materials be pre-cleared by
the FDA, and state and federal civil and criminal investigations
and prosecutions.
Products manufactured in the United States and marketed outside
the United States are subject to certain FDA regulations, as
well as regulation by the country in which the products are to
be sold. We also would be subject to foreign regulatory
requirements governing clinical trials and drug product sales if
products are marketed abroad. Whether or not FDA approval has
been obtained, approval of a product by the comparable
regulatory authorities of foreign countries usually must be
obtained prior to the marketing of the product in those
countries. The approval process varies from jurisdiction to
jurisdiction and the time required may be longer or shorter than
that required for FDA approval.
Product development and approval within this regulatory
framework take a number of years, involve the expenditure of
substantial resources and are uncertain. Many drug products
ultimately do not reach the market because they are not found to
be safe or effective or cannot meet the FDAs other
regulatory requirements. In addition, there can be no assurance
that the current regulatory framework will not change or that
additional regulation will not arise at any stage of our product
development that may affect approval, delay the submission or
review of an application or require additional expenditures by
us. There can be no assurance that we will be able to obtain
necessary regulatory clearances or approvals on a timely basis,
if at all, for any of our product candidates under development,
and delays in receipt or failure to receive such clearances or
approvals, the loss of previously received clearances or
approvals, or failure to comply with existing or future
regulatory requirements could have a material adverse effect on
our business and results of operations.
Under European Union regulatory systems, marketing
authorizations may be submitted either under a centralized or
decentralized procedure. The centralized procedure provides for
the grant of a single marketing authorization that is valid for
all European Union member states. The decentralized procedure
provides for mutual recognition of national approval decisions.
Under this latter procedure, the holder of a national marketing
authorization may submit an application to the remaining member
states. Within 90 days of receiving the application and
assessment report, each member state must decide whether to
recognize approval. We plan to choose the appropriate route of
European regulatory filing in an attempt to accomplish the most
rapid regulatory approvals. However, the chosen regulatory
strategy may not secure regulatory approvals or approvals of the
chosen product indications. In addition, these approvals, if
obtained, may take longer than anticipated.
We cannot provide assurance that any of our product candidates
will prove to be safe or effective, will receive regulatory
approvals, or will be successfully commercialized.
In addition to the foregoing, we are subject to numerous
federal, state and local laws relating to such matters as
laboratory practices, the experimental use of animals, the use
and disposal of hazardous or potentially hazardous substances,
controlled drug substances, safe working conditions,
manufacturing practices, environmental protection and fire
hazard control. We may incur significant costs to comply with
those laws and regulations now or in the future.
Patent
restoration and marketing exclusivity
The Drug Price Competition and Patent Term Restoration Act of
1984, known as the Hatch-Waxman Amendments to the Federal Food,
Drug, and Cosmetic Act, permits the FDA to approve abbreviated
NDAs, or ANDAs, for generic versions of innovator drugs and also
provides certain patent restoration and market exclusivity
protections to innovator drug manufacturers. The ANDA process
permits competitor companies to obtain marketing approval for a
new drug with the same active ingredient for the same uses,
dosage form and strength as an innovator drug but does not
require the conduct and submission of preclinical or clinical
studies demonstrating safety and efficacy for that product.
Instead of providing completely new safety and efficacy data,
the ANDA
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applicant only need to submit manufacturing information and
clinical data demonstrating that the copy is bioequivalent to
the innovators product in order to gain marketing approval
from the FDA.
Another type of marketing application allowed by the
Hatch-Waxman Amendments, a Section 505(b)(2) application,
may be permitted where a company does not own or have a right to
reference all the data required for approval.
Section 505(b)(2) NDAs are often submitted for drug
products that contain the same active ingredient as those in
first approved drug products and where additional studies are
required for approval, such as for changes in routes of
administration or dosage forms.
Once an NDA is approved, the product covered thereby becomes a
listed drug which can, in turn, be cited by
potential competitors in support of approval of an ANDA or a
505(b)(2) application.
The Hatch-Waxman Amendments provide for a period of three years
exclusivity following approval of a listed drug that contains
previously approved active ingredients but is approved in a new
dosage, dosage form, route of administration or combination, or
for a new use, the approval of which was required to be
supported by new clinical trials conducted by or for the
sponsor. During this period of exclusivity, FDA cannot grant
effective approval of an ANDA or a 505(b)(2) application based
on that listed drug.
The Hatch-Waxman Amendments also provide a period of five years
exclusivity following approval of a drug containing no
previously approved active ingredients. During this period of
exclusivity, ANDAs or 505(b)(2) applications based upon those
drugs cannot be submitted unless the submission accompanies a
challenge to a listed patent, in which case the submission may
be made four years following the original product approval.
Additionally, in the event that the sponsor of the listed drug
has informed FDA of patents covering its listed drug and FDA
lists those patents in the Orange Book, applicants submitting an
ANDA or a 505(b)(2) application referencing that drug are
required to certify whether they intend to market their generic
products prior to expiration of those patents. If an ANDA
applicant certifies that it believes one or more listed patents
is invalid or not infringed, it is required to provide notice of
its filing to the NDA sponsor and the patent holder. If either
party then initiates a suit for patent infringement against the
ANDA sponsor within 45 days of receipt of the notice, FDA
cannot grant effective approval of the ANDA until either
30 months has passed or there has been a court decision
holding that the patent in question is invalid or not infringed.
If the ANDA applicant certifies that it does not intend to
market its generic product before some or all listed patents on
the listed drug expire, then FDA cannot grant effective approval
of the ANDA until those patents expire. The first ANDA applicant
submitting substantially complete applications certifying that
listed patents for a particular product are invalid or not
infringed may qualify for a period of 180 days after a
court decision of invalidity or non-infringement or after it
begins marketing its product, whichever occurs first. During
this 180 day period, subsequently submitted ANDAs cannot be
granted effective approval.
The FDA Modernization Act of 1997 included a pediatric
exclusivity provision that was extended by the Best
Pharmaceuticals for Children Act of 2002. Pediatric exclusivity
is designed to provide an incentive to manufacturers for
conducting research about the safety and efficacy of their
products in children. Pediatric exclusivity, if granted,
provides an additional six months of market exclusivity in the
United States for new or currently marketed drugs if certain
pediatric studies requested by the FDA are completed by the
applicant and the applicant has other existing patent or
exclusivity protection for the drug. To obtain this additional
six months of exclusivity, it would be necessary for us to first
receive a written request from the FDA to conduct pediatric
studies and then to conduct the requested studies according to a
previously agreed timeframe and submit the report of the study.
There can be no assurances that we would receive a written
request from the FDA and if so that we would complete the
studies in accordance with the requirements for this six-month
exclusivity. The current pediatric exclusivity provision is
scheduled to end on October 1, 2012, and there can be no
assurances that it will be reauthorized.
EMPLOYEES
As of December 31, 2007, we had 609 full-time
employees. 106 of these employees were engaged in research and
development, 182 in manufacturing, 208 in clinical, regulatory
affairs and quality assurance and 113 in administration,
finance, management, information systems, marketing, corporate
development and human resources. 60 of these employees have a
Ph.D. degree
and/or M.D.
degree and are engaged in activities relating
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to research and development, manufacturing, quality assurance
and business development. None of our employees is subject to a
collective bargaining agreement. We believe relations with our
employees are good.
SCIENTIFIC
ADVISORS
We seek advice from a number of leading scientists and
physicians on scientific, technical and medical matters. These
advisors are leading scientists in the areas of pharmacology,
chemistry, immunology and biology. Our scientific advisors are
consulted regularly to assess, among other things:
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our research and development programs;
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the design and implementation of our clinical programs;
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our patent and publication strategies;
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market opportunities from a clinical perspective;
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new technologies relevant to our research and development
programs; and
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specific scientific and technical issues relevant to our
business.
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Our diabetes program is supported by the following scientific
advisors (and their primary affiliations):
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Name
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Primary Affiliation
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Stephanie Amiel, MD, FRCP
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Kings College London School of Medicine
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Richard Bergenstal, MD
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International Diabetes Center, Park Nicollet Institute
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Geremia Bolli
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University of Perugia
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Alan D. Cherrington, PhD
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Vanderbilt University Medical Center
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David DAlessio, MD
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University of Cincinnati
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Steven Edelman, MD
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University of California, San Diego
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Alexander Fleming, MD
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Kinexum Box LLC
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Brian Frier, MD, FECP, BS
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Edinburgh Royal Infirmary
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Irl B. Hirsch, MD
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University of Washington Medical Center
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Edward Horton, MD
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Joslin Diabetes Center
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Lois Jovanovic, MD
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Sansum Medical Research Institute
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Steven Kahn, MB, ChB
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University of Washington
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David Klonoff, MD
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Dorothy L. & James E. Frank Diabetes Research Institute
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Harold E Lebovitz, MD, FACE
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State University of New York, Brooklyn
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Daniel Lorber, MD
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Diabetes Care & Information Center of New York
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Sten Madsbad
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Hvidovre University Hospital, Copenhagen
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Chantal Mathieu, MD, PhD
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Laboratorium voor Experimentele Geneeskunde en Endocrinologie
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Mark Peyrot, MD
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Loyola College Center
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Daniel Porte, MD
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University of California, San Diego
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Philip Raskin, MD, FACE, FACP
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University of Texas
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Julio Rosenstock, MD
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Dallas Diabetes and Endocrinology Center
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Jesse Roth, MD, FACP
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North Shore-Long Island Jewish Health System
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Richard Rubin, PhD, CDE
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Johns Hopkins University School of Medicine
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Robert Sherwin, MD
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Yale University School of Medicine
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Jay Skyler, MD, MACP
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University of Miami, Diabetes Research Institute
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Our cancer program is supported by the following scientific
advisors (and their primary affiliations):
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Name
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Primary Affiliation
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Paul A. Bartlett, Ph.D.
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University of California, Berkeley
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Philippe Bey, Ph.D.
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Pharmaceutical consultant
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Jeffrey Bluestone, Ph.D.
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University of California, San Francisco
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Roger Cone, Ph.D.
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Oregon Health & Science University
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Richard Dalby, Ph.D.
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University of Maryland
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Frank Douglas, Ph.D.
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Puretech Ventures
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W. Martin Kast, Ph.D.
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University of Southern California
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Antoni Ribas, M.D.
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University of California, Los Angeles
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Owen Witte, M.D.
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University of California, Los Angeles
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EXECUTIVE
OFFICERS
The following table sets forth our current executive officers
and their ages as of December 31, 2007:
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Name
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Age
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Position(s)
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Alfred E. Mann
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Chairman of the Board of Directors and Chief Executive Officer
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Hakan S. Edstrom
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President, Chief Operating Officer and Director
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Richard L. Anderson
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Corporate Vice President and Chief Financial Officer
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Juergen A. Martens, Ph.D.
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52
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Corporate Vice President, Technical Operations and Chief
Technical Officer
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Diane M. Palumbo
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54
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Corporate Vice President, Human Resources
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Dr. Peter C. Richardson
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Corporate Vice President and Chief Scientific Officer
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John R. Riesenberger
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Corporate Vice President and Chief Commercialization Officer
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David Thomson, Ph.D., J.D.
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Corporate Vice President, General Counsel and Secretary
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Alfred E. Mann has been one of our directors since April
1999, our Chairman of the Board since December 2001 and our
Chief Executive Officer since October 2003. He founded and
formerly served as Chairman and Chief Executive Officer of
MiniMed, Inc., a publicly traded company focused on diabetes
therapy and microinfusion drug delivery that was acquired by
Medtronic, Inc. in August 2001. Mr. Mann also founded and,
from 1972 through 1992, served as Chief Executive Officer of
Pacesetter Systems, Inc. and its successor, Siemens Pacesetter,
Inc., a manufacturer of cardiac pacemakers, now the Cardiac
Rhythm Management Division of St. Jude Medical Corporation.
Mr. Mann founded and since 1993, has served as Chairman and
until January 2008 as Co-Chief Executive Officer of Advanced
Bionics Corporation, a medical device manufacturer focused on
neurostimulation to restore hearing to the deaf and to treat
chronic pain and other neural deficits, that was acquired by
Boston Scientific Corporation in June 2004. Mr. Mann has
also founded and is non-executive Chairman of Second Sight,
which is developing a visual prosthesis for the blind and
Quallion, which produces batteries for medical products and for
the military and aerospace industries. Mr. Mann is also
non-executive Chairman of the Alfred Mann Foundation and Alfred
Mann Institute at the University of Southern California, and the
Alfred Mann Foundation for Biomedical Engineering, which is
establishing additional institutes at other research
universities. Mr. Mann holds a bachelors and
masters degree in Physics from the University of
California at Los Angeles, honorary doctorates from Johns
Hopkins University, the University of Southern California,
Western University and the Technion-Israel Institute of
Technology and is a member of the National Academy of
Engineering.
Hakan S. Edstrom has been our President and Chief
Operating Officer since April 2001 and has served as one of our
directors since December 2001. Mr. Edstrom was with
Bausch & Lomb, Inc., a health care product company,
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from January 1998 to April 2001, advancing to the position of
Senior Corporate Vice President and President of
Bausch & Lomb, Inc. Americas Region. From 1981 to
1997, Mr. Edstrom was with Pharmacia Corporation, where he
held various executive positions, including President and Chief
Executive Officer of Pharmacia Ophthalmics Inc. Mr. Edstrom
is currently a director of Q-Med AB, a biotechnology and medical
device company. Mr. Edstrom was educated in Sweden and
holds a masters degree in business administration from the
Stockholm School of Economics.
Richard L. Anderson has been our Corporate Vice President
and Chief Financial Officer since October 2002. From January
1997 to September 2002, Mr. Anderson held various executive
positions at NeoRx Corporation, a Seattle-based publicly traded
biotechnology company, including President, Chief Operating
Officer, Chief Financial Officer and Senior Vice President,
Finance and Operations. Mr. Anderson holds a masters
degree in Management from Johns Hopkins University, a
masters degree in solid state physics from the University
of Maryland and a bachelors degree in physics from
Bucknell University. Mr. Anderson is currently a director
of VIA Pharmaceuticals, a biotechnology company. In December
2007, we entered into an agreement with Mr. Anderson
pursuant to which he will transition to the position of
Corporate Vice President Office of the Chairman
during the second quarter of 2008 and will retire on
March 31, 2009.
Juergen A. Martens, Ph.D. has been our Corporate
Vice President of Operations and Chief Technology Officer since
September 2005. From 2000 to August 2005, he was employed by
Nektar Therapeutics, Inc., most recently as Vice President of
Pharmaceutical Technology Development Previously, he held
technical management positions at Aerojet Fine Chemicals from
1998 to 2000 and at FMC Corporation from 1996 to 1998. From 1987
to 1996, Dr. Martens held a variety of management positions
with increased responsibility in R&D, plant management, and
business process development at Lonza, in Switzerland and in the
United States. Dr. Martens holds a BS in chemical
engineering from the Technical College Mannheim/Germany, a BS/MS
in chemistry and a doctorate in physical chemistry from the
University of Marburg/Germany.
Diane M. Palumbo has been our Corporate Vice President of
Human Resources since November 2004. From July 2003 to November
2004, she was President of her own human resources consulting
company. From June 1991 to July 2003, Ms. Palumbo held
various positions with Amgen, Inc., a California-based
biopharmaceutical company, including Senior Director, Human
Resources. In addition, Ms. Palumbo has held Human
Resources positions with Unisys and Mitsui Bank Ltd. of Tokyo.
She holds a masters degree in business administration from
St. Johns University, NY and a Bachelor of Science degree,
magna cum laude, also from St. Johns University, NY.
Dr. Peter C. Richardson has been our Corporate Vice
President and Chief Scientific Officer since October 2005. From
1991 to October 2005, he was employed by Novartis
Pharmaceuticals Corporation, which is the U.S. affiliate of
Novartis AG, a world leader in healthcare, most recently as
Senior Vice President, Global Head of Development Alliances.
From 2003 until 2005, he was Senior Vice President and Head of
Development of Novartis Pharmaceuticals KK Japan. He earlier
practiced as an endocrinologist. Dr. Richardson holds a
B.Med.Sci (Hons.) and a BM.BS (Hons.) from University of
Nottingham Medical School; an MRCP (UK) from the Royal College
of Physicians, UK; a Certificate in Pharmaceutical Medicine from
Universities of Freibourg, Strasbourg and Basle; and a Diploma
in Pharmaceutical Medicine from the Royal College of Physicians
Faculty of Pharmaceutical Medicine.
John R. Riesenberger has been our Corporate Vice
President and Chief Commercialization Officer since January
2008. From 2001 to 2007, he was a Principal and the Executive
Vice President of Shaw Science Partners, a pharmaceutical
science branding agency. Prior to that position,
Mr. Riesenberger was with Pharmacia & Upjohn and
The Upjohn Company for a total of 28 years, including
15 years in the U.S. organization and 13 years in
the international, global and corporate organizations in a
diverse range of geographic and functional accountabilities.
Before his retirement, he held the position of Vice-President,
Business Intelligence, Global Business Management. He currently
serves as an
Executive-In-Residence
at the Eli Broad Graduate School of Business, Michigan State
University. Mr. Riesenberger holds a Bachelor of Science
degree with a dual major in economics and business and a MBA
degree from Hofstra University.
David Thomson, Ph.D., J.D. has been our
Corporate Vice President, General Counsel and Corporate
Secretary since January 2002. Prior to joining us, he practiced
corporate/commercial and securities law at the Toronto law firm
of Davies Ward Phillips & Vineberg LLP from May 1999
through December 2001, except for a period from
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May to December 2000, when he served as Vice President, Business
Development for CTL ImmunoTherapies Corp. From March 1994 to
August 1996, Dr. Thomson held a post-doctoral position at
the Rockefeller University, where he conducted medical research
in the Laboratory of Neurophysiology. Dr. Thomson obtained his
bachelors degree, masters degree and Ph.D. degree
from Queens University and obtained his J.D. degree from the
University of Toronto.
Executive officers serve at the discretion of our Board of
Directors. There are no family relationships between any of our
directors and executive officers.
