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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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
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Commission File Number: 000-51709
Iomai Corporation
(exact name of registrant as specified in its charter)
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Delaware
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52-2049149
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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20 Firstfield Road, Gaithersburg, Maryland 20878
(Address of principal executive offices including zip code)
Registrants telephone number, including area code:
(301) 556-4500
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, $.01 Par Value Per Share
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The NASDAQ Global Market
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(Title of each Class)
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(Name of each exchange on which registered)
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
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No
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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
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No
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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
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No
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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.
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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
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
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No
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The aggregate market value of voting stock held by non-affiliates of the registrant as of June
30, 2007 was $34,585,283. There were 25,593,248 shares of the registrants Common Stock
outstanding as of March 18, 2008.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the registrants 2008 Annual Meeting of
Stockholders to be held on May 14, 2008, which definitive proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the registrants fiscal year of
December 31, 2007, are incorporated by reference into Part III of this Annual Report on Form 10-K.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements. All statements contained
in this annual report other than statements of historical fact are forward-looking statements.
Forward-looking statements include statements regarding our future financial position, business
strategy, budgets, projected costs, plans and objectives of management for future operations. The
words may, continue, estimate, intend, plan, will, believe, project, expect,
seek, anticipate and similar expressions may identify forward-looking statements, but the
absence of these words does not necessarily mean that a statement is not forward-looking. These
forward-looking statements include, among other things, statements about:
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the implementation of our corporate strategy;
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our future financial performance and projected expenditures;
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our ability to enter into future collaborations with pharmaceutical, biopharmaceutical and
biotechnology companies and academic institutions or to obtain funding from government agencies;
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our product research and development activities, including the timing and progress of our clinical
trials, and projected expenditures;
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our technologys potential efficacy, advantages over current approaches to vaccination and broad
applicability to infectious diseases;
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our ability to receive regulatory approvals to develop and commercialize our product candidates;
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our ability to increase our manufacturing capabilities for our product candidates;
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our ability to develop or obtain funding for our immunostimulant patch for pandemic flu applications;
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our projected markets and growth in markets;
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our product formulations and patient needs and potential funding sources;
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our staffing needs; and
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our plans for sales and marketing.
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The forward-looking statements in this annual report are subject to risks and uncertainties
that may cause actual results to differ materially. These risks and uncertainties include those
described in Item 1A. Risk Factors. In light of these risks and uncertainties, the
forward-looking events and circumstances discussed in this annual report may not occur as
contemplated, and actual results could differ materially from those anticipated or implied by the
forward-looking statements.
You should not unduly rely on these forward-looking statements, which speak only as of the
date of this annual report. Unless required by law, we undertake no obligation to publicly update
or revise any forward-looking statements to reflect new information or future events or otherwise.
You should, however, review the factors and risks we describe in the reports we file from time to
time with the U.S. Securities and Exchange Commission (SEC) after the date of this annual report.
See Availability of Periodic SEC Reports in Item 1. Business.
Iomai
®
, Transcutaneous Immunization
tm
,
TCI
tm
, Immunity Thats More Than Skin Deep and the Iomai logo are trademarks
or service marks of Iomai Corporation. All other trademarks and service marks appearing in this
report are the property of their respective holders.
PART I
Item 1.
Business
OVERVIEW
We are a biopharmaceutical company focused on the discovery, development and commercialization
of vaccines and immune system stimulants delivered to the skin via a novel, needle-free technology
called transcutaneous immunization, or TCI. TCI exploits the unique benefits of Langerhans cells,
a major group of antigen-presenting cells found in the outer layers of the skin, to generate an
enhanced immune response. TCI has the potential to enhance the efficacy of existing vaccines,
enable new vaccines that are viable only through transcutaneous administration and expand the
global vaccine market. None of our product candidates has been approved for commercial sale by the
U.S. Food and Drug Administration or any comparable foreign agencies. We are developing two
distinct product applications: (1) a needle-free vaccine patch and (2) an immunostimulant, or IS,
patch. We currently have four product candidates in development: one to prevent travelers diarrhea
and three targeting influenza.
Our four product candidates are (1) a needle-free travelers diarrhea vaccine patch, (2) an IS
patch intended to stimulate an immune response to even small doses of a pandemic flu vaccine,
thereby extending vaccine supply in the event of an influenza pandemic, (3) a needle-free vaccine
patch for seasonal flu; and (4) an IS patch intended to boost the immune response of the elderly to
the standard flu vaccine.
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Needle-free travelers diarrhea vaccine patch.
We are developing a needle-free
travelers diarrhea vaccine patch. In September 2007, we presented data from a Phase 2
field trial of the travelers vaccine at the Interscience Conference on Antimicrobial
Agents and Chemotherapy that indicated that people who received the vaccine before
traveling to Mexico or Guatemala were significantly less likely to report clinically
significant diarrhea. Of the 59 individuals who received the vaccine, only three suffered
moderate or severe diarrhea, while 23 of the 111 who received a placebo suffered moderate
or severe diarrhea, a 75 percent reduction (p=0.007). One of the 59 volunteers in the
vaccine group reported severe diarrhea, compared with 12 of the 111 in the placebo group,
an 84 percent reduction (p=0.033). In February 2008, we announced that interim results of
a study that showed a robust immune response when the second dose of the two-dose regimen
for our travelers diarrhea vaccine patch was self-applied by subjects outside of a
clinical setting. Four groups of forty subjects each were evaluated: two groups received
both doses of the vaccine from a medical professional and two other groups of volunteers
administered the second vaccine patch themselves. All groups had robust responses to the
vaccine, and a statistical analysis of immune parameters following vaccination showed no
significant differences between treatment groups at measured time points. These results
confirm our belief that the Iomai patch can be effectively used by patients without a
health care provider present, potentially removing the need for a second trip to a travel
clinic. We look to complete our Phase 2 program in 2008 and plan to conduct a Phase 3
efficacy study during summer of 2009 when the travelers diarrhea season in Latin America
is at its peak. This year, approximately 55 million international travelers will visit
countries where bacteria that cause travelers diarrhea are endemic, particularly Africa,
Asia and Latin America, and about 20 million of those travelers will develop travelers
diarrhea. A recently completed market study we commissioned suggests that there is a large
market for an effective travelers diarrhea vaccine, potentially between approximately $660
million and $800 million in annual sales ex-manufacturer. If approved, our vaccine may be
the first vaccine for travelers diarrhea available in the United States. We are currently
evaluating potential collaborations for our needle-free travelers diarrhea vaccine.
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IS patch for pandemic flu program.
We are developing an IS patch that, when used in
conjunction with an injectable flu vaccine, is designed to stimulate an immune response to
even small doses of vaccine, thereby allowing public health officials to extend vaccine
supply in the event of an influenza pandemic. In January 2007, the Department of Health and
Human Services, or HHS, awarded us a five-year, cost-plus reimbursement contract to fund
our development of a dose-sparing patch for use with a pandemic flu vaccine. If the product
is developed through licensure, the total cost reimbursed by HHS, plus a fixed fee, is
estimated to be $128 million. During the first 15 months of the contract, HHS has allotted
approximately $14.5 million for us to assess the safety and adjuvant effect of the IS patch
in an initial clinical trial and to develop plans on how we would produce 150 million IS
patches in a six-month period, as required under the contract. If we are able to
demonstrate the safety and dose-sparing capability of our IS patch, we hope to sell up to
150 million IS patches to the United States government for its stockpile of pandemic flu
products. In April 2007, we submitted our first milestone under this contract in the form
of a product development plan; in July 2007, we submitted our second milestone in the form
of a clinical and regulatory development plan; and in January 2008, we submitted our third
milestone in the form of a production plan that describes a facility, processes, and plans
to produce 150 million doses of the IS patches in a six-month period. In March 2008, we
announced the interim results from the 500-subject Phase 1/2 trial to assess the safety and
adjuvant effect of the IS patch. The trial met a key endpoint, demonstrating a clinically
relevant adjuvant effect when our IS patch was used with a single dose of the 45-microgram
H5N1 vaccine. The trial found that a single 45-microgram dose of an H5N1 influenza vaccine,
coupled with a single 50-microgram IS patch, was sufficient to provide an immune response
considered protective in 73 percent of those tested, a statistically significant
improvement over those who received the H5N1 influenza vaccine alone. This is one of the
first trials to demonstrate that a single dose of pandemic influenza vaccine may meet the
level of protection suggested in U.S. Food and Drug Administration guidance, which
recommends that a pandemic vaccine achieve immune response levels considered protective in
70 percent or more of vaccine recipients. We have shared the data with HHS and are now
working with them to determine possible next steps. Upon completion of its review of the
data, HHS will make a determination as to whether and, if so, how to continue the
development of this product.
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Needle-free flu vaccine patch.
We are developing a needle-free flu vaccine patch that
combines flu antigens with an adjuvant in a single patch. In late May 2007, we announced
interim results from the Phase 1 clinical trial of our needle-free vaccine for seasonal
influenza. The study compared the immune responses generated by our needle-free vaccine
patch and an injected intramuscular vaccine. Both vaccines contained the same three flu
antigens from a split-virus influenza vaccine. The trial showed that our needle-free
vaccine patch stimulated an immune response to each of the three antigens in a
dose-dependent manner and that an adjuvant effect was seen; however, the injected vaccine
prompted a greater immune response than our patch vaccine. While use of a split-virus is
the traditional approach for injected flu vaccines, we believe that the method by which
split-virus antigens are processed can result in highly crossed-linked antigens prone to
aggregation, which may be difficult to efficiently deliver in a skin patch. Antigens in
this form may not be best suited for patch application, so we are now working on a
preclinical program that is exploring other methods of formulating flu antigens that may be
a better match for our needle-free patch. Preliminary research suggests that modification
of patch formulation or flu antigens into discrete particles may be better suited for TCI
administration, and we are adjusting our development and partnering plan accordingly. The
timing of any future trials of our needle-free seasonal flu vaccine will be determined in
part by the availability of antigens from either our internal programs or in collaboration
with a partner. Each flu season, approximately 15 million to 60 million people in the
United States become ill with influenza. This infection rate results in approximately
36,000 deaths and approximately 200,000 hospitalizations in the United States annually.
Approximately 80 million people in the United States are vaccinated against the flu
annually.
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IS patch for elderly receiving flu vaccines.
We are developing our IS patch to improve
the immune response of the elderly to existing injectable influenza vaccines. We have
completed a number of studies in the United States and Europe, including a European
clinical trial that demonstrated the proof-of-concept with a previous patch formulation.
In 2007, we completed a Phase 1 safety study in Australia with our current dry patch
formulation, and the data from this 50-person study confirmed that our current dry patch
formulation of the IS patch was safe for this indication. At this time, we plan to draw
upon the results from the Phase 1/2 IS patch trial under the HHS contract to design our
Phase 2 study in the United States to confirm the results observed in our prior European
study. Approximately 36,000 individuals aged 65 and over die from influenza,
influenza-related pneumonia and related respiratory complications in the United States each
year, making influenza one of the leading causes of death among the elderly. According to
the United States Centers for Disease Control and Prevention, or CDC, over 65% of the
elderly population in the United States receive influenza vaccination, and public health
officials have stated the goal of achieving 90% vaccination rates by 2010.
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We expect that each of our product candidates, consisting of a patch and one or more active
ingredients, will be treated as a separate investigational drug by the FDA, even if any active
ingredient is part of an existing approved product. None of the active ingredients in our product
candidates have been approved by the FDA for commercial sale in any product.
We believe that TCI technology is broadly applicable and may provide the means to prevent or
mitigate many other diseases. For example, we have compiled Phase 1 data supporting the ability of
TCI-based vaccines to stimulate an immune response against anthrax exposure. On the basis of our
preclinical and clinical findings to date, we believe products based on our TCI technology have the
potential to address major unmet needs in preventing infectious diseases, and would represent a
fundamental change in the way vaccines are administered.
OUR GOALS FOR TCI
Key elements of our strategy are as follows:
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Advance our needle-free travelers diarrhea vaccine patch.
We are advancing our
needle-free travelers diarrhea vaccine patch through Phase 2 clinical trials, and we are
actively exploring collaborations with potential partners to support Phase 3 trials and
commercialize the product to international travelers in developed countries, including
the United States and European Union. At this point, we would expect to sell directly to
the military market. As for countries in which diarrhea is endemic, we would seek to
establish strategic partnerships with local manufacturers and non-governmental
organizations, or NGOs, to cover distribution of this vaccine patch to both adults and
children in those countries. To date, we have retained all of our rights to this product
candidate, and we believe this may enable us to obtain advantageous terms in any potential
collaboration. The terms of a collaboration, if any, would be negotiated with the partner
and may require us to cede control over marketing the product, if approved, to the
military and in endemic countries.
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Develop our IS patch for pandemic flu applications.
Under the HHS contract, we plan
to perform preclinical and clinical testing of the patch and to develop a plan to bring
the IS patch to licensure for dose-sparing of pandemic flu vaccines. If, after reviewing
the results from our current Phase 1/2 trial testing our IS patch, HHS elects to continue
our contract beyond the initial 15-month stage, then we expect that if we demonstrate the
safety and dose-sparing capability of our IS patch in follow-on trials, we could be in a
position to sell up to 150 million IS patches to the United States government for its
stockpile of pandemic flu products.
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Seek a strategic collaboration for the development, marketing and commercialization of
our needle-free flu vaccine patch.
As we do not intend to manufacture the flu antigens
for our needle-free flu vaccine patch, we are actively exploring collaborations with large
pharmaceutical companies in the United States and Europe that would provide the flu
antigens (including pandemic flu antigens) and financial resources to develop and, if
approved, commercialize our needle-free flu vaccine patch. To date, we have retained all
of our rights to this product, and we believe this will enable us to obtain advantageous
terms in any potential collaboration.
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Commercialize our IS patch for elderly receiving flu vaccines.
If, after a complete
review of the results from the Phase 1/2 trial of our IS patch under the HHS contract, we
move forward with this program, we would expect to advance our IS patch for elderly
receiving flu vaccines into and through Phase 3 clinical trials ourselves, and then into
commercialization, possibly with a partner. To date, we have retained all of our rights to
this product candidate, and we believe this may enable us to obtain advantageous terms in
any potential collaboration.
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Continue to develop and expand our manufacturing capabilities to retain manufacturing
rights.
We intend to retain manufacturing rights for our adjuvant and patch technologies.
To the extent practicable, we intend to continue to develop and expand our manufacturing
capabilities to meet our expected demands. We are manufacturing all of our patches for our
clinical trials in our manufacturing facility, and we believe we currently have the
capacity to produce anticipated needs through initial commercialization of our first
product, which is expected to be our travelers diarrhea vaccine.
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Leverage our broad technology platform to develop additional product candidates.
As
our TCI technology has the potential to be useful with many different types of vaccines,
other companies developing vaccines represent possible partners with which to develop new
products. We intend to continue to evaluate and develop additional product candidates to
expand our pipeline where we perceive a significant unmet medical need and commercial
potential.
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MARKET OVERVIEW
The immune system and vaccines
The immune system is the bodys natural defense mechanism for fighting disease caused by
infectious pathogens, which are organisms such as bacteria, viruses and other microbes. The skin is
one of the bodys first lines of defense against pathogens. In addition to presenting a barrier to
entry, the skin contains specialized immune surveillance cells called Langerhans cells, a subset of
the bodys main class of antigen-presenting cells, that serve an important early-warning function.
The role of Langerhans cells is to detect antigens embodied in pathogens and present them to other
components of the immune system, which in turn produce antibodies that bind to and destroy the
invading pathogen or render it harmless. Once produced, these antibodies remain in the body to ward
off future infections by the same pathogen, causing the individual to become immune for some period
of time after initial exposure.
An immune response may be induced by natural exposure to a pathogen or by a controlled
exposure to the antigens embodied in a pathogen by using a vaccine. A vaccine contains a dead or
weakened form, or a derivative, of an infectious pathogen, including the antigens that allow the
body to recognize the pathogen. Exposure to a vaccine is intended to induce the immune system to
destroy the pathogen and prevent it from subsequently infecting the body. Several doses of a
vaccine may be needed for a full immune response. In addition, the immunity provided by some
vaccines is not lifelong. In such cases, the immune response may decrease over time, requiring
subsequent doses of a vaccine, or boosters, to restore or increase immunity.
In order to increase the effectiveness of the bodys immune response to a vaccine, vaccines
are often administered in combination with an adjuvant. Adjuvants are substances that act as danger
signals to the immune system and increase the ability of vaccines to stimulate the immune system.
The use of adjuvants in combination with a vaccine has a variety of advantages over the use of a
vaccine by itself. For instance, adjuvants may be used to help generate a meaningful immune
response in groups of individuals whose immune systems may not react effectively to a vaccine
alone, such as the elderly and individuals whose immune systems have been weakened by disease.
Adjuvants may also be used to lower the required dose of a vaccine necessary to stimulate an
effective immune response in healthy individuals.
Our initial target markets
Travelers diarrhea
Travelers diarrhea is a disease caused by a bacterial, viral or other microbial infection
contracted by the ingestion of contaminated food or water while abroad. According to the United
States Centers for Disease Control and Prevention, or CDC, travelers diarrhea is the most common
illness affecting travelers, with an estimated 20% to 50% of international travelers contracting
travelers diarrhea.
Enterotoxigenic
E. coli
bacteria (ETEC) is believed to be the most common cause of travelers
diarrhea. Ingested ETEC bacteria move to the small intestine where they grow and secrete toxins
which induce massive fluid secretion from the lining of the small intestine. ETEC secretes one or
both of two different toxins: heat labile toxin (LT) and heat stabile toxin (ST). LT, either acting
alone or in combination with ST, is responsible for approximately two-thirds of all cases of ETEC
disease. Our travelers diarrhea vaccine candidate uses LT as the active ingredient in our patch.
ETEC expressing LT has been observed in diarrhea concurrently with other pathogens, such as
Campylobacter and Salmonella, and could play a role in the disease caused by these other pathogens.
Results from our Phase 2 field trial indicated that our LT-containing vaccine was effective in
preventing moderate or severe travelers diarrhea. We currently plan to investigate the degree to
which an LT vaccine is effective against preventing or limiting infection by other bacterial
organisms.