You should consider carefully the following information about
the risks described below, together with the other information
contained in this report, before you decide to buy or maintain
an investment in our common stock. We believe the risks
described below are the risks that are material to us as of the
date of this annual report. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial
may also affect our business. If any of the following risks
actually occur, our business, financial condition, results of
operations and future growth prospects would likely be
materially and adversely affected. In these circumstances, the
market price of our common stock could decline, and you may lose
all or part of the money you paid to buy our common stock.
RISKS
RELATED TO OUR BUSINESS
We
have a history of operating losses, we expect to continue to
incur losses and we may never become profitable.
We are a development stage company with no commercial products.
All of our product candidates are still being developed, and all
but our Technosphere Insulin System are still in early stages of
development. Our product candidates will require significant
additional development, clinical trials, regulatory clearances
and additional investment before they can be commercialized. We
anticipate that our Technosphere Insulin System will not be
commercially available for at least two years, if at all.
We have never been profitable and, as of December 31, 2007,
we had an accumulated deficit of $1.1 billion. The
accumulated deficit has resulted principally from costs incurred
in our research and development programs, the write-off of
goodwill and general operating expenses. We expect to make
substantial expenditures and to incur increasing operating
losses in the future in order to further develop and
commercialize our product candidates, including costs and
expenses to complete clinical trials, seek regulatory approvals
and market our product candidates. This accumulated deficit may
increase significantly as we expand development and clinical
trial efforts.
Our losses have had, and are expected to continue to have, an
adverse impact on our working capital, total assets and
stockholders equity. Our ability to achieve and sustain
profitability depends upon obtaining regulatory approvals for
and successfully commercializing our Technosphere Insulin
System, either alone or with third parties. We do not currently
have the required approvals to market any of our product
candidates, and we may not receive them. We may not be
profitable even if we succeed in commercializing any of our
product candidates. As a result, we cannot be sure when we will
become profitable, if at all.
If we
fail to raise additional capital, our financial condition and
business would suffer.
It is costly to develop therapeutic product candidates and
conduct clinical trials for these product candidates. Although
we are currently focusing on our Technosphere Insulin System as
our lead product candidate, we have begun to conduct clinical
trials for additional product candidates. Our existing capital
resources will not be sufficient to support the expense of
completing development of our Technosphere Insulin System or any
of our other product candidates.
In October 2007, we completed the sale of 27,014,686 shares
of our common stock resulting in aggregate net proceeds of
approximately $249.8 million after expenses. Also on
October 2, 2007, we replaced the $150.0 million loan
arrangement with our principal stockholder with a new loan
arrangement that allows us to borrow up to a total of
$350.0 million before January 1, 2010. From
April 1, 2008 until September 30, 2008, we can borrow
up to $150.0 million in one or more advances, and from
March 1, 2009 until December 31, 2009, we can borrow
the
29
remaining $200.0 million plus any amount not previously
borrowed in one or more advances. We may not borrow more than
one advance in any
12-month
period, and each advance must be not less than
$50.0 million.
Based upon our current expectations, we believe that our
existing capital resources, including the net proceeds from our
sales of common stock and the new loan arrangement with our
principal stockholder, will enable us to continue planned
operations through the fourth quarter of 2009. However, we
cannot assure you that our plans will not change or that changed
circumstances will not result in the depletion of our capital
resources more rapidly than we currently anticipate.
Accordingly, we plan to raise additional capital, either through
the sale of equity
and/or debt
securities, a strategic business collaboration or the
establishment of other funding facilities, in order to continue
the development and commercialization of our Technosphere
Insulin System and other product candidates and to support our
other ongoing activities. The amount of additional funds we need
will depend on a number of factors, including:
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the rate of progress and costs of our clinical trials and
research and development activities, including costs of
procuring clinical materials and expanding our own manufacturing
facilities;
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our success in establishing strategic business collaborations
and the timing and amount of any payments we might receive from
any collaboration we are able to establish;
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actions taken by the FDA and other regulatory authorities
affecting our products and competitive products;
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our degree of success in commercializing our Technosphere
Insulin System or our other product candidates;
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the emergence of competing technologies and products and other
adverse market developments;
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the timing and amount of payments we might receive from
potential licensees;
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the costs of preparing, filing, prosecuting, maintaining and
enforcing patent claims and other intellectual property rights
or defending against claims of infringement by others; and
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the costs of discontinuing projects and technologies or
decommissioning existing facilities, if we undertake those
activities.
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We have raised capital in the past primarily through the sale of
equity securities and most currently through the sale of equity
and debt securities. We may in the future pursue the sale of
additional equity
and/or debt
securities, or the establishment of other funding facilities.
Issuances of additional debt or equity securities or the
conversion of any of our currently outstanding convertible debt
securities into shares of our common stock could impact your
rights as a holder of our common stock and may dilute your
ownership percentage. Moreover, the establishment of other
funding facilities may impose restrictions on our operations.
These restrictions could include limitations on additional
borrowing and specific restrictions on the use of our assets, as
well as prohibitions on our ability to create liens, pay
dividends, redeem our stock or make investments.
We also may seek to raise additional capital by pursuing
opportunities for the licensing or sale of certain intellectual
property and other assets, including our Technosphere technology
platform. We cannot offer assurances, however, that any
strategic collaborations, sales of securities or sales or
licenses of assets will be available to us on a timely basis or
on acceptable terms, if at all. We may be required to enter into
relationships with third parties to develop or commercialize
products or technologies that we otherwise would have sought to
develop independently, and any such relationships may not be on
terms as commercially favorable to us as might otherwise be the
case.
In the event that sufficient additional funds are not obtained
through strategic collaboration opportunities, sales of
securities, licensing arrangements
and/or asset
sales on a timely basis, we may be required to reduce expenses
through the delay, reduction or curtailment of our projects,
including our Technosphere Insulin System development
activities, or further reduction of costs for facilities and
administration.
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We
depend heavily on the successful development and
commercialization of our lead product candidate, the
Technosphere Insulin System, which is in clinical development,
and our other product candidates, which are in early clinical or
preclinical development.
To date, we have not completed the development of any product
candidates through to commercialization. Our Technosphere
Insulin System is currently undergoing clinical trials, while
our other product candidates are generally in early clinical or
preclinical development. We anticipate that in the near term,
our ability to generate revenues will depend solely on the
successful development and commercialization of our Technosphere
Insulin System.
We have expended significant time, money and effort in the
development of our lead product candidate, the Technosphere
Insulin System, which has not yet received regulatory approval
and which may never be commercialized. Before we can market and
sell our Technosphere Insulin System, we will need to complete
Phase 3 clinical trials and demonstrate in these trials that our
Technosphere Insulin System is safe and effective. Our current
development plans call for the completion of our pivotal Phase 3
clinical trials of our Technosphere Insulin System in the third
quarter of 2008. We must also receive the necessary approvals
from the FDA and similar foreign regulatory agencies before this
product candidate can be marketed in the United States or
elsewhere. Even if we were to receive regulatory approval, we
ultimately may be unable to gain market acceptance of our
Technosphere Insulin System for a variety of reasons, including
the treatment and dosage regimen, potential adverse effects, the
availability of alternative treatments and cost effectiveness.
If we fail to commercialize our Technosphere Insulin System, our
business, financial condition and results of operations will be
materially and adversely affected.
We are seeking to develop and expand our portfolio of product
candidates through our internal research programs and through
licensing or otherwise acquiring the rights to therapeutics in
the areas of cancer and other indications. All of these product
candidates will require additional research and development and
significant preclinical, clinical and other testing prior to
seeking regulatory approval to market them. Accordingly, these
product candidates will not be commercially available for a
number of years, if at all.
A significant portion of the research that we are conducting
involves new and unproven compounds and technologies, including
our Technosphere Insulin System, Technosphere platform
technology and immunotherapy product candidates. Research
programs to identify new product candidates require substantial
technical, financial and human resources. Even if our research
programs identify candidates that initially show promise, these
candidates may fail to progress to clinical development for any
number of reasons, including discovery upon further research
that these candidates have adverse effects or other
characteristics that indicate they are unlikely to be effective.
In addition, the clinical results we obtain at one stage are not
necessarily indicative of future testing results. If we fail to
successfully complete the development and commercialization of
our Technosphere Insulin System or develop or expand our other
product candidates, or are significantly delayed in doing so,
our business and results of operations will be harmed and the
value of our stock could decline.
If we
do not achieve our projected development goals in the timeframes
we announce and expect, our business would be harmed and the
market price of our common stock could decline.
For planning purposes, we estimate the timing of the
accomplishment of various scientific, clinical, regulatory and
other product development goals, which we sometimes refer to as
milestones. These milestones may include the commencement or
completion of scientific studies and clinical trials and the
submission of regulatory filings. From time to time, we publicly
announce the expected timing of some of these milestones. All of
these milestones are based on a variety of assumptions. The
actual timing of the achievement of these milestones can vary
dramatically compared to our estimates, in many cases for
reasons beyond our control, depending on numerous factors,
including:
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the rate of progress, costs and results of our clinical trial
and research and development activities, which will be impacted
by the level of proficiency and experience of our clinical staff;
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our ability to identify and enroll patients who meet clinical
trial eligibility criteria;
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our ability to access sufficient, reliable and affordable
supplies of components used in the manufacture of our product
candidates, including insulin and other materials for our
Technosphere Insulin System;
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the costs of expanding and maintaining manufacturing operations,
as necessary;
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the extent of scheduling conflicts with participating clinicians
and clinical institutions;
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the receipt of approvals by our competitors and by us from the
FDA and other regulatory agencies; and
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other actions by regulators.
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In addition, if we do not obtain sufficient additional funds
through sales of securities, strategic collaborations or the
license or sale of certain of our assets on a timely basis, we
may be required to reduce expenses by delaying, reducing or
curtailing our Technosphere Insulin System or other product
development activities, which would impact our ability to meet
milestones. If we fail to commence or complete, or experience
delays in or are forced to curtail, our proposed clinical
programs or otherwise fail to adhere to our projected
development goals in the timeframes we announce and expect, our
business and results of operations will be harmed and the market
price of our common stock may decline.
We
face substantial competition in the development of our product
candidates and may not be able to compete successfully, and our
product candidates may be rendered obsolete by rapid
technological change.
We face intense competition in the development of our
Technosphere Insulin System. In January 2006, the FDA and the
European Medicines Evaluation Agency approved
Exubera®,
developed by Pfizer, Inc. in collaboration with Nektar
Therapeutics, for the treatment of adults with type 1 and type 2
diabetes.
Exubera®
was slow to gain market acceptance and, in October 2007, Pfizer
announced that it was returning rights to the product to Nektar.
Nektar subsequently announced that it was actively seeking to
enter into a new partnership for the sales and marketing of
Exubera®
as well as its next generation inhaled insulin. This latter
product is currently in Phase 1 trials; Nektar is reportedly
targeting approval of this product for 2011. In January 2008,
Novo Nordisk A/S announced that it was halting development of
its inhaled insulin product, having reached the conclusion that
it did not have adequate commercial potential. Notwithstanding
the termination of this program, Novo Nordisk stated that it
intended to increase research and development activities
targeted at inhalation systems for long-acting formulations of
insulin and GLP-1. In March 2008, Eli Lilly and Company
announced that it too was terminating the development of its
AIR®
inhaled insulin system. Lilly stated that this decision resulted
from increasing uncertainties in the regulatory environment and
after a thorough evaluation of the evolving commercial and
clinical potential of its product compared to existing medical
therapies. In addition, a number of established pharmaceutical
companies have or are developing technologies for the treatment
of diabetes. We also face substantial competition for the
development of our other product candidates.
Many of our existing or potential competitors have, or have
access to, substantially greater financial, research and
development, production, and sales and marketing resources than
we do and have a greater depth and number of experienced
managers. As a result, our competitors may be better equipped
than we are to develop, manufacture, market and sell competing
products. In addition, gaining favorable reimbursement is
critical to the success of Technosphere Insulin. Many of our
competitors have existing infrastructure and relationships with
managed care organizations and reimbursement authorities which
can be used to their advantage.
The rapid rate of scientific discoveries and technological
changes could result in one or more of our product candidates
becoming obsolete or noncompetitive. Our competitors may develop
or introduce new products that render our technology and our
Technosphere Insulin System less competitive, uneconomical or
obsolete. Our future success will depend not only on our ability
to develop our product candidates but to improve them and to
keep pace with emerging industry developments. We cannot assure
you that we will be able to do so.
We also expect to face increasing competition from universities
and other non-profit research organizations. These institutions
carry out a significant amount of research and development in
the areas of diabetes and cancer. These institutions are
becoming increasingly aware of the commercial value of their
findings and are more active in seeking patent and other
proprietary rights as well as licensing revenues.
32
If we
fail to enter into a strategic collaboration with respect to our
Technosphere Insulin System, we may not be able to execute on
our business model.
We have held extensive discussions with a number of
pharmaceutical companies concerning a potential strategic
business collaboration for our Technosphere Insulin System. To
date, we have not reached agreement with any of these companies
on a collaboration. While we are continuing to engage in such
discussions, we believe that we will have to expend significant
additional time and effort before we could reach agreement, and
we cannot predict when, if ever, we could conclude such an
agreement with a partner. There can be no assurance that any
such collaboration will be available to us on a timely basis or
on acceptable terms, if at all. If we are not able to enter into
a collaboration on terms that are favorable to us, we could be
required to undertake and fund product development, clinical
trials, manufacturing and marketing activities solely at our own
expense. We currently estimate that the capital required to
continue the development of our Technosphere Insulin System over
the next 12 months would be in the range of $300 to
$400 million. However, this estimate may change based on
how the program proceeds. Failure to enter into a collaboration
with respect to our Technosphere Insulin System could
substantially increase our requirements for capital, which might
not be available on favorable terms, if at all. Alternatively,
we would have to substantially reduce our development efforts,
which would delay or otherwise impede the commercialization of
our Technosphere Insulin System.
We will face similar challenges as we seek to develop our other
product candidates. Our current strategy for developing,
manufacturing and commercializing our other product candidates
includes evaluating the potential for collaborating with
pharmaceutical and biotechnology companies at some point in the
drug development process and for these collaborators to
undertake the advanced clinical development and
commercialization of our product candidates. It may be difficult
for us to find third parties that are willing to enter into
collaborations on economic terms that are favorable to us, or at
all. Failure to enter into a collaboration with respect to any
other product candidate could substantially increase our
requirements for capital and force us to substantially reduce
our development effort.
If we
enter into collaborative agreements with respect to our
Technosphere Insulin System and if our third-party collaborators
do not perform satisfactorily or if our collaborations fail,
development or commercialization of our Technosphere Insulin
System may be delayed and our business could be
harmed.
We currently rely on clinical research organizations and
hospitals to conduct, supervise or monitor some or all aspects
of clinical trials involving our Technosphere Insulin System.
Further, we may also enter into license agreements, partnerships
or other collaborative arrangements to support the financing,
development and marketing of our Technosphere Insulin System. We
may also license technology from others to enhance or supplement
our technologies. These various collaborators may enter into
arrangements that would make them potential competitors. These
various collaborators also may breach their agreements with us
and delay our progress or fail to perform under their
agreements, which could harm our business.
If we enter into collaborative arrangements, we will have less
control over the timing, planning and other aspects of our
clinical trials, and the sale and marketing of our Technosphere
Insulin System and our other product candidates. We cannot offer
assurances that we will be able to enter into satisfactory
arrangements with third parties as contemplated or that any of
our existing or future collaborations will be successful.
Testing
of our Technosphere Insulin System or another product candidate
may not yield successful results, and even if it does, we may
still be unable to commercialize that product
candidate.
Our research and development programs are designed to test the
safety and efficacy of our Technosphere Insulin System and our
other product candidates through extensive nonclinical and
clinical testing. We may experience numerous unforeseen events
during, or as a result of, the testing process that could delay
or prevent
33
commercialization of our Technosphere Insulin System or any of
our other product candidates, including the following:
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safety and efficacy results obtained in our nonclinical and
initial clinical testing may be inconclusive or may not be
predictive of results obtained in later-stage clinical trials or
following long-term use, and we may as a result be forced to
stop developing product candidates that we currently believe are
important to our future;
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the data collected from clinical trials of our product
candidates may not be sufficient to support FDA or other
regulatory approval;
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after reviewing test results, we or any potential collaborators
may abandon projects that we previously believed were
promising; and
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our product candidates may not produce the desired effects or
may result in adverse health effects or other characteristics
that preclude regulatory approval or limit their commercial use
if approved.
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We are nearing completion of a pivotal Phase 3 safety study of
our Technosphere Insulin System to evaluate pulmonary function
over a period of two years. Our Technosphere Insulin System is
intended for multiple uses per day. Due to the size and
timeframe over which existing and planned clinical trials are
conducted, the results of clinical trials, including our
existing Phase 3 trials, may not be indicative of the effects of
the use of our Technosphere Insulin System over longer terms. If
use of our Technosphere Insulin System results in adverse health
effects or reduced efficacy or both, the FDA or other regulatory
agencies may terminate our ability to market and sell our
Technosphere Insulin System, may narrow the approved indications
for use or otherwise require restrictive product labeling or
marketing, or may require further clinical trials, which may be
time-consuming and expensive and may not produce favorable
results.
As a result of any of these events, the FDA, other regulatory
authorities, any collaborator or we may suspend or terminate
clinical trials or marketing of our Technosphere Insulin System
at any time. Any suspension or termination of our clinical
trials or marketing activities may harm our business and results
of operations and the market price of our common stock may
decline.
If we
are unable to transition successfully from an early-stage
development company to a company that commercializes
therapeutics, our operations would suffer.
We are at a critical juncture in our development, having
transitioned from an early-stage development company to one with
multiple Phase 3 clinical trials. Phase 3 development of our
Technosphere Insulin System is far more complex than the earlier
phases. Overall, we plan to support a significant number of
studies in the near term. We have not previously implemented the
range of studies contemplated for our Phase 3 clinical program.
Moreover, as a company, we have no previous experience in the
Phase 3-through-NDA stage of product development.
We require a well-structured plan to make this transition. In
the past year, we have added a significant number of new
executive personnel, particularly in clinical development,
regulatory and manufacturing production, including personnel
with significant Phase 3-to-commercialization experience. We
have aligned our management structure to accommodate the
increasing complexity of our operations, and we are implementing
the following measures, among others, to accommodate our
transition, complete development of our Technosphere Insulin
System and successfully implement our commercialization strategy
for our Technosphere Insulin System:
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expand our manufacturing capabilities;
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develop comprehensive and detailed commercialization, clinical
development and regulatory plans; and
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implement standard operating procedures, including those for
protocol development.
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If we are unable to accomplish these measures in a timely
manner, we would be at considerable risk of failing to:
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complete our Phase 3 clinical trial program in a deliberate
fashion, on time and within budget; and
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develop through our Phase 3 trials the key clinical data needed
to obtain regulatory approval and compete successfully in the
marketplace.
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34
If our
suppliers fail to deliver materials and services needed for the
production of our Technosphere Insulin System in a timely and
sufficient manner, or they fail to comply with applicable
regulations, our business and results of operations would be
harmed and the market price of our common stock could
decline.
For our Technosphere Insulin System to be commercially viable,
we need access to sufficient, reliable and affordable supplies
of insulin, our MedTone inhaler, the related cartridges and
other materials. In November 2007, we entered into a long-term
supply agreement with N.V. Organon, which is currently our sole
supplier for insulin. We are aware of several other suppliers of
bulk insulin, but to date we have not entered into a commercial
relationship with any of them. Currently we obtain our
Technosphere pre-cursor raw material from Evonik Industries, a
major chemical manufacturer with facilities in Europe and North
America. We are in the process of evaluating a second
manufacturer to supply us with commercial quantities of this raw
material. We also utilize our in-house chemical manufacturing
plant as a back up facility. We believe Evonik Industries has
the capacity to supply our current clinical and future
commercial requirements. We entered into a long-term supply
agreement with Vaupell, Inc., the supplier of our MedTone
inhaler and cartridges. We are in the process of qualifying a
second manufacturer to supply us with commercial quantities of
these components. We must rely on our suppliers to comply with
relevant regulatory and other legal requirements, including the
production of insulin in accordance with cGMP and the production
of MedTone inhaler and related cartridges in accordance with
device QSR. The supply of all of these materials may be limited
or the manufacturer may not meet relevant regulatory
requirements, and if we are unable to obtain these materials in
sufficient amounts, in a timely manner and at reasonable prices,
or if we should encounter delays or difficulties in our
relationships with manufacturers or suppliers, the development
or manufacturing of our Technosphere Insulin System may be
delayed. Any such events would delay the submission of our
Technosphere Insulin System for regulatory approval or market
introduction and subsequent sales and, if so, our business and
results of operations will be harmed and the market price of our
common stock may decline.
We
have never manufactured our Technosphere Insulin System or any
other product candidate in commercial quantities, and if we fail
to develop an effective manufacturing capability for our product
candidates or to engage third-party manufacturers with this
capability, we may be unable to commercialize these
products.
We currently obtain our Technosphere precursor raw material
primarily from Evonik Industries. We use our Danbury,
Connecticut facility to formulate Technosphere Insulin, fill
plastic cartridges with Technosphere Insulin and blister package
the cartridges for our clinical trials. We presently intend to
increase our formulation, fill and finishing capabilities at
Danbury in order to accommodate our activities through initial
commercialization. This expansion will involve a number of
third-party suppliers of equipment and materials as well as
engineering and construction services. Our suppliers may not
deliver all of the required equipment, materials and services in
a timely manner or at reasonable prices. If we encounter
difficulties in our relationships with these suppliers, or if a
supplier becomes unable to provide us with goods or services at
the
agreed-upon
terms or schedule, our facilities expansion could be delayed or
its costs increased.
We have never manufactured our Technosphere Insulin System or
any other product candidate in commercial quantities. As our
product candidates move through the regulatory process, we will
need to either develop the capability of manufacturing on a
commercial scale or engage third-party manufacturers with this
capability, and we cannot offer assurances that we will be able
to do either successfully. The manufacture of pharmaceutical
products requires significant expertise and capital investment,
including the development of advanced manufacturing techniques
and process controls. Manufacturers of pharmaceutical products
often encounter difficulties in production, especially in
scaling up initial production. These problems include
difficulties with production costs and yields, quality control
and assurance and shortages of qualified personnel, as well as
compliance with strictly enforced federal, state and foreign
regulations. In addition, before we would be able to produce
commercial quantities of Technosphere Insulin at our Danbury
facility, it would have to undergo a pre-approval inspection by
the FDA. The expansion process and preparation for the
FDAs pre-approval inspection for commercial production at
the Danbury facility could take an additional six months or
longer. If we use a third-party supplier to formulate
Technosphere Insulin or produce raw material, the transition
could also require significant
start-up
time to qualify
35
and implement the manufacturing process. If we engage a
third-party manufacturer, our third-party manufacturer may not
perform as agreed or may terminate its agreement with us.
Additionally, if we manufacture commercial material at a
different facility than the site of manufacture of clinical
trial materials or if we manufacture commercial material on a
significantly larger production scale than the production scale
for clinical trial materials, we may be required by the FDA to
establish that the results obtained from the clinical trials may
reasonably be extrapolated to such commercial material.
Any of these factors could cause us to delay or suspend clinical
trials, regulatory submissions, required approvals or
commercialization of our product candidates, entail higher costs
and result in our being unable to effectively commercialize our
products. Furthermore, if we or a third-party manufacturer fail
to deliver the required commercial quantities of any product on
a timely basis, and at commercially reasonable prices and
acceptable quality, and we were unable to promptly find one or
more replacement manufacturers capable of production at a
substantially equivalent cost, in substantially equivalent
volume and quality on a timely basis, we would likely be unable
to meet demand for such products and we would lose potential
revenues.
We
deal with hazardous materials and must comply with environmental
laws and regulations, which can be expensive and restrict how we
do business.
Our research and development work involves the controlled
storage and use of hazardous materials, including chemical,
radioactive and biological materials. In addition, our
manufacturing operations involve the use of CBZ-lysine, which is
stable and non-hazardous under normal storage conditions, but
may form an explosive mixture under certain conditions. Our
operations also produce hazardous waste products. We are subject
to federal, state and local laws and regulations governing how
we use, manufacture, store, handle and dispose of these
materials. Moreover, the risk of accidental contamination or
injury from hazardous materials cannot be completely eliminated,
and in the event of an accident, we could be held liable for any
damages that may result, and any liability could fall outside
the coverage or exceed the limits of our insurance. Currently,
our general liability policy provides coverage up to
$1 million per occurrence and $2 million in the
aggregate and is supplemented by an umbrella policy that
provides a further $4 million of coverage; however, our
insurance policy excludes pollution coverage and we do not carry
a separate hazardous materials policy. In addition, we could be
required to incur significant costs to comply with environmental
laws and regulations in the future. Finally, current or future
environmental laws and regulations may impair our research,
development or production efforts.
When we purchased the facilities located in Danbury, Connecticut
in 2001, there was a soil cleanup plan in process. As part of
the purchase, we obtained an indemnification from the seller
related to the remediation of the soil for all known
environmental conditions that existed at the time the seller
acquired the property. The seller is, in turn, indemnified for
these known environmental conditions by the previous owner. We
initiated the final stages of the soil cleanup plan which we
estimate will cost approximately $1.5 million to complete
by the end of the third quarter of 2008. We also received an
indemnification from the seller for environmental conditions
created during its ownership of the property and for
environmental problems unknown at the time that the seller
acquired the property. These additional indemnities are limited
to the purchase price that we paid for the Danbury facilities.
In the event that any cleanup costs are imposed on us and we are
unable to collect the full amount of these costs and expenses
from the seller or the party responsible for the contamination,
we may be required to pay these costs and our business and
results of operations may be harmed.
If we
fail to enter into collaborations with third parties, we would
be required to establish our own sales, marketing and
distribution capabilities, which could impact the
commercialization of our products and harm our
business.
A broad base of physicians, including primary care physicians,
internists and endocrinologists, treat patients with diabetes. A
large sales force will be required in order to educate and
support these physicians. Therefore, we plan to enter into
collaborations with one or more pharmaceutical companies to
market, distribute and sell our Technosphere Insulin System, if
it is approved. If we fail to enter into collaborations, we
would be required to establish our own direct sales, marketing
and distribution capabilities. Establishing these capabilities
can be time-consuming and expensive. We estimate that
establishing a specialty sales force would cost in excess of
$35 million.
36
To further expand the potential of our Technosphere Insulin
System and to reach the majority of physicians treating patients
with diabetes, it will be necessary to establish a primary-care
sales force. Because we lack experience in selling
pharmaceutical products to the diabetes market, we would be at a
disadvantage to our potential competitors, all of whom have
substantially more resources and experience than we do. For
example, our competitors have existing sales forces in excess of
1,000 representatives targeting primary care physicians. We,
acting alone, would not initially be able to field a sales force
as large as our competitors or provide the same degree of market
research or marketing support.
In addition, our competitors would have a greater ability to
devote research resources toward expansion of the indications
for their products. We cannot assure you that we will succeed in
entering into acceptable collaborations, that any such
collaboration will be successful or, if not, that we will
successfully develop our own sales, marketing and distribution
capabilities.
If any
product that we may develop does not become widely accepted by
physicians, patients, third-party payers and the healthcare
community, we may be unable to generate significant revenue, if
any.
Technosphere Insulin System and our other product candidates are
new and unproven. Even if any of our product candidates obtain
regulatory approvals, it may not gain market acceptance among
physicians, patients, third-party payers and the healthcare
community. Failure to achieve market acceptance would limit our
ability to generate revenue and would adversely affect our
results of operations.
The degree of market acceptance of our Technosphere Insulin
System and our other product candidates will depend on many
factors, including the:
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claims for which FDA approval can be obtained, including
superiority claims;
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perceived advantages and disadvantages of competitive products;
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willingness and ability of patients and the healthcare community
to adopt new technologies;
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ability to manufacture the product in sufficient quantities with
acceptable quality and at an acceptable cost;
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perception of patients and the healthcare community, including
third-party payers, regarding the safety, efficacy and benefits
of the product compared to those of competing products or
therapies;
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convenience and ease of administration of the product relative
to existing treatment methods;
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pricing and reimbursement of the product relative to existing
treatment therapeutics and methods; and
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marketing and distribution support for the product.
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Physicians will not recommend a product until clinical data or
other factors demonstrate the safety and efficacy of the product
as compared to other treatments. Even if the clinical safety and
efficacy of our product candidates is established, physicians
may elect not to recommend these product candidates for a
variety of factors, including the reimbursement policies of
government and third-party payers and the effectiveness of our
competitors in marketing their therapies. Because of these and
other factors, any product that we may develop may not gain
market acceptance, which would materially harm our business,
financial condition and results of operations.
If
third-party payers do not reimburse customers for our products,
our products might not be used or purchased, which would
adversely affect our revenues.
Our future revenues and potential for profitability may be
affected by the continuing efforts of governments and
third-party payers to contain or reduce the costs of healthcare
through various means. For example, in certain foreign markets
the pricing of prescription pharmaceuticals is subject to
governmental control. In the United States, there has been, and
we expect that there will continue to be, a number of federal
and state proposals to implement similar governmental controls.
We cannot be certain what legislative proposals will be adopted
or what actions federal, state or private payers for healthcare
goods and services may take in response to any healthcare reform
proposals or legislation. Such reforms may make it difficult to
complete the development and testing of our Technosphere Insulin
System and our other product candidates, and therefore may limit
our ability to generate
37
revenues from sales of our product candidates and achieve
profitability. Further, to the extent that such reforms have a
material adverse effect on the business, financial condition and
profitability of other companies that are prospective
collaborators for some of our product candidates, our ability to
commercialize our product candidates under development may be
adversely affected.
In the United States and elsewhere, sales of prescription
pharmaceuticals still depend in large part on the availability
of reimbursement to the consumer from third-party payers, such
as governmental and private insurance plans. Third-party payers
are increasingly challenging the prices charged for medical
products and services. In addition, because each third-party
payer individually approves reimbursement, obtaining these
approvals is a time-consuming and costly process. We would be
required to provide scientific and clinical support for the use
of any product to each third-party payer separately with no
assurance that approval would be obtained. This process could
delay the market acceptance of any product and could have a
negative effect on our future revenues and operating results.
Even if we succeed in bringing one or more products to market,
we cannot be certain that any such products would be considered
cost-effective or that reimbursement to the consumer would be
available, in which case our business and results of operations
would be harmed and the market price of our common stock could
decline.
If
product liability claims are brought against us, we may incur
significant liabilities and suffer damage to our
reputation.
The testing, manufacturing, marketing and sale of our
Technosphere Insulin System and our other product candidates
expose us to potential product liability claims. A product
liability claim may result in substantial judgments as well as
consume significant financial and management resources and
result in adverse publicity, decreased demand for a product,
injury to our reputation, withdrawal of clinical trial
volunteers and loss of revenues. We currently carry worldwide
liability insurance in the amount of $10 million. We
believe these limits are reasonable to cover us from potential
damages arising from current and previous clinical trials of our
Technosphere Insulin System. In addition, we carry local
policies per trial in each country in which we conduct clinical
trials that require us to carry coverage based on local
statutory requirements. We intend to obtain product liability
coverage for commercial sales in the future if our Technosphere
Insulin System is approved. However, we may not be able to
obtain insurance coverage that will be adequate to satisfy any
liability that may arise, and because insurance coverage in our
industry can be very expensive and difficult to obtain, we
cannot assure you that we will be able to obtain sufficient
coverage at an acceptable cost, if at all. If losses from such
claims exceed our liability insurance coverage, we may ourselves
incur substantial liabilities. If we are required to pay a
product liability claim, we may not have sufficient financial
resources to complete development or commercialization of any of
our product candidates and, if so, our business and results of
operations would be harmed and the market price of our common
stock may decline.
If we
lose any key employees or scientific advisors, our operations
and our ability to execute our business strategy could be
materially harmed.
In order to commercialize our product candidates successfully,
we will be required to expand our work force, particularly in
the areas of manufacturing, clinical trials management,
regulatory affairs, business development, and sales and
marketing. These activities will require the addition of new
personnel, including management, and the development of
additional expertise by existing personnel. We face intense
competition for qualified employees among companies in the
biotechnology and biopharmaceutical industries. Our success
depends upon our ability to attract, retain and motivate highly
skilled employees. We may be unable to attract and retain these
individuals on acceptable terms, if at all.
The loss of the services of any principal member of our
management and scientific staff could significantly delay or
prevent the achievement of our scientific and business
objectives. All of our employees are at will and we
currently do not have employment agreements with any of the
principal members of our management or scientific staff, and we
do not have key person life insurance to cover the loss of any
of these individuals. Replacing key employees may be difficult
and time-consuming because of the limited number of individuals
in our industry with the skills and experience required to
develop, gain regulatory approval of and commercialize our
product candidates successfully.
38
We have relationships with scientific advisors at academic and
other institutions to conduct research or assist us in
formulating our research, development or clinical strategy.
These scientific advisors are not our employees and may have
commitments to, and other obligations with, other entities that
may limit their availability to us. We have limited control over
the activities of these scientific advisors and can generally
expect these individuals to devote only limited time to our
activities. Failure of any of these persons to devote sufficient
time and resources to our programs could harm our business. In
addition, these advisors are not prohibited from, and may have
arrangements with, other companies to assist those companies in
developing technologies that may compete with our product
candidates.
If our
Chief Executive Officer is unable to devote sufficient time and
attention to our business, our operations and our ability to
execute our business strategy could be materially
harmed.
Alfred Mann, our Chairman and Chief Executive Officer, is also
serving as the Chairman of Advanced Bionics Corporation.
Mr. Mann is involved in many other business and charitable
activities. As a result, the time and attention Mr. Mann
devotes to the operation of our business varies, and he may not
expend the same time or focus on our activities as other,
similarly situated chief executive officers. If Mr. Mann is
unable to devote the time and attention necessary to running our
business, we may not be able to execute our business strategy
and our business could be materially harmed.
Our
facilities that are located in Southern California may be
affected by man-made or natural disasters.
Our headquarters and some of our research and development
activities are located in Southern California, where they are
subject to a risk of man-made disasters, terrorism, and an
enhanced risk of natural and other disasters such as fires,
power and telecommunications failures, mudslides, and
earthquakes. An act of terrorism, fire, earthquake or other
catastrophic loss that causes significant damage to our
facilities or interruption of our business could harm our
business. We do not carry insurance to cover losses caused by
earthquakes, and the insurance coverage that we carry for fire
damage and for business interruption may be insufficient to
compensate us for any losses that we may incur.
If our
internal controls over financial reporting are not considered
effective, our business and stock price could be adversely
affected.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us
to evaluate the effectiveness of our internal controls over
financial reporting as of the end of each fiscal year, and to
include a management report assessing the effectiveness of our
internal controls over financial reporting in our annual report
on
Form 10-K
for that fiscal year. Section 404 also requires our
independent registered public accounting firm to attest to, and
report on, our internal controls over financial reporting. Our
management determined, as of the quarter ended June 30,
2007, that we had a material weakness in identifying and
recording clinical trial costs, principally from the failure of
our controls to detect an overstatement of clinical trial
liabilities. As of December 31, 2007, we completed the
execution of our remediation plan and our management has
concluded that our internal control over financial reporting was
effective as of December 31, 2007.
Our management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our internal controls
over financial reporting will prevent all error and all fraud. A
control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the
control systems objectives will be met. Further, the
design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud involving a company have been, or will be,
detected. The design of any system of controls is based in part
on certain assumptions about the likelihood of future events,
and we cannot assure you that any design will succeed in
achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of
compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected. We cannot
assure you that we or our independent registered public
accounting firm will not identify a material weakness in our
internal controls in the future. A material weakness in our
internal controls over financial
39
reporting would require management and our independent
registered public accounting firm to evaluate our internal
controls as ineffective. If our internal controls over financial
reporting are not considered effective, we may experience a loss
of public confidence, which could have an adverse effect on our
business and on the market price of our common stock.
RISKS
RELATED TO REGULATORY APPROVALS
Our
product candidates must undergo rigorous nonclinical and
clinical testing and we must obtain regulatory approvals, which
could be costly and time-consuming and subject us to
unanticipated delays or prevent us from marketing any
products.