Currently, in the United States there are no approved vaccines against travelers diarrhea
caused by ETEC infection. Travelers diarrhea, consequently, is generally treated with antibiotics,
either prophylactically or following onset, or with over-the-counter products that alleviate
symptoms but do not treat the underlying infection. Use of antibiotics either as a treatment or as
a prophylaxis can be effective but has many drawbacks. Multi-drug resistance in ETEC infection is
common, especially in the developing world, and prophylactic antibiotic use is implicated in
causing patterns of widespread resistance. In addition, patients must take many doses over several
days or weeks for antibiotics to be effective and this poses potential compliance problems.
Antibiotics also destroy beneficial resident intestinal bacteria that normally keep in check any
ingested disease-causing bacteria. Following antibiotic treatment, these toxic bacteria may grow
rapidly leading to severe intestinal inflammation and additional episodes of diarrhea. For these
reasons, health authorities generally prefer vaccination to treatment with antibiotics for diseases
preventable by vaccine.
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We believe a vaccine that reduces the risk of contracting travelers diarrhea caused by ETEC
and possibly other bacterial organisms, or that reduces the severity of the symptoms associated
with such infections, would be appealing to international travelers. Of the 54 million travelers
to endemic areas, an estimated 17 million will contract travelers diarrhea, which is the most
common illness in travelers. Travelers diarrhea lasts for three to five days and 55% of subjects
who become ill have more than six stools daily, with an average of 18 total stools per episode.
Travelers diarrhea is often accompanied by nausea, vomiting and cramping, and can mimic cholera,
resulting in severe dehydration. Although generally self-limited, travelers diarrhea is often
accompanied by prostration, a need for professional help, and can require hospitalization, often in
settings where health care systems are not ideal. Additionally, it is estimated 10-30 % of
travelers who contract diarrhea also develop a more chronic condition, irritable bowel syndrome
(IBS).
According to a market study, approximately half of travelers in the United States and Europe
already seek medications and vaccinations for other diseases, such as hepatitis A and B, prior to
traveling internationally. A recently completed market study we commissioned estimates that the
market for international travelers from North America, Europe, Japan, Australia and New Zealand
would be potentially between approximately $660 million and $800 million in annual sales
ex-manufacturer.
Influenza
Influenza, commonly called the flu, is an infection of the respiratory tract caused by an
influenza virus. Influenza is highly contagious and occurs mainly in the late fall, winter and
early spring. Influenza affects all age groups and commonly causes moderate to severe illness that
results in absences from school and work and lost productivity. Some individuals, however, develop
serious complications, such as pneumonia, that require hospitalization and may even result in
death. Flu-related complications can occur at any age; however, the elderly and people with
weakened or impaired immune systems are much more likely to develop serious complications.
Pandemic influenza
When a new, highly infectious and dangerous strain of the influenza virus appears, the general
lack of immunity to this strain in the general population can lead to a pandemic outbreak that
quickly spreads. Three influenza pandemics have occurred in the 20th century, the most recent of
which occurred in 1968. By United States government estimates, pandemic flu has a greater potential
to cause more deaths and illnesses than virtually any other natural health threat. Signs of a
possible pandemic flu have emerged in Southeast Asia, as lethal infections of poultry and humans
with avian influenza virus continue. The current virus is now endemic in bird populations, having
spread to more than 40 countries and causing the deaths of hundreds of millions of birds.
Furthermore, the World Health Organization, or WHO, reports that the number of avian flu cases in
humans has reached more than 370 cases in 14 countries. The spread of the virus amongst birds
increases the likelihood of continued human exposure and the risk of a pandemic flu outbreak.
In response, the United States government has been actively trying to address this risk
through the development of pre-pandemic vaccines based on current strains of pandemic flu and
collaboration with industry to increase the nations vaccine production capacity and to expand or
extend the existing supply. As part of this, HHS announced in May 2006 the award of $1 billion in
contracts to encourage companies to support the advanced development of cell-based production
technologies for influenza vaccines and to help to modernize and strengthen the nations influenza
vaccine production by creating an alternative to producing influenza vaccines in eggs. The U.S.
Governments stated goal for all of its pandemic flu programs is to expand domestic influenza
vaccine surge capacity for the production of pandemic influenza vaccines for the entire U.S.
population within six months of a pandemic declaration, but this expansion in domestic
manufacturing capacity may take many years to accomplish.
Potentially compounding manufacturing capacity limitations is the fact that the vaccine
candidates of inactivated pandemic flu viruses have so far been shown to be generally poorly
immunogenic compared to the licensed vaccines for seasonal flu viruses. For example, the first
pandemic flu vaccine licensed in the United States requires administration of two 90-microgram
doses of the vaccine, which is twelve times the single 15-microgram dose of a seasonal flu vaccine.
Even though this vaccine is expected to protect less than half of the individuals who receive the
large two-dose regimen, the FDA approved it in 2007 because of public safety concerns and the fact
that there were no other pandemic flu vaccines then approved for use in the United States.
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If there is an outbreak of pandemic flu, vaccine manufacturers using current techniques will
likely not be able to rapidly scale up production to meet increased demand, as the manufacture of
flu vaccine is a complex and time-consuming process and the vaccine is generally manufactured well
before the relevant flu season. Because of these manufacturing limitations, governments and
vaccine manufacturers are exploring dose-sparing strategies by which a smaller dose of vaccine
could produce an effective immune response. With pressure on governments to develop dose-sparing
strategies, we believe that there may be an important role for an IS patch, when administered in
combination with injected pandemic flu vaccines being developed by different manufacturers, either
to reduce the required dose of, or improve the timing or magnitude of the immune response to, a
pandemic flu vaccine.
In January 2007, the HHS awarded us a contract for potentially five years and $128 million to
develop a dose-sparing patch for use in the event of an influenza pandemic. Our key near-term
requirements under the contract are to assess the safety and immunogenicity of the patch, to
perform preclinical and clinical testing of the patch and to develop a plan to bring the product to
licensure.
Seasonal influenza
Each flu season approximately 15 million to 60 million people in the United States become ill
with influenza. This infection rate results in approximately 36,000 deaths and approximately
200,000 hospitalizations in the United States annually. Approximately 80 million people in the
United States are vaccinated against the flu annually. The CDC has indicated that it wants to
increase this figure to 185 million annually by 2010. According to a recent research report, the
worldwide market for influenza vaccines was estimated to be approximately $2.2 billion in 2006 and
is expected to more than double in size by 2016, driven by the increasing pandemic threat. We
believe that this market can be further expanded by providing an alternate vaccine delivery method,
such as a needle-free flu vaccine patch, that is more convenient and less painful than a hypodermic
needle, and has the potential to be mailed and self-applied.
Influenza in the elderly
The CDC has highlighted the relatively low effectiveness of existing flu vaccines for persons
aged 65 and over. Studies show that the efficacy of flu vaccines decreases from the 70% to 90%
range observed in healthy individuals who are less than 65 years of age, down to the 30% to 40%
range for individuals 65 years of age and over. Most of the elderly population receives a flu shot
annually, yet in the United States influenza is one of the leading causes of death in persons
65 years of age and older, and approximately 40,000 people in this age group die from influenza,
influenza-related pneumonia and related respiratory complications each year. This significant
number of deaths reaffirms the need for a more efficacious vaccine. As a result, we believe there
is an unmet need for immunostimulants that can be delivered in conjunction with a flu vaccine to
help persons with weakened or impaired immune systems, such as the elderly, develop adequate immune
responses.
THE TCI SOLUTION
TCI is a proprietary technology designed to trigger an immune response by targeting Langerhans
cells. After contact with an infectious pathogen and its associated antigens, Langerhans cells
leave the skin and migrate to the nearest lymph node via the lymphatic system. Upon arrival, the
Langerhans cells present the antigens in the lymph node, which triggers a potent and highly
specific immune response that persists to combat future attacks by the invading pathogen. Because
Langerhans cells are evenly distributed throughout the human skin surface, we believe that
TCI-based immunizations may be delivered through a patch to a variety of locations on the body.
Our research to date suggests that the immune response to TCI-delivered vaccines may be
improved by applying adjuvants along with antigens to the skin. Specifically, we are exploring the
use of the LT toxin from ETEC as an adjuvant. While LT is not currently approved by the FDA for any
indication nor as a component of any product approved by the FDA, LT has a long history of
experimental use as an adjuvant because of its potency as a general immune system stimulant and has
been used preclinically with a wide variety of vaccine formulations, including those utilizing
peptides, proteins, conjugates, whole killed cells and live vectors. Other means of delivery such
as injection, intranasal and oral delivery methods act systemically, preventing the use of LT as an
adjuvant without the occurrence of significant side effects. TCI avoids these side effects by
delivering LT to the skin, where the LT is sequestered, rather than delivered systemically.
6
The diagram below highlights the use of TCI in a needle-free vaccine patch.
Our needle-free vaccine patch is designed to work as follows:
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Following pretreatment that involves a mild abrasion of the skin at the application
point to disrupt the outer dead layer of skin, known as the stratum corneum, a patch
containing an adjuvant and one or more antigens from the target pathogen is applied.
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After permeating the disrupted stratum corneum, the adjuvant and antigens reach and
activate the underlying Langerhans cells.
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The Langerhans cells take up the adjuvant and antigens and migrate through the skin and
the lymphatic system to the nearest lymph node, where they stimulate a systemic immune
response.
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We believe that our needle-free vaccine patch offers the following potential advantages over
traditional, injection-based approaches to vaccination:
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Increased efficacy with reduced risk of side effects.
Because the adjuvant and
antigens delivered by our needle-free vaccine patch cannot penetrate further than the
outer layers of the skin, neither the adjuvant nor the antigens circulate systemically as
they would if delivered through injection. Preventing a systemic distribution of adjuvants
and antigens reduces the risk of side effects. As a result, our needle-free vaccine patch
permits the use of more potent adjuvants relative to systemic means of delivery (such as
injection, intranasal and oral delivery), which increases the overall level of immune
response. We and our collaborators have conducted over 30 trials, including six
double-blind, placebo-controlled trials, with over 3,100 volunteers receiving LT, and no
vaccine-related serious adverse events were observed.
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Stable at ambient temperatures
. Most vaccines must be stored in refrigerated
environments. We believe our vaccines will be stable at room temperature, making both
transport and storage without refrigeration simple and inexpensive. We have data that
shows our products remain stable at room temperature for months, and we are continuing to
evaluate the performance of our patches when handled outside of the cold chain, which is
an important condition for self-administration of our vaccine candidates.
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Self-administration.
All but a handful of vaccines must be administered by a
healthcare worker. We believe that our patch system has the potential to be
self-administered, thereby expanding the market opportunities for existing vaccines and
solving many of the logistical issues associated with governmental mass vaccination
programs as part of biodefense and pandemic flu preparedness. In February 2008, we
announced the interim results of a study that showed a robust immune response when the
second dose of the two-dose regimen for our travelers diarrhea vaccine was self-applied
by subjects outside of a clinical setting. Based on the results of this study, we are
evaluating the feasibility of including self-administration of the second vaccine dose in
the Phase 3 program for our travelers diarrhea vaccine, and the data also suggests the
possibility of self-administration of our other vaccines candidates.
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Increased compliance.
We believe needle-free administration has the potential to
increase acceptance by patients who dislike the use of needles and desire a more
convenient and less painful means of vaccination.
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Safer administration and disposal.
Needle-free administration eliminates the risk to
the health care provider of inadvertent needle sticks and avoids the need to dispose of
contaminated needles.
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Reduced dosages.
By targeting the skin and eliciting a stronger immune response, we
believe the amount of antigen required for immunization may be reduced.
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Our IS patch uses TCI-administered adjuvants to boost the immune response to traditional,
injectable vaccines in specific patient populations. Our IS patch would work similarly to our
needle-free vaccine patch, except that a needle would be used to inject the pathogenic antigens and
a patch containing only an adjuvant would be applied to the skin over the injection site. We
believe our IS patch could be applied to boost the immune response in individuals who might not
otherwise achieve immunity through the injected vaccine alone. In a European trial, elderly
subjects who received an IS patch in combination with an injected flu vaccination generated
antibody levels that were significantly higher than the antibody level generated with an injected
flu vaccine alone. We also believe our IS patch could be used to lower the injected vaccine dosage
necessary to immunize individuals with healthy immune responses.
PRODUCTS IN DEVELOPMENT
We are developing two distinct product applications for our TCI technology. The first
application is a needle-free vaccine patch applied to the skin that contains both pathogen-specific
antigens and an adjuvant. We are using this application to develop needle-free vaccines to replace
currently injectable vaccines as well as novel vaccines that cannot be delivered by injection. The
second application is an immunostimulant, or IS, patch for use in combination with an injected
vaccine and through which only an adjuvant is delivered by the patch. In this second application,
we expect that our IS patch would be placed over the injection site of an existing injectable
vaccine in order to stimulate a stronger immune response to that vaccine. Initially we expect to
target our IS patch for use in patient populations with weakened or impaired immune systems, such
as the elderly, for whom existing vaccines often do not elicit an adequate immune response or in
pandemic flu applications to expand the supply of vaccine. For the years ended December 31, 2007
and 2006, our research and development costs were approximately $31.6 million and $28.0 million,
respectively.
We are focusing our current product development efforts on the product candidates set forth in
the table below.
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Product Candidates
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Clinical Status in 2008
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Travelers Diarrhea
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Needle-free travelers diarrhea vaccine patch
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Phase 2
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Influenza
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IS patch for pandemic flu
(under HHS contract)
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Phase 1/2
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Needle-free flu vaccine patch
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Preclinical
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IS patch for elderly receiving flu vaccines
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Phase 1
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We view our IS patches and our needle-free travelers diarrhea vaccine patch as distinct
products. Although both patches contain the same active ingredient, they will have distinct
formulations and require separate regulatory approvals.
Needle-free travelers diarrhea vaccine patch
Our travelers diarrhea program is designed to reduce the risk of contracting travelers
diarrhea or reduce the severity of symptoms in the event of infection. Our travelers diarrhea
vaccine contains the antigen heat labile toxin (LT), the key pathogenic factor from
Enterotoxigenic
E. coli
bacteria (ETEC), which is the most common pathogen found in travelers diarrhea. For this
vaccine candidate, LT acts both as the antigen and the adjuvant. We have optimized the formulation
and delivery of LT in a patch in over 30 clinical trials, and have reliably achieved greater than
90% seroconversion in volunteers with our current dry patch formulation. The vaccine is designed to
be administered in a two-dose regimen given over two weeks, with the first dose intended to be
administered by a medical professional in a clinic and the second dose as a take-home,
self-administered patch.
Since the beginning of 2007, we have made significant advances in our travelers diarrhea
program through a series of Phase 2 trials.
In April 2007, we announced the results of our Phase 2 dose-ranging study for our travelers
diarrhea vaccine patch. In the dose-ranging trial, four different doses 7.5 micrograms, 22.5
micrograms, 37.5 micrograms and 50 micrograms , as well as a placebo patch, were tested, and
antibody levels were checked at 21 and 42 days. The interim results from that trial showed that
nearly all subjects in the four different dosing groups responded to the vaccine, with even the
lowest dose of the vaccine patch applied to the arm evoking a response in more than 95% of
subjects. There were also no vaccine-related serious adverse events.
8
In August 2007, we announced the results from a safety and immunogenicity trial of our
travelers diarrhea vaccine in elderly subjects (65 and older) and healthy adults. In this trial,
we compared the safety and immune response of elderly subjects given our travelers diarrhea
vaccine patch with the immune response prompted in healthy adults. Because the immune system is
often less able to mount an effective immune response in the elderly, many vaccines do not work
well in this group. However, the interim results showed that 100% of subjects who received our
travelers diarrhea vaccine patch, regardless of age, seroconverted that is, had an immune
response to the vaccine as measured by serum antibody levels. There were also no vaccine-related
serious adverse events.
In September 2007, we presented data from a Phase 2 field trial of the travelers vaccine at
the Interscience Conference on Antimicrobial Agents and Chemotherapy
that indicated that people who
received the vaccine before traveling to Mexico or Guatemala were significantly less likely to
report clinically significant diarrhea. In that study, we observed that travelers who received our
needle-free travelers diarrhea vaccine were significantly less likely to be sickened as compared
with travelers who received a placebo. The Phase 2 field study was designed to evaluate the
logistics around how to best conduct a Phase 3 field study for our travelers diarrhea program.
Based on these interim results, the study met its primary endpoints, which were designed to
evaluate the safety of the vaccine and the incidence of illness from ETEC bacteria, the most common
cause of travelers diarrhea. No vaccine-related serious adverse events were reported. The
secondary objectives included evaluation of vaccine preventable outcomes, immunogenicity and stool
frequency.
The study also gathered data on the protective efficacy of the vaccine, which is shown in the
table below. These data showed that of the 59 individuals who received the patch-based vaccine,
only three suffered moderate (4 to 5 loose stools per 24-hour period) or severe (6 or more loose
stools per 24-hour period) diarrhea, while 23 of the 111 who received a placebo suffered moderate
or severe diarrhea, a 75 percent reduction (p=0.007). One of the 59 volunteers in the vaccine group
reported severe diarrhea, compared with 12 of the 111 in the placebo group, an 84 percent reduction
(p=0.033).
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Placebo
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Active
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Protective
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Types of Diarrhea
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(n=111)
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(n=59)
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Efficacy
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P-value
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Moderate/Severe
(4 to 5 loose stools in 24-hour period)
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23 (21
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%)
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3 (5
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%)
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75
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%
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0.007
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Severe
(> 6 loose stools in 24-hour period)
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12 (11
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%)
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1 (2
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84
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%
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0.033
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The study, which was conducted in Mexico and Guatemala, also found that when vaccinated
subjects were sickened, the illness lasted only half a day on average, while those in the placebo
group endured two days of illness and more than twice as many loose stools. The data from this
Phase 2 field study amplify the results observed in our previous challenge study in which 47
healthy volunteers were given either our travelers diarrhea vaccine or a placebo and then exposed
to high levels of ETEC organisms. The results from the challenge study, published in the journal
Vaccine
in 2007, showed that subjects who received the vaccine had significantly fewer loose stools
(p=0.04) and were significantly less likely to require intravenous fluids (14 percent compared with
40 percent, p=0.003).