Our research and development activities, as well as the
manufacturing and marketing of our product candidates, including
our Technosphere Insulin System, are subject to regulation,
including regulation for safety, efficacy and quality, by the
FDA in the United States and comparable authorities in other
countries. FDA regulations and the regulation of comparable
foreign regulatory authorities are wide-ranging and govern,
among other things:
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product design, development, manufacture and testing;
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product labeling;
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product storage and shipping;
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pre-market clearance or approval;
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advertising and promotion; and
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product sales and distribution.
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Clinical testing can be costly and take many years, and the
outcome is uncertain and susceptible to varying interpretations.
Based on our discussions with the FDA and on our understanding
of the interactions between the FDA and other pharmaceutical
companies developing inhaled insulin delivery systems, we
expect, among other requirements, that we will need safety data
covering at least two years from patients treated with our
Technosphere Insulin System and that we must complete an
additional six-month carcinogenicity study of Technosphere
Insulin in rodents in order to obtain approval. We cannot be
certain when or under what conditions we will undertake further
clinical trials. The clinical trials of our product candidates
may not be completed on schedule, the FDA or foreign regulatory
agencies may order us to stop or modify our research, or these
agencies may not ultimately approve any of our product
candidates for commercial sale. The data collected from our
clinical trials may not be sufficient to support regulatory
approval of our various product candidates, including our
Technosphere Insulin System. Two of our three pivotal trials
(studies 009 and 030) are being conducted under Special Protocol
Assessments and the third (study 102) is very similar to study
009. Nonetheless, even if we believe the data collected from our
clinical trials are sufficient, the FDA has substantial
discretion in the approval process and may disagree with our
interpretation of the data. For example, even if we meet the
statistical criteria for non-inferiority with respect to the
primary endpoint in a pivotal clinical study (study 102) of
our Technosphere Insulin System, the FDA may deem the results
uninterpretable because of issues related to the open-label,
non-inferiority design of the study. Our failure to adequately
demonstrate the safety and efficacy of any of our product
candidates would delay or prevent regulatory approval of our
product candidates, which could prevent us from achieving
profitability.
The requirements governing the conduct of clinical trials and
manufacturing and marketing of our product candidates, including
our Technosphere Insulin System, outside the United States vary
widely from country to country. Foreign approvals may take
longer to obtain than FDA approvals and can require, among other
things, additional testing and different clinical trial designs.
Foreign regulatory approval processes include all of the risks
associated with the FDA approval processes. Some of those
agencies also must approve prices of the products. Approval of a
product by the FDA does not ensure approval of the same product
by the health authorities of other countries. In addition,
changes in regulatory policy in the United States or in foreign
countries for product approval during the period of product
development and regulatory agency review of each submitted new
application may cause delays or rejections.
40
The process of obtaining FDA and other required regulatory
approvals, including foreign approvals, is expensive, often
takes many years and can vary substantially based upon the type,
complexity and novelty of the products involved. We are not
aware of any precedent for the successful commercialization of
products based on our technology. On January 26, 2006, the
FDA approved the first pulmonary insulin product, Exubera. This
approval has had an impact on and, notwithstanding the voluntary
withdrawal of the product from the market by its manufacturer,
could still impact the development and registration of our
Technosphere Insulin System in different ways, including:
Exubera may be used as a reference for safety and efficacy
evaluations of our Technosphere Insulin System, and the approval
standards set for Exubera may be applied to other products that
follow including our Technosphere Insulin System. The FDA has
advised us that it will regulate our Technosphere Insulin System
as a combination product because of the complex
nature of the system that includes the combination of a new drug
(Technosphere Insulin) and a new medical device (the MedTone
inhaler used to administer the insulin). The FDA indicated that
the review of a future drug marketing application for our
Technosphere Insulin System will involve three separate review
groups of the FDA: (1) the Metabolic and Endocrine Drug
Products Division; (2) the Pulmonary Drug Products
Division; and (3) the Center for Devices and Radiological
Health within the FDA that reviews medical devices. We currently
understand that the Metabolic and Endocrine Drug Products
Division will be the lead group and will obtain consulting
reviews from the other two FDA groups. The FDA has not made an
official final decision in this regard, however, and we can make
no assurances at this time about what impact FDA review by
multiple groups will have on the review and approval of our
product or whether we are correct in our understanding of how
our Technosphere Insulin System will be reviewed and approved.
Also, questions that have been raised about the safety of
marketed drugs generally, including pertaining to the lack of
adequate labeling, may result in increased cautiousness by the
FDA in reviewing new drugs based on safety, efficacy, or other
regulatory considerations and may result in significant delays
in obtaining regulatory approvals. Such regulatory
considerations may also result in the imposition of more
restrictive drug labeling or marketing requirements as
conditions of approval, which may significantly affect the
marketability of our drug products. FDA review of our
Technosphere Insulin System as a combination product therapy may
lengthen the product development and regulatory approval
process, increase our development costs and delay or prevent the
commercialization of our Technosphere Insulin System.
We are developing our Technosphere Insulin System as a new
treatment for diabetes utilizing unique, proprietary components.
As a combination product, any changes to either the MedTone
inhaler, the Technosphere material or the insulin, including new
suppliers, could possibly result in FDA requirements to repeat
certain clinical studies. This means, for example, that
switching to an alternate delivery system could require us to
undertake additional clinical trials and other studies, which
could significantly delay the development and commercialization
of our Technosphere Insulin System. Our product candidates that
are currently in development for the treatment of cancer also
face similar obstacles and costs.
We currently expect that our inhaler will be reviewed for
approval as part of the NDA for our Technosphere Insulin System.
No assurances exist that we will not be required to obtain
separate device clearances or approval for use of our inhaler
with our Technosphere Insulin System. This may result in our
being subject to medical device review user fees and to other
device requirements to market our inhaler and may result in
significant delays in commercialization. Even if the device
component is approved as part of our NDA for our Technosphere
Insulin System, numerous device regulatory requirements still
apply to the device part of the drug-device combination.
We
have only limited experience in filing and pursuing applications
necessary to gain regulatory approvals, which may impede our
ability to obtain timely approvals from the FDA or foreign
regulatory agencies, if at all.
We will not be able to commercialize our Technosphere Insulin
System or any other product candidates until we have obtained
regulatory approval. We have no experience as a company in
late-stage regulatory filings, such as preparing and submitting
NDAs, which may place us at risk of delays, overspending and
human resources inefficiencies. Any delay in obtaining, or
inability to obtain, regulatory approval could harm our business.
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If we
do not comply with regulatory requirements at any stage, whether
before or after marketing approval is obtained, we may be
subject to criminal prosecution, fined or forced to remove a
product from the market or experience other adverse
consequences, including restrictions or delays in obtaining
regulatory marketing approval.
Even if we comply with regulatory requirements, we may not be
able to obtain the labeling claims necessary or desirable for
product promotion. We may also be required to undertake
post-marketing trials. In addition, if we or other parties
identify adverse effects after any of our products are on the
market, or if manufacturing problems occur, regulatory approval
may be withdrawn and a reformulation of our products, additional
clinical trials, changes in labeling of, or indications of use
for, our products
and/or
additional marketing applications may be required. If we
encounter any of the foregoing problems, our business and
results of operations will be harmed and the market price of our
common stock may decline.
Even
if we obtain regulatory approval for our product candidates,
such approval may be limited and we will be subject to
stringent, ongoing government regulation.
Even if regulatory authorities approve any of our product
candidates, they could approve less than the full scope of uses
or labeling that we seek or otherwise require special warnings
or other restrictions on use or marketing or could require
potentially costly post-marketing
follow-up
clinical trials. Regulatory authorities may limit the segments
of the diabetes population to which we or others may market our
Technosphere Insulin System or limit the target population for
our other product candidates. Based on currently available
clinical studies, we believe that our Technosphere Insulin
System may have certain advantages over currently approved
insulin products including its approximation of the natural
early insulin secretion normally seen in healthy individuals
following the beginning of a meal. Nonetheless, there are no
assurances that these and other advantages, if any, of our
Technosphere Insulin System have clinical significance or can be
confirmed in head-to-head clinical trials against appropriate
approved comparator insulin drug products. Such comparative
clinical trials are required to make these types of superiority
claims in labeling or advertising. These aforementioned
observations and others may therefore not be capable of
substantiation in comparative clinical trials prior to our NDA
submission, if at all, or otherwise may not be suitable for
inclusion in product labeling or advertising and, as a result,
our Technosphere Insulin System may not have competitive
advantages when compared to other insulin products.
The manufacture, marketing and sale of these product candidates
will be subject to stringent and ongoing government regulation.
The FDA may also withdraw product approvals if problems
concerning safety or efficacy of the product occur following
approval. In response to questions that have been raised about
the safety of certain approved prescription products, including
the lack of adequate warnings, the FDA and United States
Congress are currently considering new regulatory and
legislative approaches to advertising, monitoring and assessing
the safety of marketed drugs, including legislation providing
the FDA with authority to mandate labeling changes for approved
pharmaceutical products, particularly those related to safety.
We also cannot be sure that the current FDA and United States
Congressional initiatives pertaining to ensuring the safety of
marketed drugs or other developments pertaining to the
pharmaceutical industry will not adversely affect our operations.
We also are required to register our establishments and list our
products with the FDA and certain state agencies. We and any
third-party manufacturers or suppliers must continually adhere
to federal regulations setting forth requirements, known as cGMP
(for drugs) and QSR (for medical devices), and their foreign
equivalents, which are enforced by the FDA and other national
regulatory bodies through their facilities inspection programs.
If our facilities, or the facilities of our manufacturers or
suppliers, cannot pass a preapproval plant inspection, the FDA
will not approve the marketing of our product candidates. In
complying with cGMP and foreign regulatory requirements, we and
any of our potential third-party manufacturers or suppliers will
be obligated to expend time, money and effort in production,
record-keeping and quality control to ensure that our products
meet applicable specifications and other requirements. QSR
requirements also impose extensive testing, control and
documentation requirements. State regulatory agencies and the
regulatory agencies of other countries have similar
requirements. In addition, we will be required to comply with
regulatory requirements of the FDA, state regulatory agencies
and the regulatory agencies of other countries concerning the
reporting of adverse events and device malfunctions, corrections
and removals (e.g., recalls), promotion and advertising and
general prohibitions against the manufacture and distribution of
adulterated and misbranded devices. Failure to comply with these
regulatory requirements could
42
result in civil fines, product seizures, injunctions
and/or
criminal prosecution of responsible individuals and us. Any such
actions would have a material adverse effect on our business and
results of operations.
Our
insulin supplier does not yet supply human recombinant insulin
for an FDA-approved product and will likely be subject to an FDA
preapproval inspection before the agency will approve a future
marketing application for our Technosphere Insulin
System.
Our insulin supplier sells its product outside of the United
States. However, we can make no assurances that our insulin
supplier will be acceptable to the FDA. If we were required to
find a new or additional supplier of insulin, we would be
required to evaluate the new suppliers ability to provide
insulin that meets our specifications and quality requirements,
which would require significant time and expense and could delay
the manufacturing and future commercialization of our
Technosphere Insulin System. We also depend on suppliers for
other materials that comprise our Technosphere Insulin System,
including our MedTone inhaler and cartridges. All of our device
suppliers must comply with relevant regulatory requirements
including QSR. It also is likely that major suppliers will be
subject to FDA preapproval inspections before the agency will
approve a future marketing application for our Technosphere
Insulin System. At the present time our insulin supplier is
certified to the ISO9001:2000 Standard. There can be no
assurance, however, that if the FDA were to conduct a
preapproval inspection of our insulin supplier or other
suppliers, that the agency would find that the supplier
substantially comply with the QSR or cGMP requirements, where
applicable. If we or any potential third-party manufacturer or
supplier fails to comply with these requirements or comparable
requirements in foreign countries, regulatory authorities may
subject us to regulatory action, including criminal
prosecutions, fines and suspension of the manufacture of our
products.
Reports
of side effects or safety concerns in related technology fields
or in other companies clinical trials could delay or
prevent us from obtaining regulatory approval or negatively
impact public perception of our product
candidates.
At present, there are a number of clinical trials being
conducted by us and other pharmaceutical companies involving
insulin delivery systems. If we discover that our lead product
candidate is associated with a significantly increased frequency
of adverse events, or if other pharmaceutical companies announce
that they observed frequent adverse events in their trials
involving the pulmonary delivery of insulin, we could encounter
delays in the timing of our clinical trials or difficulties in
obtaining the approval of our Technosphere Insulin System. As
well, the public perception of our lead product candidates might
be adversely affected, which could harm our business and results
of operations and cause the market price of our common stock to
decline, even if the concern relates to another companys
products or product candidates.
There are also a number of clinical trials being conducted by
other pharmaceutical companies involving compounds similar to,
or competitive with, our other product candidates. Adverse
results reported by these other companies in their clinical
trials could delay or prevent us from obtaining regulatory
approval or negatively impact public perception of our product
candidates, which could harm our business and results of
operations and cause the market price of our common stock to
decline.
RISKS
RELATED TO INTELLECTUAL PROPERTY
If we
are unable to protect our proprietary rights, we may not be able
to compete effectively, or operate profitably.
Our commercial success depends, in large part, on our ability to
obtain and maintain intellectual property protection for our
technology. Our ability to do so will depend on, among other
things, complex legal and factual questions, and it should be
noted that the standards regarding intellectual property rights
in our fields are still evolving. We attempt to protect our
proprietary technology through a combination of patents, trade
secrets and confidentiality agreements. We own a number of
domestic and international patents, have a number of domestic
and international patent applications pending and have licenses
to additional patents. We cannot assure you that our patents and
licenses will successfully preclude others from using our
technologies, and we could incur substantial costs in seeking
enforcement of our proprietary rights against infringement. Even
if issued, the patents may not give us an advantage over
competitors with similar alternative technologies.
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Moreover, the issuance of a patent is not conclusive as to its
validity or enforceability and it is uncertain how much
protection, if any, will be afforded by our patents. A third
party may challenge the validity or enforceability of a patent
after its issuance by various proceedings such as oppositions in
foreign jurisdictions or re-examinations in the United States.
If we attempt to enforce our patents, they may be challenged in
court where they could be held invalid, unenforceable, or have
their breadth narrowed to an extent that would destroy their
value.
We also rely on unpatented technology, trade secrets, know-how
and confidentiality agreements. We require our officers,
employees, consultants and advisors to execute proprietary
information and invention and assignment agreements upon
commencement of their relationships with us. We also execute
confidentiality agreements with outside collaborators. There can
be no assurance, however, that these agreements will provide
meaningful protection for our inventions, trade secrets,
know-how or other proprietary information in the event of
unauthorized use or disclosure of such information. If any trade
secret, know-how or other technology not protected by a patent
were to be disclosed to or independently developed by a
competitor, our business, results of operations and financial
condition could be adversely affected.
If we
become involved in lawsuits to protect or enforce our patents or
the patents of our collaborators or licensors, we would be
required to devote substantial time and resources to prosecute
or defend such proceedings.
Competitors may infringe our patents or the patents of our
collaborators or licensors. To counter infringement or
unauthorized use, we may be required to file infringement
claims, which can be expensive and time-consuming. In addition,
in an infringement proceeding, a court may decide that a patent
of ours is not valid or is unenforceable, or may refuse to stop
the other party from using the technology at issue on the
grounds that our patents do not cover its technology. A court
may also decide to award us a royalty from an infringing party
instead of issuing an injunction against the infringing
activity. An adverse determination of any litigation or defense
proceedings could put one or more of our patents at risk of
being invalidated or interpreted narrowly and could put our
patent applications at risk of not issuing.
Interference proceedings brought by the USPTO may be necessary
to determine the priority of inventions with respect to our
patent applications or those of our collaborators or licensors.
Litigation or interference proceedings may fail and, even if
successful, may result in substantial costs and be a distraction
to our management. We may not be able, alone or with our
collaborators and licensors, to prevent misappropriation of our
proprietary rights, particularly in countries where the laws may
not protect such rights as fully as in the United States. We may
not prevail in any litigation or interference proceeding in
which we are involved. Even if we do prevail, these proceedings
can be very expensive and distract our management.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation,
there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In
addition, during the course of this kind of litigation, there
could be public announcements of the results of hearings,
motions or other interim proceedings or developments. If
securities analysts or investors perceive these results to be
negative, the market price of our common stock may decline.
If our
technologies conflict with the proprietary rights of others, we
may incur substantial costs as a result of litigation or other
proceedings and we could face substantial monetary damages and
be precluded from commercializing our products, which would
materially harm our business.
Over the past three decades the number of patents issued to
biotechnology companies has expanded dramatically. As a result
it is not always clear to industry participants, including us,
which patents cover the multitude of biotechnology product
types. Ultimately, the courts must determine the scope of
coverage afforded by a patent and the courts do not always
arrive at uniform conclusions.
A patent owner may claim that we are making, using, selling or
offering for sale an invention covered by the owners
patents and may go to court to stop us from engaging in such
activities. Such litigation is not uncommon in our industry. For
example, in August 2006, Novo Nordisk filed a lawsuit against
Pfizer claiming that Pfizers product Exubera infringes
certain patents owned by Novo Nordisk that cover inhaled insulin
treatment for diabetes.
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Patent lawsuits can be expensive and would consume time and
other resources. There is a risk that a court would decide that
we are infringing a third partys patents and would order
us to stop the activities covered by the patents, including the
commercialization of our products. In addition, there is a risk
that we would have to pay the other party damages for having
violated the other partys patents (which damages may be
increased, as well as attorneys fees ordered paid, if
infringement is found to be willful), or that we will be
required to obtain a license from the other party in order to
continue to commercialize the affected products, or to design
our products in a manner that does not infringe a valid patent.
We may not prevail in any legal action, and a required license
under the patent may not be available on acceptable terms or at
all, requiring cessation of activities that were found to
infringe a valid patent. We also may not be able to develop a
non-infringing product design on commercially reasonable terms,
or at all.
Although we own a number of domestic and foreign patents and
patent applications relating to our Technosphere Insulin System
and cancer vaccine products under development, we have
identified certain third-party patents having claims relating to
chemical compositions of matter and pulmonary insulin delivery
that may trigger an allegation of infringement upon the
commercial manufacture and sale of our Technosphere Insulin
System. We have also identified third-party patents disclosing
methods of use and compositions of matter related to DNA-based
vaccines that also may trigger an allegation of infringement
upon the commercial manufacture and sale of our cancer therapy.
If a court were to determine that our insulin products or cancer
therapies were infringing any of these patent rights, we would
have to establish with the court that these patents were invalid
or unenforceable in order to avoid legal liability for
infringement of these patents. However, proving patent
invalidity or unenforceability can be difficult because issued
patents are presumed valid. Therefore, in the event that we are
unable to prevail in an infringement or invalidity action we
will have to either acquire the third-party patents outright or
seek a royalty-bearing license. Royalty-bearing licenses
effectively increase production costs and therefore may
materially affect product profitability. Furthermore, should the
patent holder refuse to either assign or license us the
infringed patents, it may be necessary to cease manufacturing
the product entirely
and/or
design around the patents, if possible. In either event, our
business would be harmed and our profitability could be
materially adversely impacted.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation,
there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In
addition, during the course of this kind of litigation, there
could be public announcements of the results of hearings,
motions or other interim proceedings or developments. If
securities analysts or investors perceive these results to be
negative, the market price of our common stock may decline.
In addition, patent litigation may divert the attention of key
personnel and we may not have sufficient resources to bring
these actions to a successful conclusion. At the same time, some
of our competitors may be able to sustain the costs of complex
patent litigation more effectively than we can because they have
substantially greater resources. An adverse determination in a
judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from manufacturing and
selling our products or result in substantial monetary damages,
which would adversely affect our business and results of
operations and cause the market price of our common stock to
decline.
We may
not obtain trademark registrations for our potential trade
names.
We have not selected trade names for some of our products and
product candidates; therefore, we have not filed trademark
registrations for our potential trade names for our products in
all jurisdictions, nor can we assure that we will be granted
registration of those potential trade names for which we have
filed. Although we intend to defend any opposition to our
trademark registrations, no assurance can be given that any of
our trademarks will be registered in the United States or
elsewhere or that the use of any of our trademarks will confer a
competitive advantage in the marketplace. Furthermore, even if
we are successful in our trademark registrations, the FDA has
its own process for drug nomenclature and its own views
concerning appropriate proprietary names. It also has the power,
even after granting market approval, to request a company to
reconsider the name for a product because of evidence of
confusion in the marketplace. We cannot assure you that the FDA
or any other regulatory authority will approve of any of our
trademarks or will not request reconsideration of one of our
trademarks at some time in the future.
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RISKS
RELATED TO OUR COMMON STOCK
Our
stock price is volatile.
The stock market, particularly in recent years, has experienced
significant volatility particularly with respect to
pharmaceutical and biotechnology stocks, and this trend may
continue. The volatility of pharmaceutical and biotechnology
stocks often does not relate to the operating performance of the
companies represented by the stock. Our business and the market
price of our common stock may be influenced by a large variety
of factors, including:
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the progress and results of our clinical trials;
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announcements by us or our competitors concerning clinical trial
results, acquisitions, strategic alliances, technological
innovations, newly approved commercial products, product
discontinuations, or other developments;
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the availability of critical materials used in developing and
manufacturing our Technosphere Insulin System or other product
candidates;
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developments or disputes concerning our patents or proprietary
rights;
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the expense and time associated with, and the extent of our
ultimate success in, securing regulatory approvals;
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announcements by us concerning our financial condition or
operating performance;
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changes in securities analysts estimates of our financial
condition or operating performance;
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general market conditions and fluctuations for emerging growth
and pharmaceutical market sectors;
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sales of large blocks of our common stock, including sales by
our executive officers, directors and significant stockholders;
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discussion of our Technosphere Insulin System, our other product
candidates, competitors products, or our stock price by
the financial and scientific press, the healthcare community and
online investor communities such as chat rooms; and
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general economic, political or stock market conditions.
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Any of these risks, as well as other factors, could cause the
market price of our common stock to decline.
If
other biotechnology and biopharmaceutical companies or the
securities markets in general encounter problems, the market
price of our common stock could be adversely
affected.
Public companies in general and companies included on the Nasdaq
Global Market in particular have experienced extreme price and
volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those
companies. There has been particular volatility in the market
prices of securities of biotechnology and other life sciences
companies, and the market prices of these companies have often
fluctuated because of problems or successes in a given market
segment or because investor interest has shifted to other
segments. These broad market and industry factors may cause the
market price of our common stock to decline, regardless of our
operating performance. We have no control over this volatility
and can only focus our efforts on our own operations, and even
these may be affected due to the state of the capital markets.
In the past, following periods of large price declines in the
public market price of a companys securities, securities
class action litigation has often been initiated against that
company. Litigation of this type could result in substantial
costs and diversion of managements attention and
resources, which would hurt our business. Any adverse
determination in litigation could also subject us to significant
liabilities.
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Our
Chief Executive Officer and principal stockholder can
individually control our direction and policies, and his
interests may be adverse to the interests of our other
stockholders. After his death, his stock will be left to his
funding foundations for distribution to various charities, and
we cannot assure you of the manner in which those entities will
manage their holdings.
At March 10, 2008, Mr. Mann beneficially owned
approximately 48.1% of our outstanding shares of capital stock.
We believe members of Mr. Manns family beneficially
owned at least an additional 1% of our outstanding shares of
common stock, although Mr. Mann does not have voting or
investment power with respect to these shares. By virtue of his
holdings, Mr. Mann can and will continue to be able to
effectively control the election of the members of our board of
directors, our management and our affairs and prevent corporate
transactions such as mergers, consolidations or the sale of all
or substantially all of our assets that may be favorable from
our standpoint or that of our other stockholders or cause a
transaction that we or our other stockholders may view as
unfavorable.
Subject to compliance with United States federal and state
securities laws, Mr. Mann is free to sell the shares of our
stock he holds at any time. Upon his death, we have been advised
by Mr. Mann that his shares of our capital stock will be
left to the Alfred E. Mann Medical Research Organization, or
AEMMRO, and AEM Foundation for Biomedical Engineering, or
AEMFBE, not-for-profit medical research foundations that serve
as funding organizations for Mr. Manns various
charities, including the Alfred Mann Foundation, or AMF, and the
Alfred Mann Institute at the University of Southern California,
the Technion-Israel Institute of Technology, and at Purdue
University, and that may serve as funding organizations for any
other charities that he may establish. The AEMMRO is a
membership foundation consisting of six members, including
Mr. Mann, his wife, three of his children and
Dr. Joseph Schulman, the chief scientist of the AEMFBE. The
AEMFBE is a membership foundation consisting of five members,
including Mr. Mann, his wife, and the same three of his
children. Although we understand that the members of AEMMRO and
AEMFBE have been advised of Mr. Manns objectives for
these foundations, once Mr. Manns shares of our
capital stock become the property of the foundations, we cannot
assure you as to how those shares will be distributed or how
they will be voted.
The
future sale of our common stock or the conversion of our senior
convertible notes into common stock could negatively affect our
stock price.
Substantially all of the outstanding shares of our common stock
are available for public sale, subject in some cases to volume
and other limitations or delivery of a prospectus. If our common
stockholders sell substantial amounts of common stock in the
public market, or the market perceives that such sales may
occur, the market price of our common stock may decline.
Likewise the issuance of additional shares of our common stock
upon the conversion of some or all of our senior convertible
notes could adversely affect the trading price of our common
stock. In addition, the existence of these notes may encourage
short selling of our common stock by market participants.
Furthermore, if we were to include in a company-initiated
registration statement shares held by our stockholders pursuant
to the exercise of their registrations rights, the sale of those
shares could impair our ability to raise needed capital by
depressing the price at which we could sell our common stock.
In addition, we will need to raise substantial additional
capital in the future to fund our operations. If we raise
additional funds by issuing equity securities or additional
convertible debt, the market price of our common stock may
decline and our existing stockholders may experience significant
dilution.
Anti-takeover
provisions in our charter documents and under Delaware law could
make an acquisition of us, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our
stockholders to replace or remove our current
management.
We are incorporated in Delaware. Certain anti-takeover
provisions under Delaware law and in our certificate of
incorporation and amended and restated bylaws, as currently in
effect, may make a change of control of our company more
difficult, even if a change in control would be beneficial to
our stockholders. Our anti-takeover provisions include
provisions such as a prohibition on stockholder actions by
written consent, the authority of our board of directors to
issue preferred stock without stockholder approval, and
supermajority voting requirements for specified actions. In
addition, we are governed by the provisions of Section 203
of the Delaware General Corporation Law, which generally
prohibits stockholders owning 15% or more of our outstanding
voting stock
47
from merging or combining with us in certain circumstances.
These provisions may delay or prevent an acquisition of us, even
if the acquisition may be considered beneficial by some of our
stockholders. In addition, they may frustrate or prevent any
attempts by our stockholders to replace or remove our current
management by making it more difficult for stockholders to
replace members of our board of directors, which is responsible
for appointing the members of our management.
Because
we do not expect to pay dividends in the foreseeable future, you
must rely on stock appreciation for any return on your
investment.
We have paid no cash dividends on any of our capital stock to
date, and we currently intend to retain our future earnings, if
any, to fund the development and growth of our business. As a
result, we do not expect to pay any cash dividends in the
foreseeable future, and payment of cash dividends, if any, will
also depend on our financial condition, results of operations,
capital requirements and other factors and will be at the
discretion of our board of directors. Furthermore, we may in the
future become subject to contractual restrictions on, or
prohibitions against, the payment of dividends. Accordingly, the
success of your investment in our common stock will likely
depend entirely upon any future appreciation. There is no
guarantee that our common stock will appreciate in value after
the offering or even maintain the price at which you purchased
your shares, and you may not realize a return on your investment
in our common stock.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
Not applicable.
In 2001, we acquired a facility in Danbury, Connecticut that
included two buildings comprising approximately
190,000 square feet encompassing 17.5 acres. In 2007,
we commenced construction of approximately 140,000 square
feet of new manufacturing space. When the expansion is completed
in 2008, our facility will have two buildings with a total of
approximately 328,000 square feet, housing our research and
development, administrative and manufacturing functions,
primarily for Technosphere Insulin formulation, filling and
packaging., We believe the Danbury facility will have sufficient
space to satisfy potential commercial demand for the launch of
our Technosphere Insulin System and, with the expansion
completed, the first few years thereafter for our Technosphere
Insulin System and other Technosphere-related products.
We own and occupy approximately 147,000 square feet of
laboratory, office and manufacturing space in Valencia,
California. The facility contains our principal executive
offices and houses our research and development laboratories for
our cancer and other programs. We also use this facility to
provide support for the development of our Technosphere programs.
We lease approximately 59,000 square feet of office space
in Paramus, New Jersey pursuant to a lease that ends in May
2010, with an option to extend the lease through May 2012.
|
|
Item 3.
|
Legal
Proceedings
|
None.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of our security holders
during the quarter ended December 31, 2007.
48
PART II
Item 5. Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchase of Equity Securities
Common
Stock Market Price
Our common stock has been traded on the Nasdaq Global Market
(and its predecessor the Nasdaq National Market) under the
symbol MNKD since July 28, 2004. The following
table sets forth for the quarterly periods indicated, the high
and low sales prices for our common stock as reported by the
Nasdaq Global Market.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
22.00
|
|
|
$
|
11.05
|
|
Second quarter
|
|
$
|
21.74
|
|
|
$
|
16.42
|
|
Third quarter
|
|
$
|
21.48
|
|
|
$
|
15.50
|
|
Fourth quarter
|
|
$
|
21.68
|
|
|
$
|
15.73
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
17.24
|
|
|
$
|
14.30
|
|
Second quarter
|
|
$
|
15.47
|
|
|
$
|
10.47
|
|
Third quarter
|
|
$
|
13.57
|
|
|
$
|
8.21
|
|
Fourth quarter
|
|
$
|
11.93
|
|
|
$
|
7.58
|
|
The closing sales price of our common stock on the Nasdaq Global
Market was $4.99 on March 10, 2008 and there were 192
registered holders of record as of that date.
49
Performance
Measurement Comparison
The material in this section is not soliciting
material, is not deemed filed with the SEC and
shall not be incorporated by reference by any general statement
incorporating by reference this Annual Report on
Form 10-K
into anyof our filings under the Securities Act of 1933, as
amended, or the Securities Act, or the Exchange Act of 1934, as
amended, or the Exchange Act, except to the extent we
specifically incorporate this section by reference.
Performance
Measurement Comparison
The following graph illustrates a comparison of the cumulative
total stockholder return (change in stock price plus reinvested
dividends) of our common stock with (i) the Nasdaq
Composite Index and (ii) the Nasdaq Biotechnology Index.
The comparisons in the graph are required by the SEC and are not
intended to forecast or be indicative of possible future
performance of our common stock.
Assumes a $100 investment, on July 28, 2004, in
(i) our common stock, (ii) the securities comprising
the Nasdaq Composite Index and (iii) the securities
comprising the Nasdaq Biotechnology Index.
Dividend
Policy
We have never declared or paid any cash dividends on our common
stock. We currently intend to retain all available funds and any
future earnings for use in the operation and expansion of our
business. Accordingly, we do not anticipate paying any cash
dividends on our common stock in the foreseeable future. Any
future determination to pay dividends will be at the discretion
of our board of directors.
Recent
Sales of Unregistered Securities
Not applicable.
50
Use of
Proceeds
None.
|
|
Item 6.
|
Selected
Financial Data
|
The following selected consolidated financial data should be
read in conjunction with our consolidated financial statements
and notes thereto and with Managements Discussion
and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this Annual
Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Statement of Operations Data:
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
100
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
45,613
|
|
|
|
59,406
|
|
|
|
95,347
|
|
|
|
191,796
|
|
|
|
256,844
|
|
General and administrative
|
|
|
20,699
|
|
|
|
17,743
|
|
|
|
22,775
|
|
|
|
42,001
|
|
|
|
50,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
66,312
|
|
|
|
77,149
|
|
|
|
118,122
|
|
|
|
233,797
|
|
|
|
307,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(66,312
|
)
|
|
|
(77,149
|
)
|
|
|
(118,122
|
)
|
|
|
(233,697
|
)
|
|
|
(307,357
|
)
|
Other income (expense)
|
|
|
36
|
|
|
|
226
|
|
|
|
78
|
|
|
|
208
|
|
|
|
(197
|
)
|
Interest expense on note payable to principal stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,511
|
)
|
|
|
|
|
Interest expense on senior convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222
|
)
|
|
|
(3,408
|
)
|
Interest income
|
|
|
398
|
|
|
|
932
|
|
|
|
3,707
|
|
|
|
4,679
|
|
|
|
17,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(65,878
|
)
|
|
|
(75,991
|
)
|
|
|
(114,337
|
)
|
|
|
(230,543
|
)
|
|
|
(293,187
|
)
|
Income tax
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(65,879
|
)
|
|
|
(75,992
|
)
|
|
|
(114,338
|
)
|
|
|
(230,548
|
)
|
|
|
(293,190
|
)
|
Deemed dividends related to beneficial conversion feature of
convertible preferred stock
|
|
|
(1,017
|
)
|
|
|
(19,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion on redeemable preferred stock
|
|
|
(253
|
)
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(67,149
|
)
|
|
$
|
(95,874
|
)
|
|
$
|
(114,338
|
)
|
|
$
|
(230,548
|
)
|
|
$
|
(293,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(3.63
|
)
|
|
$
|
(3.80
|
)
|
|
$
|
(2.87
|
)
|
|
$
|
(4.52
|
)
|
|
$
|
(3.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic and diluted net loss per share
|
|
|
18,488
|
|
|
|
25,221
|
|
|
|
39,871
|
|
|
|
50,970
|
|
|
|
80,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Balance Sheet Data:
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
55,945
|
|
|
$
|
90,533
|
|
|
$
|
145,634
|
|
|
$
|
436,479
|
|
|
$
|
368,285
|
|
Working capital
|
|
|
49,097
|
|
|
|
82,837
|
|
|
|
128,507
|
|
|
|
404,588
|
|
|
|
311,154
|
|
Total assets
|
|
|
125,876
|
|
|
|
163,483
|
|
|
|
228,371
|
|
|
|
539,737
|
|
|
|
543,443
|
|
Deferred compensation and other liabilities
|
|
|
404
|
|
|
|
76
|
|
|
|
29
|
|
|
|
24
|
|
|
|
24
|
|
Senior convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,267
|
|
|
|
111,761
|
|
Redeemable convertible preferred stock
|
|
|
5,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit accumulated during the development stage
|
|
|
(366,971
|
)
|
|
|
(442,963
|
)
|
|
|
(557,301
|
)
|
|
|
(787,849
|
)
|
|
|
(1,081,039
|
)
|
Total stockholders equity
|
|
|
111,577
|
|
|
|
150,363
|
|
|
|
206,977
|
|
|
|
383,487
|
|
|
|
364,100
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion of our financial condition and results
of operations should be read in conjunction with our
consolidated financial statements and notes thereto included in
this Annual Report on
Form 10-K.
OVERVIEW
We are a biopharmaceutical company focused on the discovery,
development and commercialization of therapeutic products for
diseases such as diabetes and cancer. Our lead investigational
product candidate, the Technosphere Insulin System, is currently
in Phase 3 clinical trials in the United States, Europe and
Latin America to study its safety and efficacy in the treatment
of diabetes. This dry powder therapy consists of our proprietary
Technosphere particles onto which insulin molecules are loaded.
These loaded particles are then aerosolized and inhaled into the
deep lung using our proprietary MedTone inhaler. We believe that
the performance characteristics, unique kinetics, convenience
and ease of use of the Technosphere Insulin System may have the
potential to change the way diabetes is treated. Currently, we
are conducting clinical trials to evaluate the safety and
efficacy of another Technosphere-based product for the treatment
of diabetes and are developing additional formulations of active
compounds loaded onto Technosphere particles. We are also
developing therapies for the treatment of different types of
cancer. Our other product candidates are at the research stage
or in pre-clinical development.