Finally, in February 2008, we announced that interim results of another Phase 2 study that
showed that the second dose of the two-dose regimen for our travelers diarrhea vaccine patch
yielded a robust immune response when self-applied by subjects outside of a clinical setting. The
following chart describes the immune response achieved in that clinical study, in which four groups
of forty subjects each were evaluated: two groups received both doses of the vaccine from a medical
professional (one group on the arm twice, the other on the arm and then thigh); and two other
groups of volunteers administered the second vaccine patch themselves on the thigh either observed
by the clinician or at home unobserved. All groups had robust responses to the vaccine, and a
statistical analysis of immune parameters following vaccination showed no significant differences
between treatment groups at measured time points. These results confirm our belief that the Iomai
patch could be effectively used by patients without a health care provider present, removing the
need for a second trip to a travel clinic. Our market research has shown that self-application of
the second dose would enhance the market potential of this product. As with past studies of the
vaccine, no serious vaccine-related adverse events were reported.
9
Comparison of Administration of Second-Dose
of Travelers Diarrhea Vaccine Candidate
Based on the results from these trials, we intend to move quickly to complete our Phase 2 work
for our travelers diarrhea vaccine in 2008, which could allow a Phase 3 efficacy study in
travelers to Guatemala and Mexico during summer of 2009, when the travelers diarrhea season in
Latin America is at its peak. We have been meeting with our scientific advisors to review our data
and finalize the design of our Phase 3 program. Giving consideration to the results for our Phase
2 field trial, which showed protection against travelers diarrhea of any cause, we are considering
whether our endpoints will target travelers diarrhea caused by LT-secreting ETEC or by any
bacteria. We intend to meet with the FDA and European regulatory authorities during 2008 to review
these plans for our Phase 3 program in order to seek regulatory approval in both the United States
and European Union. Before commencing a Phase 3 trial, we anticipate that there will be at least
one more Phase 2 trial to confirm that the patches from our recently installed commercial patch
manufacturing line yield immunogenicity results similar to those observed in prior studies. We
expect results from this Phase 2 trial in the third quarter of 2008.
We are also seeking potential collaborations for our needle-free travelers diarrhea vaccine.
The remaining development program and potential commercialization of our travelers diarrhea
vaccine will require substantial additional cash to fund expenses. In particular, we will need
additional funding prior to the commencement of our Phase 3 clinical trial of our needle-free
travelers diarrhea vaccine, and, based on our current estimates, we expect our Phase 3 program to
cost in the range of $30 to $45 million in third-party expenses. Our current strategy includes
potentially selectively collaborating with a leading pharmaceutical or biotechnology company to
assist us in furthering development and potential commercialization of this product candidate. At
this point, we would expect to sell directly to the military market. As for countries in which the
diarrhea is endemic, we expect to establish strategic partnerships with local manufacturers and
non-governmental organizations, or NGOs, to cover distribution of this vaccine patch to both
children and adults in those countries.
IS patch for pandemic flu
We anticipate that the IS patch could play a role in containing pandemic flu by helping
governments execute dose-sparing strategies by which a smaller dose of injected vaccine could
produce an effective immune response. We believe our IS patch, when administered in combination
with an injected vaccine, may be able to achieve this either by reducing the required dose of the
injected vaccine, or improving the timing and/or magnitude of the immune response to an injected
pandemic flu vaccine. We believe that our IS patch for pandemic flu presents a particularly
attractive dose-sparing alternative because it has the potential to be used with pandemic flu
vaccines being developed by different manufacturers without requiring different formulations or
packaging.
10
In January 2007, the Department of Health and Human Services, or HHS, awarded us a potential
five-year, cost-plus reimbursement contract to fund our development of a dose-sparing patch for use
with a pandemic flu vaccine. If the product is developed through licensure, the total cost
reimbursed by HHS, plus a fixed fee, is estimated to be $128 million. During the first 15 months of
the contract, HHS has allotted approximately $14.5 million for us to assess the safety and adjuvant
effect of the IS patch in an initial clinical trial and to develop plans on how we would produce
150 million IS patches in a six-month period, as required under the contract. If we demonstrate the
safety and dose-sparing capability of our IS patch, we hope to sell up to 150 million IS patches to
the United States government for its stockpile of pandemic flu products. In April 2007, we
submitted our first milestone under this contract in the form of a product development plan; in
July 2007, we submitted our second milestone in the form of a clinical and regulatory development
plan; and in January 2008, we submitted our third milestone in the form of a production plan that
describes a facility, processes, and plans to produce 150 million doses of the IS patches in a
six-month period.
In March 2008, we announced the interim results from the 500-subject Phase 1/2 trial to assess
the safety and adjuvant effect of the IS patch. The trial met a key endpoint, demonstrating a
clinically relevant adjuvant effect when our IS patch was used with a single dose of the
45-microgram H5N1 vaccine. The trial found that a single 45-microgram dose of an H5N1 influenza
vaccine, coupled with a single 50-microgram IS patch, was sufficient to provide an immune response
considered protective in 73 percent of those tested, a statistically significant improvement over
those who received the H5N1 influenza vaccine alone. This is one of the first trials to demonstrate
that a single dose of pandemic influenza vaccine may meet the level of protection suggested in U.S.
Food and Drug Administration guidance, which recommends that a pandemic vaccine achieve immune
response levels considered protective in 70 percent or more of vaccine recipients. No
treatment-related serious adverse events were reported. During an influenza pandemic, public
health officials will face two large hurdles. The first is the possibility of limited vaccine
stocks. The second is the logistic difficulty of administering two vaccinations over a period of
several weeks to all individuals in the face of a pandemic. We believe that this data indicates
that a single dose of vaccine in combination with our IS patch could provide a significant level of
protection, achieve protective levels more rapidly, and increase compliance.
The trial tested three different dose levels of egg-derived H5N1 influenza vaccine (5, 15 and
45 micrograms), the 50 microgram IS patch, and placebo to determine which combinations would be
most effective in a two-immunization regimen, administered 21 days apart. Data showed that 92
percent of the 50 subjects vaccinated a single time with the 45-microgram dose in combination with
the IS patch had an immune response. Seventy-three percent of those subjects achieved an HI titer
equal to or greater than 40, which is considered protective, offering the potential to eliminate
the need for a second vaccination. About 49 percent of those who received the vaccine alone,
without a patch, had an immune response considered protective after the first dose, and the 24
percentage point difference between the patch and no-patch groups was statistically significant
(p<0.0001). A second dose of both vaccine and IS patch further enhanced immunogenicity; 100
percent of subjects who received two 45-microgram doses of vaccine and two IS patches had a
measurable immune response, and 94 percent of subjects had immune responses considered protective.
If HHS determines that we should continue this program, we expect that future dose-ranging studies
of both the IS patch and the H5N1 influenza antigen will allow us to identify whether a dose lower
than 45 micrograms of H5N1 influenza antigen can be used and to confirm in a larger study whether a
single-dose vaccine could meet the requirements for licensure. We have shared the data with HHS
and are now working with them to determine possible next steps. Upon completion of its review of
the data, HHS will make a determination as to whether and, if so, how to continue the development
of these patches.
Because pandemic flu vaccines and alternative strategies for dose-sparing are still being
developed by third parties, and because our IS patch for pandemic flu is in the early-stage
clinical development and extensive additional preclinical and clinical testing would be required
before approval, this product candidate may not be available for the potential treatment of
pandemic flu in the next few years, if ever.
Needle-free flu vaccine patch
Our needle-free flu vaccine patch combines seasonal flu antigens and an adjuvant in a single
patch. We believe this approach offers the potential for effective flu vaccination without the use
of needles.
11
In the fall of 2006, we initiated a 300-person, multi-center Phase 1 trial for our needle-free
flu vaccine patch with the new dry patch formulation. This study was designed to test the safety
and the immune responses generated by our needle-free vaccine patch and an injected intramuscular
vaccine. Both vaccines contained the same three flu antigens from a split-virus influenza vaccine.
Vaccinations were completed during the first quarter of 2007, and in May 2007, we announced interim
results for this trial. The trial showed that our needle-free vaccine patch stimulated an immune
response to each of the three antigens in a dose-dependent manner; however, the results show that
the injected vaccine prompted a greater immune response compared with our patch vaccine. While use
of a split-virus is the traditional approach for injected flu vaccines, we believe that the method
by which split-virus antigens are processed can result in highly crossed-linked antigens prone to
aggregation, which may be difficult to efficiently deliver in a skin patch. Antigens in this form
may not be best suited for patch application, so we are now working on a preclinical program that
is exploring other methods of formulating flu antigens that may be a better match for our
needle-free patch. Preliminary research suggests that modification of patch formulation or flu
antigens into discrete particles may be better suited for TCI administration, and we are adjusting
our development and partnering plan accordingly. The timing of any future trials of our
needle-free seasonal flu vaccine will be determined in part by the availability of antigens from
either our internal programs or in collaboration with a partner.
IS patch for elderly receiving flu vaccines
We are currently investigating ways to improve the immune response in the elderly to standard
influenza vaccination through the use of adjuvants. We believe that the placement of an IS patch
over the injection site of an injected flu vaccine will provide a stronger immune response in
elderly recipients of the flu vaccine.
In 2002, we completed a European clinical study in which elderly individuals who were
vaccinated with an injected flu vaccine in combination with our IS patch had a higher antibody
response, on average, than those receiving the standard flu vaccine without an IS patch. The
following chart describes the immune response achieved in that clinical study, which had three
groups of approximately 55 volunteers each vaccinated with a standard injected flu vaccine
consisting of three strains of flu antigen. The first group of volunteers consisted of healthy
young adults. The second and third groups consisted of elderly (over 60 years old) volunteers. In
the third group, the volunteers were given both the injected vaccine and an IS patch. In this
trial, elderly individuals who were vaccinated with a standard flu vaccine in combination with our
IS patch had a higher antibody response, on average, than those receiving the flu vaccine without a
patch. In addition, we did not observe any systemic vaccine-related side effects in this trial.
Enhanced Immune Responses In Elderly After IS Patch Application
We conducted a subsequent study in which we utilized a prior dry patch formulation and were
unable to demonstrate this same effect. After analysis, we concluded that we were not able to
replicate the previous results due to a change in formulation, which we believe caused the active
agent, our LT adjuvant, to remain in the patch and, therefore, not to be delivered to the skin.
Based on data from animal studies and data from a travelers diarrhea clinical trials that have
indicated that our current dry patch formulation achieves high immune responses in those vaccinated
and outperforms our earlier liquid-based patch, we expect our new dry patch formulations will be at
least equivalent to the wet patches used in the study above; however, we will not know whether
these dry patch formulations will perform adequately to boost immune response in the elderly to
standard influenza vaccination until we obtain clinical data in humans.
12
In 2007, we completed a Phase 1 safety study in Australia with our current dry patch
formulation, and the data from this 50-person study confirmed that our current dry patch
formulation of the IS patch was safe for this indication. At this time, we plan to draw upon the
results from the Phase 1/2 IS patch trial under the HHS contract to design our Phase 2 study in the
United States to confirm the results observed in our prior European study. Our IS patch, when
administered in combination with existing commercially available injectable flu vaccines
distributed by different flu vaccine manufacturers, will require individual testing and FDA
approval with our IS patch, and is designed to improve the immune response of the elderly to these
flu vaccines.
Additional indications
While we are currently focusing our resources on the four programs described above, we believe
that our needle-free vaccine patch and IS patch technologies may be broadly applicable. If we have
adequate resources, we plan to explore application of our technology to anthrax and other
infectious diseases, as well as to cancer, allergic diseases and other indications. For example, we
have compiled Phase 1 data supporting the ability of TCI-based vaccines to stimulate an immune
response against anthrax exposure. On the basis of our preclinical and clinical findings to date,
we believe products based on our TCI technology have the potential to address major unmet needs in
preventing infectious diseases, and would represent a fundamental change in the way vaccines are
administered.
INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY
Protection of our intellectual property and proprietary technology is a strategic priority for
our business. We rely on a combination of patent, trademark, copyright and trade secret laws along
with institutional know-how and continuing technological advancement to develop and maintain our
competitive position. Our ability to protect and use our intellectual property rights in the
continued development and commercialization of our technologies and products, operate without
infringing the proprietary rights of others, and prevent others from infringing our proprietary
rights, is crucial to our potential success. We will be able to protect our products and
technologies from unauthorized use by third parties only to the extent that they are covered by
valid and enforceable patents, trademarks or copyrights, or are effectively maintained as trade
secrets, know-how or other proprietary information.
Our policy is to seek US and international patent protection for technological developments
that we believe will enhance the market position of our product candidates and methods of using our
product candidates. As of February 11, 2008, we held exclusive rights, either through our license
from the Walter Reed Army Institute of Research (WRAIR) or on our own, to a patent portfolio
consisting of 68 issued patents or patent applications as follows:
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4 issued and 1 allowed US patents;
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14 US non-provisional patent applications;
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42 issued foreign patents;
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27 foreign patent applications that are in various national stages of prosecution; and
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1 foreign patent application not at the national stage.
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The issued United States patents will expire between November 2016 and February 2019. The
issued foreign patents will expire between November 2016 and February 2019. Our core patents claim
the composition of matter of the skin patch system as well as methods for inducing an antigen
specific immune response from applying antigen and adjuvant to the skin. The first of these patents
expires in November 2016, but subsequent patents provide additional coverage until February 2019.
In addition, we are prosecuting patent applications relating to the use of different antigen and
adjuvant combinations on the skin and other improvements to our TCI technology, such as methods for
inducing an immune response by applying antigens and adjuvants to the skin in dry form.
We license substantially all of our TCI technology from WRAIR. Pursuant to a license agreement
dated April 6, 2001, WRAIR has granted us an exclusive, worldwide license to use the TCI technology
in all fields of use, including the right to grant sublicenses subject to WRAIRs approval. Each of
our current product candidates is dependent on TCI technology subject to this license.
13
The terms of the WRAIR license require us to pay WRAIR royalties equal to a percentage of:
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net sales of licensed products by us and by our affiliates; and
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revenues received by us from the licensed TCI technology and by our affiliates under
any sublicenses of the licensed TCI technology.
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In addition, we are required to pay to WRAIR:
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a minimum annual payment of $15,000 for the first six years and $25,000 thereafter as a
non-recoverable advance against royalty and milestone payments;
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milestone payments upon the achievement of specified regulatory approval based
milestones, which may total up to $1,560,000 in the aggregate if we secure regulatory
approval for six or more products; and
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all costs and expenses relating to prosecution of patent protection for the licensed
TCI technology.
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We paid WRAIR a license issue fee of $150,000, and continue to pay WRAIR minimum annual fees
and milestone payments. We also issued to WRAIR 57,500 shares of our common stock valued at
$34.125 per share on the date these shares were issued. The common stock issued to WRAIR was
subject to a put option, which expired by its terms on February 1, 2006, the date of our initial
public offering. The common shares issued to WRAIR are held in trust for WRAIR by MdBio, Inc.
pursuant to a voting trust and escrow agreement dated April 6, 2001. Under the terms of this
agreement, we are required to pay MdBio an annual service fee of $5,000.
Our license is subject to a non-exclusive, non-transferable, royalty-free right of the United
States government to practice the TCI technology for research and other governmental purposes on
behalf of the United States and on behalf of any foreign government or international organization
pursuant to an existing or future treaty or agreement with the United States. Additionally, WRAIR
reserves the right to require us to grant sublicenses to third parties if WRAIR determines that:
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such sublicenses are necessary to fulfill public health and safety needs that we are
not reasonably addressing;
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such sublicenses are necessary to meet requirements for public use specified by
applicable United States government regulations with which we are not reasonably in
compliance; or
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we are not manufacturing our products substantially in the United States.
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The license agreement with WRAIR will automatically terminate upon the expiration of the last
licensed patent which, based on our current portfolio of issued patents and our assumption that
such patents will not be invalidated, will occur no earlier than February 2019. WRAIR may
unilaterally terminate or modify the license if we:
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do not expend reasonable efforts and resources to carry out the development and
marketing of the licensed TCI technology and do not manufacture, use or operate products
that use the TCI technology by December 31, 2011 (subject to extension based upon a
showing of reasonable diligence in developing the technology);
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do not continue to make our TCI-based products available to the public on commercially
reasonable terms after we have developed such products;
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misuse the licensed TCI technology or permit any of our affiliates or sub-licensees to
do so;
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fail to pay royalties or meet our other payment or reporting obligations under the
license;
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become bankrupt; or
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otherwise materially breach our obligations under the license.
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We retain the right to terminate the WRAIR license with respect to any or all countries
covered by the license at any time, and for any reason upon 60 days prior written notice. Upon
termination of the WRAIR license, other than by expiration, we will be permitted to sell our
existing inventory of licensed products for a period of 180 days, after which time we will no
longer retain the right to make, use or sell products licensed under the WRAIR license. Our right
to make, use or sell products subject to the WRAIR license will end immediately upon expiration of
the WRAIR license.
In June 2005, we licensed from DowPharma, on a non-exclusive, world-wide basis, rights to the
proprietary expression system that we plan to use to manufacture the LT to be used in each of our
current product candidates. Pursuant to an existing letter agreement for services with DowPharma,
DowPharma has provided us with technological assistance, as well as the master and working cell
banks of the expression system that we plan to use to produce our LT.
In exchange for these licensed rights and such technical assistance as DowPharma has and is
expected to continue to provide, the terms of the DowPharma license require us to pay DowPharma:
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royalties equal to a percentage of net sales of products incorporating LT produced
under the license;
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milestone payments based upon regulatory approval of products incorporating LT produced
under the license, which may total up to $500,000 for each approved product; and
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time-based fees for any continuing technical assistance we may request at DowPharmas
prevailing hourly rate, with fees for the first 500 hours of technical assistance due only
upon the date the first milestone payment, if any, is due.
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Our payment obligations under the license do not go into effect until our first product
receives regulatory approval.
The DowPharma license also requires us to grant DowPharma and its affiliates an irrevocable,
world-wide, non-exclusive, royalty-free license to any improvements to the expression technology
that we or our permitted sublicensees may create during the term of the license.