We are a development stage enterprise and have incurred
significant losses since our inception in 1991. As of
December 31, 2007, we have incurred a cumulative net loss
of $1.1 billion. To date, we have not generated any product
revenues and have funded our operations primarily through the
sale of equity securities.
We do not expect to record sales of any product prior to
regulatory approval and commercialization of our Technosphere
Insulin System. We currently do not have the required approvals
to market any of our product candidates, and we may not receive
such approvals. We may not be profitable even if we succeed in
commercializing any of our product candidates. We expect to make
substantial and increasing expenditures and to incur additional
operating losses for at least the next several years as we:
|
|
|
|
|
continue the clinical development of our Technosphere Insulin
System for the treatment of diabetes;
|
|
|
|
expand our manufacturing operations for our Technosphere Insulin
System to meet our currently anticipated commercial production
needs;
|
|
|
|
expand our other research, discovery and development programs;
|
|
|
|
expand our proprietary Technosphere platform technology and
develop additional applications for the pulmonary delivery of
other drugs; and
|
|
|
|
enter into sales and marketing collaborations with other
companies, if available on commercially reasonable terms, or
develop these capabilities ourselves.
|
52
Our business is subject to significant risks, including but not
limited to the risks inherent in our ongoing clinical trials and
the regulatory approval process, the results of our research and
development efforts, competition from other products and
technologies and uncertainties associated with obtaining and
enforcing patent rights.
RESEARCH
AND DEVELOPMENT EXPENSES
Our research and development expenses consist mainly of costs
associated with the clinical trials of our product candidates
that have not yet received regulatory approval for marketing and
for which no alternative future use has been identified. This
includes the salaries, benefits and stock-based compensation of
research and development personnel, laboratory supplies and
materials, facility costs, costs for consultants and related
contract research, licensing fees, and depreciation of
laboratory equipment. We track research and development costs by
the type of cost incurred. We partially offset research and
development expenses with the recognition of estimated amounts
receivable from the State of Connecticut pursuant to a program
under which we can exchange qualified research and development
income tax credits for cash.
Our research and development staff conducts our internal
research and development activities, which include research,
product development, clinical development, manufacturing and
related activities. This staff is located in our facilities in
Valencia, California; Paramus, New Jersey; and Danbury,
Connecticut. We expense the majority of research and development
costs as we incur them.
Clinical development timelines, likelihood of success and total
costs vary widely. We are focused primarily on advancing the
Technosphere Insulin System through Phase 3 clinical trials and
regulatory filings. Based on the results of preclinical studies,
we plan to develop additional applications of our Technosphere
technology. Additionally, we anticipate that we will continue to
determine which research and development projects to pursue, and
how much funding to direct to each project, on an ongoing basis,
in response to the scientific and clinical success of each
product candidate. We cannot be certain when any revenues from
the commercialization of our products will commence.
At this time, due to the risks inherent in the clinical trial
process and given the early stage of development of our product
candidates other than the Technosphere Insulin System, we are
unable to estimate with any certainty the costs that we will
incur in the continued development of our product candidates for
commercialization. The costs required to complete the
development of our Technosphere Insulin System will be largely
dependent on the scope of our clinical trials, the cost and
efficiency of our manufacturing process and discussions with the
FDA on its requirements.
GENERAL
AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses consist primarily of
salaries, benefits and stock-based compensation for
administrative, finance, business development, human resources,
legal and information systems support personnel. In addition,
general and administrative expenses include professional service
fees and business insurance costs.
CRITICAL
ACCOUNTING POLICIES
We have based our discussion and analysis of our financial
condition and results of operations on our financial statements,
which have been prepared in accordance with accounting
principles generally accepted in the United States. The
preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of
assets, liabilities and expenses. We evaluate our estimates and
judgments on an ongoing basis. We base our estimates on
historical experience and on various assumptions that we believe
to be reasonable under the circumstances, the results of which
form the basis for making estimates of expenses such as stock
option expenses and judgments about the carrying values of
assets and liabilities. Actual results may differ from these
estimates under different assumptions or conditions. The
significant accounting policies that are critical to the
judgments and estimates used in the preparation of our financial
statements are described in more detail below.
53
Impairment
of long-lived assets
Assessing long-lived assets for impairment requires us to make
assumptions and judgments regarding the carrying value of these
assets. We evaluate long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. The assets are
considered to be impaired if we determine that the carrying
value may not be recoverable based upon our assessment of the
following events or changes in circumstances:
|
|
|
|
|
significant changes in our strategic business objectives and
utilization of the assets;
|
|
|
|
a determination that the carrying value of such assets cannot be
recovered through undiscounted cash flows;
|
|
|
|
loss of legal ownership or title to the assets; or
|
|
|
|
the impact of significant negative industry or economic trends.
|
If we believe our assets to be impaired, the impairment we
recognize is the amount by which the carrying value of the
assets exceeds the fair value of the assets. Any write-downs
would be treated as permanent reductions in the carrying amount
of the asset and an operating loss would be recognized. In
addition, we base the useful lives and related amortization or
depreciation expense on our estimate of the useful lives of the
assets. If a change were to occur in any of the above-mentioned
factors or estimates, our reported results could materially
change.
To date, we have had recurring operating losses, and the
recoverability of our long-lived assets is contingent upon
executing our business plan. If we are unable to execute our
business plan, we may be required to write down the value of our
long-lived assets in future periods.
Clinical
trial expenses
Our clinical trial accrual process seeks to account for expenses
resulting from our obligations under contract with vendors,
consultants, and clinical site agreements in connection with
conducting clinical trials. The financial terms of these
contracts are subject to negotiations which vary from contract
to contract and may result in payment flows that do not match
the periods over which materials or services are provided to us
under such contracts. Our objective is to reflect the
appropriate trial expenses in our financial statements by
matching period expenses with period services and efforts
expended. We account for these expenses according to the
progress of the trial as measured by patient progression and the
timing of various aspects of the trial. We determine accrual
estimates through discussions with internal clinical personnel
and outside service providers as to the progress or state of
completion of trials, or the services completed. Service
provider status is then compared to the contractual obligated
fee to be paid for such services. During the course of a
clinical trial, we adjust our rate of clinical expense
recognition if actual results differ from our estimates. In the
event that we do not identify certain costs that have begun to
be incurred or we underestimate or overestimate the level of
services performed or the costs of such services, our reported
expenses for a period would be too low or too high. The date on
which certain services commence, the level of services performed
on or before a given date and the cost of the services are often
judgmental. We make these judgments based upon the facts and
circumstances known to us in accordance with generally accepted
accounting principles.
Stock-based
compensation
On January 1, 2006, the Company adopted the provisions of
SFAS No. 123R, which is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123). Prior to
January 1, 2006, the Company accounted for employee stock
options and the employee stock purchase plan using the intrinsic
value method in accordance with Accounting Principles Board
(APB) Opinion No. 25 (APB
No. 25), Accounting for Stock Issued to
Employees, and adopted the disclosure only alternative of
SFAS No. 123. SFAS No. 123R eliminated the
intrinsic value method of accounting for stock options which the
Company followed until December 31, 2005. Further,
SFAS No. 123R requires all share-based payments to
employees, including grants of stock options and the
compensatory elements of employee stock purchase plans, to be
recognized in the income statement based upon the fair value of
the awards at the grant date.
54
Upon adoption of SFAS No. 123R, the Company selected
the modified prospective transition method whereby unvested
awards at the date of adoption, as well as awards that are
granted, modified or settled after the date of adoption, will be
measured and accounted for in accordance with
SFAS No. 123R. Measurement and attribution of
compensation cost for awards unvested as of January 1, 2006
is based on the same estimate of the grant-date or
modification-date fair value and the same attribution method
(straight-line) used previously under SFAS No. 123.
Our consolidated financial statements as of and for the years
ended December 31, 2007 and 2006 reflect the impact of
SFAS No. 123R. In accordance with the modified
prospective transition method, our consolidated financial
statements for prior periods have not been restated to reflect,
and do not include, the impact of SFAS 123R.
Accounting
for income taxes
We must make significant management judgments when determining
our provision for income taxes, our deferred tax assets and
liabilities and any valuation allowance recorded against our net
deferred tax assets. At December 31, 2007, we have
established a valuation allowance of $387.5 million against
all of our net deferred tax asset balance, due to uncertainties
related to our deferred tax assets as a result of our history of
operating losses. The valuation allowance is based on our
estimates of taxable income by jurisdiction in which we operate
and the period over which our deferred tax assets will be
recoverable. In the event that actual results differ from these
estimates or we adjust these estimates in future periods, we may
need to change the valuation allowance, which could materially
impact our financial position and results of operations.
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting
and disclosure for uncertainty in tax positions, as defined.
FIN 48 seeks to reduce the diversity in practice associated
with certain aspects of the recognition and measurement related
to accounting for income taxes. We are subject to the provisions
of FIN 48 as of January 1, 2007. We believe that our
income tax filing positions and deductions will be sustained on
audit and do not anticipate any adjustments that will result in
a material change to our financial position. Therefore, no
reserves for uncertain income tax positions have been recorded
pursuant to FIN 48. The cumulative effect, if any, of
applying FIN 48 is to be reported as an adjustment to the
opening balance of retained earnings in the year of adoption.
Our adoption of FIN 48 did not result in a cumulative
effect adjustment to retained earnings. Tax years since 1992
remain subject to examination by the major tax jurisdictions in
which we are subject to tax.
RESULTS
OF OPERATIONS
Years
ended December 31, 2007 and 2006
Revenues
During the years ended December 31, 2007 and 2006, the
Company recognized $10,000 and $100,000, respectively, in
revenue under a license agreement. We do not anticipate sales of
any product prior to regulatory approval and commercialization
of our Technosphere Insulin System.
Research
and Development Expenses
The following table provides a comparison of the research and
development expense categories for the years ended
December 31, 2007 and 2006 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
$ Change
|
|
|
% Change
|
|
|
Clinical
|
|
$
|
124,655
|
|
|
$
|
110,623
|
|
|
$
|
14,032
|
|
|
|
13
|
%
|
Manufacturing
|
|
|
86,473
|
|
|
|
40,656
|
|
|
|
45,817
|
|
|
|
113
|
%
|
Research
|
|
|
36,720
|
|
|
|
33,962
|
|
|
|
2,758
|
|
|
|
8
|
%
|
Research and development tax credit
|
|
|
(753
|
)
|
|
|
(585
|
)
|
|
|
(168
|
)
|
|
|
29
|
%
|
Stock-based compensation expense
|
|
|
9,749
|
|
|
|
7,140
|
|
|
|
2,609
|
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
256,844
|
|
|
$
|
191,796
|
|
|
$
|
65,048
|
|
|
|
34
|
%
|
55
The increase in research and development expenses for the year
ended December 31, 2007, as compared to the year ended
December 31, 2006, was primarily due to increases in
manufacturing costs, including clinical supplies, for
Technosphere Insulin and increased costs associated with the
expanded clinical development of our Technosphere Insulin System
and the continuation of other preclinical studies. We anticipate
that our research and development expenses will increase
slightly in 2008 as we complete our pivotal Technosphere Insulin
trials, continue preparation for commercial scale manufacturing
of Technosphere Insulin, expand our Technosphere platform
technology, and continue to pursue cancer therapies.
Specifically, we anticipate increased expenses related to the
expansion, qualification and validation of our commercial
manufacturing processes and facilities.
The research and development tax credit recognized for the years
ended December 31, 2007 and 2006 partially offsets our
research and development expenses. The State of Connecticut
provides an opportunity to exchange certain research and
development income tax credit carryforwards for cash in exchange
for forgoing the carryforward of the research and development
credits. Estimated amounts receivable under the program are
recorded as a reduction of research and development expenses.
During the years ended December 31, 2007 and 2006, research
and development expenses were offset by $0.8 million and
$0.6 million, respectively, in connection with the program.
General
and Administrative Expenses
The following table provides a comparison of the general and
administrative expense categories for the years ended
December 31, 2007 and 2006 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
$ Change
|
|
|
% Change
|
|
|
Salaries, employee related and other general expenses
|
|
$
|
42,627
|
|
|
$
|
34,474
|
|
|
$
|
8,153
|
|
|
|
24
|
%
|
Stock-based compensation expense
|
|
|
7,896
|
|
|
|
7,527
|
|
|
|
369
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
50,523
|
|
|
$
|
42,001
|
|
|
$
|
8,522
|
|
|
|
20
|
%
|
The increase in general and administrative expenses for the year
ended December 31, 2007, as compared to the year ended
December 31, 2006, was primarily due to increased headcount
and professional service fees. We expect general and
administrative expenses to increase slightly in 2008 as a result
of increased salary related expenses and professional service
fees.
Interest
Income and Expense
Interest income for the year ended December 31, 2007
increased $13.1 million as compared to the year ended
December 31, 2006 primarily due to higher cash balances
resulting from the sale by the Company of common stock and
convertible notes in December 2006. Interest expense for the
year ended December 31, 2007 was related to the convertible
notes issued in December 2006 and amortization of the debt
issuance costs, partially offset by capitalized interest related
to construction in progress. Interest expense for the year ended
December 31, 2006 was related to amounts borrowed under the
loan arrangement with our principal stockholder in August 2006.
Years
ended December 31, 2006 and 2005
Revenues
During the year ended December 31, 2006, the Company
recognized $100,000 in revenue under a license agreement. No
revenues were recorded for the year ended December 31, 2005.
56
Research
and Development Expenses
The following table provides a comparison of the research and
development expense categories for the years ended
December 31, 2006 and 2005 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Clinical
|
|
$
|
110,623
|
|
|
$
|
49,483
|
|
|
$
|
61,140
|
|
|
|
124
|
%
|
Manufacturing
|
|
|
40,656
|
|
|
|
25,401
|
|
|
|
15,255
|
|
|
|
60
|
%
|
Research
|
|
|
33,962
|
|
|
|
22,449
|
|
|
|
11,513
|
|
|
|
51
|
%
|
Research and development tax credit
|
|
|
(585
|
)
|
|
|
(1,666
|
)
|
|
|
1,081
|
|
|
|
(65
|
)%
|
Stock-based compensation expense (benefit)
|
|
|
7,140
|
|
|
|
(320
|
)
|
|
|
7,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
191,796
|
|
|
$
|
95,347
|
|
|
$
|
96,449
|
|
|
|
101
|
%
|
The increase in research and development expenses for the year
ended December 31, 2006, as compared to the year ended
December 31, 2005, was primarily due to increased costs
associated with the expanded clinical development of our
Technosphere Insulin System and the continuation of other
preclinical studies; increased salaries and related expenses
driven by higher headcount; increases in consulting services and
technology agreements; and increases in stock-based compensation
expense. The increase in stock-based compensation expense was
due to the adoption of SFAS 123R on January 1, 2006
and the stock-based compensation benefit in 2005 resulting from
the fluctuation of our stock price on the stock options that
were repriced in November 2003.
The research and development tax credit recognized for the years
ended December 31, 2006 and 2005 partially offsets our
research and development expenses. The State of Connecticut
provides an opportunity to exchange certain research and
development income tax credit carryforwards for cash in exchange
for forgoing the carryforward of the research and development
credits. Estimated amounts receivable under the program are
recorded as a reduction of research and development expenses.
During the years ended December 31, 2006 and 2005, research
and development expenses were offset by $0.6 million and
$1.7 million, respectively, in connection with the program.
General
and administrative expenses
The following table provides a comparison of the general and
administrative expense categories for the years ended
December 31, 2006 and 2005 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Salaries, employee related and other general expenses
|
|
$
|
34,474
|
|
|
$
|
24,183
|
|
|
$
|
10,291
|
|
|
|
43
|
%
|
Stock-based compensation expense (benefit)
|
|
|
7,527
|
|
|
|
(1,408
|
)
|
|
|
8,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
42,001
|
|
|
$
|
22,775
|
|
|
$
|
19,226
|
|
|
|
84
|
%
|
General and administrative expenses for the year ended
December 31, 2006 increased as compared to the year ended
December 31, 2005. Salaries, employee related and other
general expenses increased primarily due to increased headcount
and administrative services. The increase in stock-based
compensation expense was due to the adoption of SFAS 123R
on January 1, 2006 as compared to the stock-based
compensation benefit in 2005 that resulted from the fluctuation
of our stock price on stock options that were repriced in
November 2003.
LIQUIDITY
AND CAPITAL RESOURCES
We have funded our operations primarily through the sale of
equity securities. In October 2007, we issued and sold a total
of 27,014,686 shares of our common stock. Of this total,
15,940,489 shares were sold to our principal stockholder at
a price per share of $9.41 and 11,074,197 shares were sold
to other investors at a price per share of $9.03. The resulting
aggregate net proceeds were approximately $249.8 million
after expenses. In December 2006,
57
we issued and sold 23,000,000 shares of our common stock at
a price of $17.42 per share in an underwritten public offering.
The resulting aggregate net proceeds to us from this common
stock offering were approximately $384.7 million after
expenses. In December 2006, we also sold $115.0 million
aggregate principal amount of 3.75% Senior Convertible
Notes due 2013. The resulting aggregate net proceeds to us from
this note offering were approximately $111.3 million after
expenses.
In August 2006, we entered into a $150.0 million loan
arrangement with our principal stockholder, which was amended on
August 1, 2007 and replaced with a new loan arrangement on
October 2, 2007. Under the new loan arrangement, we can
borrow up to a total of $350.0 million before
January 1, 2010. From April 1, 2008 until
September 30, 2008, we can borrow up to $150.0 million
in one or more advances, and from March 1, 2009 until
December 31, 2009, we can borrow the remaining
$200.0 million plus any amount not previously borrowed in
one or more advances. We may not borrow more than one advance in
any 12-month
period, and each advance must be not less than
$50.0 million. Interest will accrue on each outstanding
advance at a fixed rate equal to the one-year LIBOR rate as
reported by the Wall Street Journal on the date of such
advance plus 3% per annum and will be payable quarterly in
arrears. Principal repayment is due on December 31, 2011.