The DowPharma license will automatically terminate upon the earlier of (i) ten years from the
date we first sell a product incorporating LT produced under the license and (ii) the end of the
term of the last to expire patent subject to the license which, assuming the relevant DowPharma
patent applications are issued and the resulting patents are not invalidated, is expected to occur
no earlier than November 19, 2024. After expiration of the DowPharma license, we will retain an
irrevocable and fully paid-up license to produce LT using DowPharmas proprietary expression
system. DowPharma may unilaterally terminate the license agreement prior to expiration if we:
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at any time during the term of the license agreement, reasonably agree with Dow that
there are material health and safety risks associated with products produced under the
license which create a material risk of liability to DowPharma;
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fail to meet our payment obligations under the license;
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become bankrupt; or
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otherwise materially breach our obligations under the license.
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In the event DowPharma unilaterally terminates the license as described above, we will not
have any continuing right to make, use or sell LT produced using DowPharmas proprietary expression
technology.
Our contract with HHS includes certain patent and data rights provisions governing our rights
and those of the U.S. government in respect of patentable processes and inventions and works
subject to copyright, including software, that we may develop under the contract and that are paid
for by HHS. While we do not believe that our performance under the HHS contract will result in
patentable processes or inventions, or works subject to copyright, including software, that we
would need to market our IS patch technology in the future, our performance under the HHS contract
subjects us to the risk that the U.S. government may claim rights or interests in such patentable
processes or inventions or works subject to copyright.
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We also rely on trade secrets and know-how, which are not protected by patents, to maintain
our competitive position. We have implemented trade secret protection policies to actively protect
and secure the technology and proprietary information that we develop. We require our officers,
employees and consultants to execute confidentiality agreements upon commencement of their
relationships with us. 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 to
secure patent protection for these inventions 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 developed independently by them or others to projects involving our
technology 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 of our trade secrets,
know-how or other proprietary information that is 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.
MANUFACTURING AND COMMERCIAL SUPPLY
To maintain control over the manufacture of our product candidates during development and
possibly into commercialization, we constructed a small-scale manufacturing facility in which we
currently manufacture the LT and the finished patch formulations for our clinical products. In
connection with the construction of our manufacturing facility, we engaged DowPharma, a business
unit within The Dow Chemical Company, to assist us with the development of our own LT strain and
associated manufacturing process. In June 2005, we licensed from DowPharma a proprietary expression
system for our LT strain. As part of the technology transfer under the license, DowPharma provided
us with technological assistance, as well as the master and working cell banks of the expression
system that we currently use to produce our LT in our manufacturing plant.
Our LT requires precise, high quality manufacturing that is subject to current Good
Manufacturing Practices, or cGMP. Since the fourth quarter of 2005, we have been actively producing
LT and investigational patch formulations for use in clinical trials in accordance with cGMP
standards. We believe that our manufacturing plant has adequate capacity to meet our currently
anticipated clinical trial needs, and we currently intend to use this facility for all future
clinical production of LT adjuvant and formulated patches.
To the extent practicable, we also intend to use this facility for initial commercial launch
of our needle-free travelers diarrhea vaccine patch, if we obtain marketing approval. We are
currently preparing our facility for Phase 3 and commercial manufacturing for our travelers
diarrhea product candidate, which may require that we scale up our fermentation, downstream
processing and patch manufacturing as compared to our past levels. In 2007, we installed
manufacturing equipment that we believe is capable of producing initial commercial quantities of
our vaccine patches, and we have completed initial engineering runs on this upgraded equipment.
Presently, we plan to conduct at least one more Phase 2 trial for our needle-free travelers
diarrhea vaccine to confirm that the patches made from this recently installed commercial patch
manufacturing line yield immunogenicity results similar to those observed in prior studies. We
expect results from this Phase 2 trial in the third quarter of 2008 in time to be included as part
of the informational package to be submitted to the FDA in connection with our end-of-Phase 2
meeting for our travelers diarrhea vaccine program.
We also are making some modifications to the systems in our manufacturing facility during the
first half of 2008 in order to ready the facility for production of Phase 3 materials. In
addition, we are conducting risk-based pre-process validation studies to identify and test critical
control parameters for our travelers diarrhea product and our manufacturing process. We intend to
share the results from these experiments with the FDA at our end-of-Phase 2 meeting, so we can
agree on the approaches for validating the manufacturing process and process controls.
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The only product components that we currently intend to produce in our manufacturing facility
are our LT and formulated patches. We currently intend to rely on either a collaborator or
third-party supplier to produce other product components, such as the flu antigens contained in our
needle-free flu vaccine patch. As variability in product specifications and characteristics
generally is not acceptable to regulatory authorities, our primary sourcing strategy will be to
establish long-term, single-source relationships with suppliers of these other components. For this
reason, we expect that we will need to enter into a long-term supply arrangement for flu antigen
with a flu vaccine manufacturer before advancing our needle-free flu vaccine patch product
candidate into additional clinical trials. If there are no existing suppliers or collaborators able
or willing to meet our selection criteria, then we will consider contracting the manufacture of key
components that we do not manufacture ourselves to a contract manufacturer. At this time, we have
not entered into any agreements that provide us assurance of continued supply of any of these other
product components.
COMPETITION
The pharmaceutical, biopharmaceutical and biotechnology industries are intensely competitive
and are characterized by rapid and significant technological progress. Our competitors include
large integrated pharmaceutical and biotechnology companies, universities, and public and private
research institutions which currently engage in, have engaged in or may engage in efforts related
to the discovery and development of new biopharmaceuticals and vaccines, some of which may be
competitive. Almost all of these entities have substantially greater research and development
capabilities and financial, scientific, manufacturing, marketing and sales resources than we do, as
well as more experience in research and development, clinical trials, regulatory matters,
manufacturing, marketing and sales.
If approved for marketing, our product candidates may compete with existing drugs and
vaccines. For example, there are multiple influenza vaccines approved for sale in both the United
States and Europe. These vaccines are marketed by companies that include Novartis AG,
GlaxoSmithKline plc, MedImmune, Inc., sanofi-aventis S.A. and Solvay S.A. In addition, we know of
multiple flu vaccine candidates that incorporate adjuvants to enhance immune responses,
particularly in the elderly and to extend the supply of pandemic flu vaccines. Some of these flu
vaccines with adjuvants are being developed by pharmaceutical companies that have substantial
resources and well-established reputations among physicians and patients, such as sanofi-aventis,
GlaxoSmithKline and Novartis. These adjuvanted flu vaccines would compete against our IS patch for
dose-sparing of pandemic flu vaccines and improved flu vaccination in the elderly. For example,
both GlaxoSmithKline and Novartis were awarded dose-sparing contracts by HHS totaling $63.3
million and $54.8 million, respectively, in January 2007 to develop pandemic flu vaccines with
their proprietary adjuvant systems. Both GlaxoSmithKline and Novartis have separately reported
initial data indicating that low doses (3.8 ug and 7.5 ug, respectively) of their adjuvanted
pandemic flu vaccines have elicited immune responses at levels considered protective by health
authorities, as well as strong immune responses against drifted strains of pandemic flu that have
changed over time. In March 2008, GlaxoSmithKline announced that its H5N1 split antigen
pre-pandemic influenza vaccine, which utilizes its proprietary adjuvant along with 3.8 ug of
pandemic flu antigen, received a positive opinion from European regulatory authorities on its
marketing authorization application. In addition, sanofi-aventis announced in February 2008 that
it had filed for European approval of the first seasonal influenza vaccine delivered by a
intradermal microinjection system, aimed at providing a superior immune response in the elderly.
While there are no vaccines against ETEC infection that have been approved for sale in the
United States, we are aware of several companies with ETEC vaccine product candidates that are
under development, which, if approved, would compete against our needle-free travelers diarrhea
vaccine patch. Those companies with potential ETEC vaccine candidates include ACE BioSciences A/S,
Avant Immunotherapeutics, Inc., Cambridge Biostability Ltd., Crucell, N.V., Emergent BioSolutions,
Inc., and Intercell AG. In the absence of vaccines, travelers diarrhea is generally treated,
either prophylactically or following onset, with antibiotics or over-the-counter products that
alleviate symptoms. Some of these antibiotics and OTC products, such as Cipro, are marketed by
pharmaceutical companies with substantial resources and enjoy widespread acceptance among
physicians and patients. In addition, Salix Pharmaceuticals, Inc. has announced that it has
completed a Phase 3 study and initiated another to evaluate the efficacy and safety of an
antibiotic specifically designed to be taken prophylactically for travelers diarrhea, and is
targeting filing a license application in the first half of 2008.
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We are aware of companies that are developing alternative methods to the syringe for
delivering vaccines and biopharmaceutical products. These alternative methods include microneedles,
electroporation, microporation, jet injectors, nasal sprays and oral delivery. For example, 3M Drug
Delivery Systems, MacroFlux Corporation and Becton, Dickinson and Company are developing
microneedles and intradermal devices to deliver drugs to the skin. PowderMed Limited, which was
acquired by Pfizer, Inc., has developed a hand-held jet injector unit, MedImmune, Inc. has a nasal
flu spray that has been approved for sale in the United States, ID Biomedical Corporation, which
was acquired by GlaxoSmithKline, has a nasal flu spray under development, and sanofi-aventis has
filed for European approval of a micro-injection flu vaccine aimed at providing a superior immune
response in the elderly. There are also a number of companies developing drug delivery
technologies that make microchannels in the skin, including Altea Corporation, TransPharma Medical
Ltd. and Sontra Medical Corporation.