At any time after January 1, 2010, our principal
stockholder can require us to prepay up to $200.0 million
in advances that have been outstanding for at least
12 months. If our principal stockholder exercises this
right, we will have until the earlier of 180 days after our
principal stockholder provides written notice or
December 31, 2011 to prepay such advances. In the event of
a default, all unpaid principal and interest either becomes
immediately due and payable or may be accelerated at our
principal stockholders option, and the interest rate will
increase to the one-year LIBOR rate calculated on the date of
the initial advance or in effect on the date of default,
whichever is greater, plus 5% per annum. Any borrowings under
the loan arrangement will be unsecured. The loan arrangement
contains no financial covenants. There are no warrants
associated with the loan arrangement, nor are advances
convertible into our common stock.
During the year ended December 31, 2007, we used
$245.1 million of cash for our operations compared to using
$189.8 million for our operations in the year ended
December 31, 2006. We had a net loss of $293.2 million
for the year ended December 31, 2007, of which
$27.6 million consisted of non-cash charges such as
depreciation and amortization, stock-based compensation, and
other stock-based charges pursuant to a research agreement. We
expect our negative operating cash flow to continue at least
until we obtain regulatory approval and achieve
commercialization of our Technosphere Insulin System.
We generated $38.7 million of cash for investing activities
during the year ended December 31, 2007, compared to using
$48.3 million for the year ended December 31, 2006.
Cash provided by investing activities was primarily from net
sales of marketable securities of $116.9 million partially
offset by $78.3 million in machinery and equipment
purchases used to expand our manufacturing operations and
quality systems in support of our expansion of clinical trials
for Technosphere Insulin System. We expect to make significant
purchases of equipment in the foreseeable future.
Our financing activities provided cash of $255.2 million
for the year ended December 31, 2007 compared to
$501.6 million for 2006. Cash from financing activities in
2007 was primarily from the equity offering in October 2007 and
the exercise of stock options throughout the year. For 2006,
cash from financing activities was primarily from the equity and
convertible note offerings in December 2006, as well as the
exercise of stock options.
As of December 31, 2007, we had $368.3 million in cash
and cash equivalents. Although we believe our existing cash
resources, including the expanded $350.0 million loan
arrangement with our principal stockholder, will be sufficient
to fund our anticipated cash requirements through the fourth
quarter of 2009, we will require significant additional
financing in the future to fund our operations. Accordingly, we
expect that we will need to raise additional capital, either
through the sale of equity
and/or debt
securities, a strategic business collaboration with a
pharmaceutical or biotechnology company or the establishment of
other funding facilities, in order to continue the development
and commercialization of our Technosphere Insulin System and
other product candidates and to support our other ongoing
activities.
We intend to use our capital resources to continue the
development of our Technosphere Insulin System and to develop
additional applications for our proprietary Technosphere
platform technology. In addition, portions of our capital
resources will be devoted to expanding our other product
development programs for the treatment of different types of
cancers. We are expending a portion of our capital to scale up
our manufacturing capabilities in
58
our Danbury facilities. We also intend to use our capital
resources for general corporate purposes, which may include
in-licensing or acquiring additional technologies.
We have held extensive discussions with a number of
pharmaceutical companies concerning a potential strategic
business collaboration for our Technosphere Insulin System. To
date, we have not reached agreement with any of these companies
on a collaboration. While we are continuing to engage in such
discussions, we believe that we will have to expend significant
additional time and effort before we could reach agreement, and
we cannot predict when, if ever, we could conclude such an
agreement with a partner. There can be no assurance that any
such collaboration will be available to us on a timely basis or
on acceptable terms, if at all.
If we enter into a strategic business collaboration with a
pharmaceutical or biotechnology company, we would expect, as
part of the transaction, to receive additional capital. In
addition, we expect to pursue the sale of equity
and/or debt
securities, or the establishment of other funding facilities.
Issuances of debt or additional equity could impact the rights
of our existing stockholders, dilute the ownership percentages
of our existing stockholders and may impose restrictions on our
operations. These restrictions could include limitations on
additional borrowing, specific restrictions on the use of our
assets as well as prohibitions on our ability to create liens,
pay dividends, redeem our stock or make investments. We also may
seek to raise additional capital by pursuing opportunities for
the licensing, sale or divestiture of certain intellectual
property and other assets, including our Technosphere technology
platform. There can be no assurance, however, that any strategic
collaboration, sale of securities or sale or license of assets
will be available to us on a timely basis or on acceptable
terms, if at all. If we are unable to raise additional capital,
we may be required to enter into agreements with third parties
to develop or commercialize products or technologies that we
otherwise would have sought to develop independently, and any
such agreements may not be on terms as commercially favorable to
us.
However, we cannot provide assurances that our plans will not
change or that changed circumstances will not result in the
depletion of our capital resources more rapidly than we
currently anticipate. If planned operating results are not
achieved or we are not successful in raising additional equity
financing or entering a business collaboration, we may be
required to reduce expenses through the delay, reduction or
curtailment of our projects, including our Technosphere Insulin
System development activities, or further reduction of costs for
facilities and administration.
Off-Balance
Sheet Arrangements
As of December 31, 2007, we did not have any off-balance
sheet arrangements.
COMMITMENTS
AND CONTINGENCIES
Our contractual obligations represent future cash commitments
and liabilities under agreements with third parties, and exclude
contingent liabilities for which we cannot reasonably predict
future payments. Accordingly, the table below excludes
contractual obligations relating to milestone and royalty
payments due to third parties, all of which are contingent upon
certain future events. The expected timing of payment of the
obligations presented below is estimated based on current
information. Future payments relate to operating lease
obligations (including facility leases executed in March 2005
and November 2005), the senior convertible notes, and open
purchase order and supply commitments consisted of the following
at December 31, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
|
Contractual Obligations
|
|
One Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
Open purchase order and supply commitments(1)
|
|
$
|
191,276
|
|
|
$
|
36,951
|
|
|
$
|
84,980
|
|
|
$
|
|
|
|
$
|
313,207
|
|
Senior Convertible Note Obligations(2)
|
|
|
4,384
|
|
|
|
8,745
|
|
|
|
8,757
|
|
|
|
119,372
|
|
|
|
141,258
|
|
Operating lease obligations
|
|
|
1,693
|
|
|
|
2,651
|
|
|
|
|
|
|
|
|
|
|
|
4,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
197,353
|
|
|
$
|
48,347
|
|
|
$
|
93,737
|
|
|
$
|
119,372
|
|
|
$
|
458,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts included in open purchase order and supply
commitments are subject to performance under the purchase order
or contract by the supplier of the goods or services and do not
become our obligation until such |
59
|
|
|
|
|
performance is rendered. The amount shown is principally for the
purchase of materials for our clinical trials, the acquisition
of manufacturing equipment, and commitments related to the
expansion of our manufacturing plant and the purchase of raw
materials under long-term supply agreements. |
|
(2) |
|
The senior convertible note obligation amounts include future
interest payments at a fixed rate of 3.75% and payment of the
notes in full upon maturity in 2013. |
RELATED
PARTY TRANSACTIONS
For a description of our related party transactions see
Note 16 Related Party Transactions in the notes
to our financial statements.
RECENT
ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB ratified the EITF consensus on EITF
Issue
No. 07-1,
Accounting for Collaborative Arrangements, that discusses
how parties to a collaborative arrangement (which does not
establish a legal entity within such arrangement) should account
for various activities. The consensus indicates that costs
incurred and revenues generated from transactions with third
parties (i.e. parties outside of the collaborative arrangement)
should be reported by the collaborators on the respective line
items in their income statements pursuant to EITF Issue
No. 99-19,
Reporting Revenue Gross as a Principal Versus Net as an
Agent., Additionally, the consensus provides that income
statement characterization of payments between the participants
in a collaborative arrangement should be based upon existing
authoritative pronouncements; analogy to such pronouncements if
not within their scope; or a reasonable, rational, and
consistently applied accounting policy election. EITF Issue
No. 07-1
is effective beginning January 1, 2009 and is to be applied
retrospectively to all periods presented for collaborative
arrangements existing as of the date of adoption. We are
evaluating the impact, if any, the adoption of this consensus
will have on our results of operations, financial position or
cash flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations and SFAS No. 160,
Accounting and Reporting of Noncontrolling Interests to
Consolidated Financial Statements an amendment of
ARB No. 51 (SFAS No. 160). These
standards will significantly change the accounting and reporting
for business combination transactions and noncontrolling
(minority) interests in consolidated financial statements,
including capitalizing at the acquisition date the fair value of
acquired IPR&D, and remeasuring and writing down the
assets, if necessary, in subsequent periods during their
development. These new standards will be applied prospectively
for business combinations that occur on or after January 1,
2009, except that presentation and disclosure requirements of
SFAS No. 160 regarding noncontrolling interests shall be
applied retrospectively.
In September 2007, the FASB ratified
EITF 07-3,
Accounting for Advance Payments for Goods or Services to Be
Used in Future Research and Development Activities.
EITF 07-3
requires that nonrefundable advance payments for future research
and development activities be deferred and capitalized.
EITF 07-3
is effective as of the beginning of an entitys first
fiscal year that begins after December 15, 2007. We are
evaluating the impact, if any, the adoption of
EITF 07-3
will have on our results of operations, financial position or
cash flows.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, which permits entities to choose to measure
many financial instruments and certain other items at fair
value. SFAS No. 159 also includes an amendment to
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities which applies to all entities
with available-for-sale and trading securities. This Statement
is effective as of the beginning of an entitys first
fiscal year that begins after November 15, 2007. We are
evaluating the impact, if any, the adoption of this Statement
will have on our results of operations, financial position or
cash flows.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, which defines fair value,
establishes a framework for consistently measuring fair value
for accounting purposes, and expands disclosures about fair
value measurements. SFAS No. 157 is effective for us
beginning January 1, 2008, and the provisions of
SFAS No. 157 will be applied prospectively as of that
date. In February 2008, FASB Staff Position (FSP)
No. 157-2
was issued. FSP
No. 157-2
delays the implementation of certain aspects of
SFAS No. 157 to January 1, 2009. We are
evaluating the impact, if any, the adoption of this Statement
will have on our results of operations, financial position or
cash flows.
60
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We have not used derivative financial instruments in the past to
hedge market risk. We are exposed to market risk related to
changes in interest rates impacting our cash investment
portfolio as well as the interest rate on our credit facility.
The interest rate on our credit facility is a fixed rate equal
to the one-year LIBOR rate as reported by the Wall Street
Journal on the date of such advance plus 3% per annum. Our
current policy requires us to maintain a highly liquid
short-term investment portfolio consisting mainly of
U.S. money market funds and investment-grade corporate,
government and municipal debt. None of these investments is
entered into for trading purposes. Our cash is deposited in and
invested through highly rated financial institutions in North
America. We do not have any
short-term
investments at December 31, 2007. If we were to draw the
available amount on our $350 million credit facility and
interest rates were to increase from levels at December 31,
2007 we could experience a higher level of interest expense than
assumed in our current operating plan.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The information required by this Item is included in
Items 15(a)(1) and (2) of Part IV of this Annual
Report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
reports filed under the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms and that such information is
accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as
appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls
and procedures, 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, and management is required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
Our chief executive officer and chief financial officer
performed an evaluation under the supervision and with the
participation of our management, of our disclosure controls and
procedures (as defined in
Rule 13a-15(b)
of the Exchange Act) as of December 31, 2007. Based on that
evaluation, our chief executive officer and chief financial
officer concluded that our disclosure controls and procedures
were effective at the reasonable assurance level.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rule 13a-15(f).
Under the supervision and with the participation of our
management, including our chief executive officer and chief
financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework set forth in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework set
forth in Internal Control Integrated
Framework, our management concluded that our internal
control over financial reporting was effective as of
December 31, 2007. Deloitte & Touche LLP, the
independent registered public accounting firm that audited the
financial statements included in this 2007
Form 10-K,
has issued an attestation report on our internal control over
financial reporting as of December 31, 2007, which is
included herein.
Remediation
of Material Weakness
As of June 30, 2007, our management concluded that we had a
material weakness in the operation of controls for identifying
and recording clinical trial costs, principally from the failure
of our controls to detect an
61
overstatement of clinical trial liabilities. The following is a
summary of control deficiencies that contributed to the material
weakness:
|
|
|
|
|
Certain balance sheet accounts relating primarily to accrued
vendor invoices and clinical trial costs were not adequately
analyzed or reconciled to supporting documentation.
|
|
|
|
Controls designed to ensure that these accounts and the
supporting analysis were reviewed by knowledgeable personnel did
not operate effectively.
|
|
|
|
Personnel responsible for the preparation of these accruals were
not adequately trained.
|
During the latter part of 2007, we implemented a remediation
plan to address the control deficiencies that contributed to
this material weakness. As of December 31, 2007, we
completed the execution of our remediation plan which included
recruiting, hiring and training additional accounting staff with
technical expertise for identifying and recording clinical trial
costs. Additionally, we implemented revised policies and
procedures and enhanced our review of the balance sheet accounts
relating to clinical trial costs. We anticipate making
additional improvements and changes in future periods, however,
except as described herein, there were no other changes in our
internal control over financial reporting during the fourth
quarter of 2007, that materially affected, or are reasonably
likely to materially effect, our internal control over financial
reporting.
62
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of MannKind
Corporation
Valencia, California
We have audited the internal control over financial reporting of
MannKind Corporation and subsidiaries (the Company)
as of December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
December 31, 2007 of the Company and our report dated
March 14, 2008 expressed an unqualified opinion on those
financial statements and included an explanatory paragraph
regarding a change in the manner in which the Company accounts
for share-based compensation in 2006.
/s/ DELOITTE &
TOUCHE LLP
Los Angeles, California
March 14, 2008
63
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
Certain information required by Part III is omitted from
this Annual Report on
Form 10-K
because we will file our Proxy Statement within 120 days
after the end of our fiscal year pursuant to Regulation 14A
for our 2008 Annual Meeting of Stockholders, and the information
included in the Proxy Statement is incorporated herein by
reference.
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant.
|
(a) Executive Officers For information
regarding the identification and business experience of our
executive officers, see Executive Officers in
Part I, Item 1 of this Annual Report on
Form 10-K.
(b) Directors The information required
by this Item regarding the identification and business
experience of our directors and corporate governance matters is
contained in the section entitled
Proposal 1 Election of Directors
and Corporate Governance Principles and Board and
Committee Matters in the Proxy Statement, and is
incorporated herein by reference.
Additional information required by this Item is incorporated by
reference to the section entitled Section 16(a)
Beneficial Ownership Reporting Compliance in the Proxy
Statement.
We have adopted a Code of Business Conduct and Ethics Policy
that applies to our directors and employees (including our
principal executive officer, principal financial officer,
principal accounting officer and controller), and have posted
the text of the policy on our website (www.mannkindcorp.com) in
connection with Investor Relations materials. In
addition, we intend to promptly disclose on our website
(i) the nature of any amendment to the policy that applies
to our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons
performing similar functions and (ii) the nature of any
waiver, including an implicit waiver, from a provision of the
policy that is granted to one of these specified individuals,
the name of such person who is granted the waiver and the date
of the waiver on our website in the future.
|
|
Item 11.
|
Executive
Compensation
|
The information under the caption Executive
Compensation in the Proxy Statement is incorporated herein
by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information under the captions Security Ownership of
Certain Beneficial Owners and Management and
Executive Compensation Securities Authorized
for Issuance under Equity Compensation Plans in the Proxy
Statement is incorporated herein by this reference.
|
|
Item 13.
|
Certain
Relationships, Related Transactions and Director
Independence
|
The information under the caption Certain
Transactions and Corporate Governance Principles and
Board and Committee Matters in the Proxy Statement is
incorporated herein by reference. With the exception of the
information specifically incorporated by reference from the
Proxy Statement in this Annual Report on
Form 10-K,
the Proxy Statement shall not be deemed to be filed as part of
this report. Without limiting the foregoing, the information
under the captions Report of the Audit Committee of the
Board of Directors and Report of the Compensation
Committee of the Board of Directors in the Proxy Statement
is not incorporated by reference.
64
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information under the caption Principal Accounting
Fees and Services in the Proxy Statement is incorporated
herein by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as part of, or
incorporated by reference into, this Annual Report on
Form 10-K:
(1)(2) Financial Statements and Financial Statement
Schedules. The following Financial Statements of MannKind
Corporation, Financial Statement Schedules and Report of
Independent Registered Public Accounting Firm are included in a
separate section of this report beginning on
page F-2:
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
71
|
Consolidated Balance Sheets
|
|
72
|
Statements of Operations
|
|
73
|
Statements of Stockholders Equity (Deficit)
|
|
74
|
Statements of Cash Flows
|
|
78
|
Notes to Financial Statements
|
|
80
|
All financial statement schedules have been omitted because the
required information is not applicable or not present in amounts
sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial
statements or the notes thereto.
(3) Exhibits. The exhibits listed under Item 15(c)
hereof are filed with, or incorporated by reference into, this
Annual Report on
Form 10-K.
Each management contract or compensatory plan or arrangement is
identified separately in Item 15(c) hereof.
(c) Exhibits. The following exhibits are filed as part of,
or incorporated by reference into, this Annual Report on
Form 10-K:
65
Exhibit Index
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
3.1(1)
|
|
Restated Certificate of Incorporation.
|
3.2(13)
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation.
|
3.2(10)
|
|
Amended and Restated Bylaws.
|
4.1(11)
|
|
Indenture, by and between MannKind and Wells Fargo Bank, N.A.,
dated November 1, 2006.
|
4.2(4)
|
|
First Supplemental Indenture, by and between MannKind and Wells
Fargo Bank, N.A., dated December 12, 2006.
|
4.3(4)
|
|
Form of 3.75% Senior Convertible Note due 2013.
|
4.4(1)
|
|
Form of common stock certificate.
|
4.5(1)
|
|
Registration Rights Agreement, dated October 15, 1998 by
and among CTL ImmunoTherapies Corp., Medical Research Group,
LLC, McLean Watson Advisory Inc. and Alfred E. Mann, as amended.
|
10.1(2)
|
|
Promissory Note made by MannKind in favor of Alfred E. Mann
dated October 3, 2007.
|
10.2(13)
|
|
Agreement, dated September 13, 2006, between MannKind and
Torcon, Inc.
|
10.3(3)
|
|
Securities Purchase Agreement, dated August 2, 2005 by and
among MannKind and the purchasers listed on Exhibit A
thereto.
|
10.4(5)
|
|
Supply Agreement, dated December 31, 2004, between MannKind
and Vaupell, Inc.
|
10.5(1)
|
|
Supply Agreement, dated January 1, 2000, between Diosynth
B.V. and Pharmaceutical Discovery Corporation.
|
10.6*(1)
|
|
Form of Indemnity Agreement entered into between MannKind and
each of its directors and officers.
|
10.7*(9)
|
|
Description of Officers Incentive Program.
|
10.8*(6)
|
|
Description of 2006 executive officer salaries.
|
10.9*(6)
|
|
Description of 2006 non-employee director compensation.
|
10.9*(12)
|
|
Executive Severance Agreement, dated October 10, 2007,
between MannKind and Hakan Edstrom.
|
10.10*(12)
|
|
Executive Severance Agreement, dated October 10, 2007,
between MannKind and David Thomson.
|
10.11*(12)
|
|
Executive Severance Agreement, dated October 10, 2007,
between MannKind and Richard Anderson.
|
10.12*(12)
|
|
Executive Severance Agreement, dated October 10, 2007,
between MannKind and Peter Richardson.
|
10.13*(12)
|
|
Executive Severance Agreement, dated October 10, 2007,
between MannKind and Juergen Martens.
|
10.14*(12)
|
|
Executive Severance Agreement, dated October 10, 2007,
between MannKind and Diane Palumbo.
|
10.15*(12)
|
|
Change of Control Agreement, dated October 10, 2007,
between MannKind and Hakan Edstrom.
|
10.16*(12)
|
|
Change of Control Agreement, dated October 10, 2007,
between MannKind and David Thomson.
|
10.17*(12)
|
|
Change of Control Agreement, dated October 10, 2007,
between MannKind and Richard Anderson.
|
10.18*(12)
|
|
Change of Control Agreement, dated October 10, 2007,
between MannKind and Peter Richardson.
|
10.19*(12)
|
|
Change of Control Agreement, dated October 10, 2007,
between MannKind and Juergen Martens.
|
10.20*(12)
|
|
Change of Control Agreement, dated October 10, 2007,
between MannKind and Diane Palumbo.
|
10.21*(8)
|
|
2004 Equity Incentive Plan and form of stock option agreement
there under.
|
10.22*(7)
|
|
Form of Phantom Stock Award Agreement under the 2004 Equity
Incentive Plan.
|
10.23*(9)
|
|
2004 Non-Employee Directors Stock Option Plan and form of
stock option agreement there under.
|
10.24*(1)
|
|
2004 Employee Stock Purchase Plan and form of offering document
there under.
|
10.25*(1)
|
|
Pharmaceutical Discovery Corporation 1991 Stock Option Plan.
|
10.26*(1)
|
|
Pharmaceutical Discovery Corporation 1999 Stock Plan and form of
stock option plan there under.
|
10.27*(1)
|
|
AlleCure Corp. 2000 Stock Option and Stock Plan.
|
10.28*(1)
|
|
CTL Immunotherapies Corp. 2000 Stock Option and Stock Plan.
|
10.29*(1)
|
|
2001 Stock Awards Plan.
|
10.30**
|
|
Supply Agreement, dated November 16, 2007, between MannKind
and N.V. Organon.
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm
|
66
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to
Rules 13a-14(a)
and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to
Rules 13a-14(a)
and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
|
32
|
|
Certifications of the Chief Executive Officer and Chief
Financial Officer pursuant to
Rules 13a-14(b)
and 15d-14(b) of the Securities Exchange Act of 1934, as amended
and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. § 1350)
|
|
|
|
* |
|
Indicates management contract or compensatory plan. |
|
** |
|
Confidential treatment has been requested with respect to
certain portions of this exhibit. Omitted portions have been
filed separately with the SEC. |
|
|
|
Confidential treatment has been granted with respect to certain
portions of this exhibit. Omitted portions have been filed
separately with the SEC. |
|
(1) |
|
Incorporated by reference to MannKinds registration
statement on
Form S-1
(File
No. 333-115020),
filed with the SEC on April 30, 2004, as amended. |
|
(2) |
|
Incorporated by reference to MannKinds Current Report on
Form 8-K
filed with the SEC on October 3, 2007. |
|
(3) |
|
Incorporated by reference to MannKinds current report on
Form 8-K
filed with the SEC on August 5, 2005. |
|
(4) |
|
Incorporated by reference to MannKinds current report on
Form 8-K
filed with the SEC on December 12, 2006. |
|
(5) |
|
Incorporated by reference to MannKinds current report on
Form 8-K
filed with the SEC on February 23, 2005. |
|
(6) |
|
Incorporated by reference to MannKinds current report on
Form 8-K
filed with the SEC on February 22, 2006. |
|
(7) |
|
Incorporated by reference to MannKinds current report on
Form 8-K
filed with the SEC on December 14, 2005. |
|
(8) |
|
Incorporated by reference to MannKinds Current Report on
Form 8-K
filed with the SEC on May 31, 2006. |
|
(9) |
|
Incorporated by reference to MannKinds Annual Report on
Form 10-K
filed with the SEC on March 16, 2006. |
|
(10) |
|
Incorporated by reference to MannKinds Current Report on
Form 8-K
filed with the SEC on November 19, 2007. |
|
(11) |
|
Incorporated by reference to MannKinds Registration
Statement on
Form S-3
(File
No. 333-138373)
filed with the SEC on November 2, 2006. |
|
(12) |
|
Incorporated by reference to MannKinds Current Report on
Form 8-K,
as amended, filed with the SEC on October 16, 2007. |
|
(13) |
|
Incorporated by reference to MannKinds Quarterly Report on
Form 10-Q
filed with the SEC on August 9, 2007. |
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Mannkind Corporation
Alfred E. Mann
Chief Executive Officer
Dated: March 14, 2008
POWER OF
ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Hakan S. Edstrom, Richard
L. Anderson and David Thomson, and each of them, as his or her
true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or
her name, place, and stead, in any and all capacities, to sign
any and all amendments to this Report, and any other documents
in connection therewith, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them or their
or his substitute or substituted, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Alfred
E. Mann
Alfred
E. Mann
|
|
Chief Executive Officer and chairman of the Board of Directors
(Principal Executive Officer)
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Hakan
S. Edstrom
Hakan
S. Edstrom
|
|
President, Chief Operating Officer and Director
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Richard
L. Anderson
Richard
L. Anderson
|
|
Corporate Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 14, 2008
|
|
|
|
|
|
/s/ A.
E. Cohen
A.
E. Cohen
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Ronald
J. Consiglio
Ronald
J. Consiglio
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Michael
Friedman, M.D.
Michael
Friedman, M.D.
|
|
Director
|
|
March 14, 2008
|
68
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Kent
Kresa
Kent
Kresa
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
/s/ David
H. MacCallum
David
H. MacCallum
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Heather
Hay Murren
Heather
Hay Murren
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Henry
L. Nordhoff
Henry
L. Nordhoff
|
|
Director
|
|
March 14, 2008
|
69
MANNKIND
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
INDEX TO
FINANCIAL STATEMENTS
70
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of MannKind
Corporation
Valencia, California
We have audited the accompanying consolidated balance sheets of
MannKind Corporation and subsidiaries (a development stage
company) (the Company) as of December 31, 2006
and 2007 and the related statements of operations,
stockholders equity (deficit), and cash flows for each of
the three years in the period ended December 31, 2007 and
for the period from February 14, 1991 (date of inception)
to December 31, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
MannKind Corporation and subsidiaries as of December 31,
2006 and 2007, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2007 and for the period from February 14,
1991 (date of inception) to December 31, 2007, in
conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 2 to the consolidated financial
statements, the Company changed the manner in which it accounts
for share-based compensation in 2006.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2007, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 14, 2008 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ DELOITTE &
TOUCHE LLP
Los Angeles, California
March 14, 2008
71
MANNKIND
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands, except
|
|
|
|
share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
319,555
|
|
|
$
|
368,285
|
|
Marketable securities
|
|
|
116,924
|
|
|
|
|
|
State research and development credit exchange
receivable current
|
|
|
2,418
|
|
|
|
831
|
|
Prepaid expenses and other current assets
|
|
|
10,650
|
|
|
|
9,596
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
449,547
|
|
|
|
378,712
|
|
Property and equipment net
|
|
|
88,328
|
|
|
|
162,683
|
|
State research and development credit exchange
receivable net of current portion
|
|
|
1,500
|
|
|
|
1,500
|
|
Other assets
|
|
|
362
|
|
|
|
548
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
539,737
|
|
|
$
|
543,443
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,715
|
|
|
$
|
35,463
|
|
Accrued expenses and other current liabilities
|
|
|
34,244
|
|
|
|
32,095
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
44,959
|
|
|
|
67,558
|
|
Senior convertible notes
|
|
|
111,267
|
|
|
|
111,761
|
|
Other liabilities
|
|
|
24
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
156,250
|
|
|
|
179,343
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, $0.01 par value
10,000,000 shares authorized; no shares issued or
outstanding at December 31, 2006 and 2007
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value 90,000,000 and
150,000,000 shares authorized at December 31, 2006 and
2007, respectively; 73,360,154 and 101,380,823 shares
issued and outstanding at December 31, 2006 and 2007,
respectively
|
|
|
734
|
|
|
|
1,014
|
|
Additional paid-in capital
|
|
|
1,170,602
|
|
|
|
1,444,125
|
|
Deficit accumulated during the development stage
|
|
|
(787,849
|
)
|
|
|
(1,081,039
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
383,487
|
|
|
|
364,100
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
539,737
|
|
|
$
|
543,443
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
72
MANNKIND
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
February 14,
|
|
|
|
|
|
|
|
|
|
|
|
|
1991 (Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception) to
|
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
100
|
|
|
$
|
10
|
|
|
$
|
2,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
95,347
|
|
|
|
191,796
|
|
|
|
256,844
|
|
|
|
747,040
|
|
General and administrative
|
|
|
22,775
|
|
|
|
42,001
|
|
|
|
50,523
|
|
|
|
190,499
|
|
In-process research and development costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,726
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
118,122
|
|
|
|
233,797
|
|
|
|
307,367
|
|
|
|
1,108,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(118,122
|
)
|
|
|
(233,697
|
)
|
|
|
(307,357
|
)
|
|
|
(1,105,725
|
)
|
Other income (expense)
|
|
|
78
|
|
|
|
208
|
|
|
|
(197
|
)
|
|
|
(1,881
|
)
|
Interest expense on note payable to principal stockholder
|
|
|
|
|
|
|
(1,511
|
)
|
|
|
|
|
|
|
(1,511
|
)
|
Interest expense on senior convertible notes
|
|
|
|
|
|
|
(222
|
)
|
|
|
(3,408
|
)
|
|
|
(3,630
|
)
|
Interest income
|
|
|
3,707
|
|
|
|
4,679
|
|
|
|
17,775
|
|
|
|
31,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(114,337
|
)
|
|
|
(230,543
|
)
|
|
|
(293,187
|
)
|
|
|
(1,081,015
|
)
|
Income taxes
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(114,338
|
)
|
|
|
(230,548
|
)
|
|
|
(293,190
|
)
|
|
|
(1,081,039
|
)
|
Deemed dividend related to beneficial conversion feature of
convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,260
|
)
|
Accretion on redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(114,338
|
)
|
|
$
|
(230,548
|
)
|
|
$
|
(293,190
|
)
|
|
$
|
(1,104,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common stockholders
basic and diluted
|
|
$
|
(2.87
|
)
|
|
$
|
(4.52
|
)
|
|
$
|
(3.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic and diluted net loss per share
applicable to common stockholders
|
|
|
39,871
|
|
|
|
50,970
|
|
|
|
80,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
73
MANNKIND
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
Series B
|
|
|
Series C
|
|
|
Convertible
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Notes
|
|
|
Accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Preferred
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receivable
|
|
|
Receivable
|
|
|
During the
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Subscriptions
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
from
|
|
|
from
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Issuable
|
|
|
Receivable
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stockholders
|
|
|
Officers
|
|
|
Stage
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
BALANCE, FEBRUARY 14, 1991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
998
|
|
|
$
|
10
|
|
|
$
|
890
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
900
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(911
|
)
|
|
|
(911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 29, 1992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998
|
|
|
|
10
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
(911
|
)
|
|
|
(11
|
)
|
Issuance of common stock for cash and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
1
|
|
|
|
887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888
|
|
Capital contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,175
|
)
|
|
|
(1,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 28, 1993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,071
|
|
|
|
11
|
|
|
|
1,797
|
|
|
|
|
|
|
|
|
|
|
|
(2,086
|
)
|
|
|
(278
|
)
|
Issuance of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
Issuance of stock for notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
400
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,156
|
)
|
|
|
(1,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 28, 1994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,090
|
|
|
|
11
|
|
|
|
2,723
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
(3,242
|
)
|
|
|
(908
|
)
|
Issuance of common stock for cash and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
1,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,805
|
|
Collection of stock subscription
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,004
|
)
|
|
|
(2,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,126
|
|
|
|
11
|
|
|
|
4,528
|
|
|
|
|
|
|
|
|
|
|
|
(5,246
|
)
|
|
|
(707
|
)
|
Issuance of common stock for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
384
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,815
|
)
|
|
|
(2,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,127
|
|
|
|
11
|
|
|
|
4,942
|
|
|
|
|
|
|
|
|
|
|
|
(8,061
|
)
|
|
|
(3,108
|
)
|
Issuance of common stock for cash and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,570
|
)
|
|
|
(2,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,131
|
|
|
|
11
|
|
|
|
5,139
|
|
|
|
|
|
|
|
|
|
|
|
(10,631
|
)
|
|
|
(5,481
|
)
|
Issuance of common stock for cash and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
548
|
|
|
|
6
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
Conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,280
|
)
|
|
|
(2,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,718
|
|
|
|
17
|
|
|
|
5,526
|
|
|
|
|
|
|
|
|
|
|
|
(12,911
|
)
|
|
|
(7,368
|
)
|
Issuance of common stock for cash and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,253
|
|
|
|
23
|
|
|
|
12,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,726
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
1
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
2
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,202
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,331
|
)
|
|
|
(3,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,254
|
|
|
|
43
|
|
|
|
19,603
|
|
|
|
|
|
|
|
|
|
|
|
(16,242
|
)
|
|
|
3,404
|
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
2
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534
|
|
Conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
1
|
|
|
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
995
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,679
|
)
|
|
|
(5,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
MANNKIND
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
Series B
|
|
|
Series C
|
|
|
Convertible
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Notes
|
|
|
Accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Preferred
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receivable
|
|
|
Receivable
|
|
|
During the
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Subscriptions
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
from
|
|
|
from
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Issuable
|
|
|
Receivable
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stockholders
|
|
|
Officers
|
|
|
Stage
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,496
|
|
|
|
46
|
|
|
|
21,129
|
|
|
|
|
|
|
|
|
|
|
|
(21,921
|
)
|
|
|
(746
|
)
|
Conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
1
|
|
|
|
1,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
Issuance of Series B preferred stock for cash
|
|
|
193
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
Issuance of common stock for cash, services and notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,690
|
|
|
|
46
|
|
|
|
33,945
|
|
|
|
(2,358
|
)
|
|
|
|
|
|
|
|
|
|
|
31,633
|
|
Discount on notes below market rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
Accrued interest on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
Purchase of Series A redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(993
|
)
|
Amount in excess of redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
999
|
|
Accretion to redemption value on Series A redeemable
convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,609
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,661
|
)
|
|
|
(24,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2000
|
|
|
193
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,249
|
|
|
|
93
|
|
|
|
65,613
|
|
|
|
(2,234
|
)
|
|
|
|
|
|
|
(46,582
|
)
|
|
|
31,890
|
|
Issuance of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,052
|
|
|
|
30
|
|
|
|
78,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,030
|
|
Cash received for common stock to be issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,900
|
|
Issuance of common stock for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Accrued interest on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
(189
|
)
|
Payments on notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
Accretion to redemption value on Series A redeemable
convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(239
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,565
|
|
Issuance of put option by stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,949
|
)
|
Record merger of entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,154
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,245
|
)
|
|
|
(48,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2001
|
|
|
193
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,305
|
|
|
|
123
|
|
|
|
317,117
|
|
|
|
(2,395
|
)
|
|
|
|
|
|
|
(94,827
|
)
|
|
|
235,018
|
|
Issuance of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,922
|
|
|
|
40
|
|
|
|
58,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,815
|
|
Issuance of common stock for cash already received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock award to employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
Cash received for common stock issuable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
Accrued interest on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
Payments on notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,314
|
|
|
|
|
|
|
|
|
|
|
|
1,314
|
|
Beneficial conversion feature of Series B convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,421
|
|
Deemed dividend related to beneficial conversion feature of
Series B convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,421
|
)
|
Accretion to redemption value on Series A redeemable
convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268
|
|
Put option redemption by stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,921
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206,265
|
)
|
|
|
(206,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
MANNKIND
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
Series B
|
|
|
Series C
|
|
|
Convertible
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Notes
|
|
|
Accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Preferred
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receivable
|
|
|
Receivable
|
|
|
During the
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Subscriptions
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
from
|
|
|
from
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Issuable
|
|
|
Receivable
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stockholders
|
|
|
Officers
|
|
|
Stage
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2002
|
|
|
193
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,464
|
|
|
|
165
|
|
|
|
378,010
|
|
|
|
(1,310
|
)
|
|
|
|
|
|
|
(301,092
|
)
|
|
|
90,773
|
|
Issuance of Series C convertible preferred stock
subscriptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash collected on Series C convertible preferred stock
subscriptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,847
|
|
Issuance of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,494
|
|
|
|
35
|
|
|
|
49,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Non-cash compensation expense of officer resulting from
stockholder contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
Issuance of common stock for cash already received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable by stockholder issued to officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225
|
|
|
|
|
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
Accrued interest on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(105
|
)
|
Beneficial conversion feature of Series B convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,017
|
|
Deemed dividend related to beneficial conversion feature of
Series B convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,017
|
)
|
Accretion to redemption value on Series A redeemable
convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(253
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,501
|
|
Put shares sold to majority stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|