We believe that the principal competitive factors in the markets for our product candidates
will include:
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safety and efficacy profile;
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product price;
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ease of application;
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length of time to receive regulatory approval;
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product supply;
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enforceability of patent and other proprietary rights; and
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marketing and sales capability.
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Because our product candidates are in early stages of development, our relative competitive
position in the future is difficult to predict precisely.
GOVERNMENT REGULATION
The testing, approval, manufacturing, labeling, advertising and marketing, post-approval
safety reporting, and export, among other things, of our product candidates are extensively
regulated by governmental authorities in the United States and other countries. In the United
States, the FDA regulates biopharmaceutical products under the Federal Food, Drug, and Cosmetic
Act, or FDCA, and other laws, including, in the case of biologics, the Public Health Service Act.
Each of our product candidates consists of a patch and one or more active ingredients, such as
vaccines or adjuvants, and we expect that each product candidate will be considered a separate
investigational vaccine by the FDA, even if any of its active ingredients is part of an existing
approved product. None of the active ingredients in our product candidates have been approved by
the FDA for commercial sale in any product. We believe that most of our product candidates will be
regulated by the FDA as biologics. We cannot market a biologic until we have submitted a Biologics
License Application, or BLA, to the FDA, and the FDA has approved it. Both before and after
approval is obtained, violations of regulatory requirements may result in various adverse
consequences, including the FDAs suspension of clinical studies, delay in approving or refusal to
approve a product, suspension or withdrawal of an approved product from the market, operating
restrictions, and the imposition of civil or criminal penalties.
The steps required before the FDA may approve a product for marketing in the United States
generally include:
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preclinical laboratory tests and animal tests;
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the submission to the FDA of an investigational new drug application, or IND, for human
clinical testing, which must become effective before human clinical trials may begin;
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adequate and well-controlled human clinical trials to establish the safety and efficacy
of the product for its specific intended use(s);
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the submission to the FDA of a BLA;
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satisfactory completion of an FDA inspection of the manufacturing facility or
facilities at which the product is made to assess compliance with current good
manufacturing practices, or cGMP; and
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FDA review and approval of the BLA.
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Preclinical tests include laboratory evaluation of the product candidate, as well as animal
studies to assess the potential safety and efficacy of the product candidate. We must submit the
results of the preclinical tests, together with manufacturing information and analytical data, to
the FDA as part of an IND, which must become effective before we may commence human clinical
trials. The IND will automatically become effective 30 days after its receipt by the FDA, unless
the FDA before that time raises concerns or questions about the conduct of the trials as outlined
in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns
before clinical trials can proceed. We cannot be sure that submission of an IND will result in the
FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend such
trials.
Clinical trials involve the administration of the product candidate to healthy volunteers or
patients under the supervision of principal investigators, generally physicians who are not
employed by or under the trial sponsors control. An institutional review board must review and
approve each clinical study. Clinical trials typically are conducted in three sequential phases,
but the phases may overlap or be combined. In Phase 1, the initial introduction of the drug into
human subjects, the drug is usually tested for safety (adverse effects), dosage tolerance, and
pharmacologic action. Phase 2 usually involves studies in a limited patient population to:
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evaluate preliminarily the efficacy of the drug for specific, targeted conditions;
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determine dosage tolerance and appropriate dosage; and
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identify possible adverse effects and safety risks.
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Phase 3 trials generally further evaluate clinical efficacy and test further for safety within
an expanded patient population. We or the FDA may suspend clinical trials at any time on various
grounds, including a finding that subjects are being exposed to an unacceptable health risk.
The results of the preclinical and clinical studies, together with other detailed information,
including information on the manufacture and composition of the product candidate, are submitted to
the FDA in the form of a BLA requesting approval to market the product. If the BLA contains all
pertinent information and data, the FDA will file the application and begin review. The FDA may
refuse to file the BLA if it does not contain all pertinent information and data. In that case,
the applicant may resubmit the BLA when it contains the missing information and data. Before
approving a BLA, the FDA will inspect the facilities at which the product candidate is
manufactured, and will not approve the product candidate unless cGMP compliance is satisfactory.
The FDA may refuse to approve a BLA if applicable regulatory criteria are not satisfied, require
additional testing or information, limit the indications for use and/or require postmarketing
testing and surveillance to monitor the safety or efficacy of a product.
The testing and approval process requires substantial time, effort and financial resources,
and we cannot be sure that any of our product candidates will be approved on a timely basis, if at
all. The results of preclinical studies and initial clinical trials are not necessarily predictive
of the results from large-scale clinical trials, and clinical trials may be subject to additional
costs, delays or modifications due to a number of factors, including difficulty in obtaining enough
patients, investigators or product candidate supply. Failure by us or our collaborators, licensors
or licensees to obtain, or any delay in obtaining, regulatory approvals or in complying with
requirements could adversely affect the commercialization of product candidates and our ability to
receive product or royalty revenues. Also, if regulatory approval is granted, it is granted for use
of the product in a specific dosage form for a specific indication. If a BLA holder wishes to
market a product for a different dosage form or indication, it is generally required to submit and
have approved a supplementary application.
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Once the FDA approves a product, the BLA holder and products manufacturers are required to
comply with a number of post-approval requirements. For example, we may be required to conduct
postmarketing testing to monitor the safety and the efficacy of the marketed product, and we will
be required to report certain adverse reactions to the FDA and to comply with certain requirements
concerning advertising and promotional labeling for our products. Also, quality control and
manufacturing procedures must continue to conform to cGMP regulations after approval, and the FDA
periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, the
manufacturer must continue to expend time, monies and effort in the area of production and quality
control to maintain cGMP compliance. We expect to rely on third parties to manufacture some of our
product candidates after FDA approval, which will also be required to comply with cGMP. In
addition, discovery of problems may result in marketing restrictions on a product. Also, new
federal, state or local government requirements may be established that could delay or prevent
regulatory approval of our product candidates or impose other additional restrictions on our
business.
Whether or not FDA approval has been obtained, approval of a product by the comparable
regulatory authorities of foreign countries must be obtained prior to commencement of marketing of
the product in those countries. The approval process varies from country to country and the time
may be longer or shorter than that required for FDA approval. In those countries, we also are
subject to foreign regulatory requirements governing clinical trials, labeling, promotion and
marketing, post-approval safety reporting, export, pricing and reimbursement, which also vary
greatly from country to country.
In September 2007, the Food and Drug Administration Amendments Act of 2007 (FDAAA) was
enacted, giving the FDA enhanced post-market authority, including the authority to require
post-market studies and clinical trials, labeling changes based on new safety information, and
compliance with risk evaluation and mitigation strategies approved by the FDA. Failure to comply
with any requirements under the FDAAA may result in significant penalties. The FDAAA also
authorizes significant civil money penalties for the dissemination of false or misleading
direct-to-consumer advertisements and allows the FDA to require companies to submit
direct-to-consumer television drug advertisements for FDA review prior to public dissemination.
Additionally, the new law expands the clinical trial registry so that sponsors of all clinical
trials, except for Phase 1 trials, are required to submit certain clinical trial information for
inclusion in the clinical trial registry data bank.
We are also subject to various federal, state and local laws, rules, regulations and policies
relating to safe working conditions, laboratory and manufacturing practices, the experimental use
of animals and the use and disposal of hazardous or potentially hazardous substances used in
connection with our research work. Although we have developed safety procedures for handling and
disposing of such materials, the risk of accidental injury or contamination from these materials
cannot be entirely eliminated.
SALES AND MARKETING
We currently have no sales, marketing or distribution capability. In order to commercialize
any of our product candidates, we must either internally develop sales, marketing and distribution
capabilities or make arrangements with a third party to perform these services. We believe that by
presenting a distinctive route of administration, TCI technology offers marketing and branding
opportunities for us and our potential strategic partners. We intend to sell, market and distribute
some products directly and rely on relationships with third parties to sell, market and distribute
other products. To market any of our products directly, we must develop a marketing and sales force
with technical and regulatory expertise and with supporting distribution capabilities.
EMPLOYEES
As of December 31, 2007, we directly employed 112 people full-time, of whom one has an M.D.
degree, 19 have Ph.D. degrees, and two have DVM degrees. Of our workforce, 93 employees are engaged
in research and development and 19 are engaged in business development, finance and administration.
None of our employees is represented by a labor union or covered by a collective bargaining
agreement. We consider our relationship with our employees to be good.
CORPORATE INFORMATION
We were incorporated in Delaware on May 14, 1997. Our address is 20 Firstfield Road,
Suite 250, Gaithersburg, Maryland 20878, U.S.A. Our telephone number is (301) 556-4500.
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AVAILABILITY OF PERIODIC SEC REPORTS
Our Internet website address is
www.iomai.com.
We make available free of charge through our
website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after we electronically file such material with,
or furnish such material to, the SEC. The contents of our website are not part of, or incorporated
into, this document. The reports and other information we file with the SEC can be read and copied
at the SECs Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. Copies of these
materials can be obtained at prescribed rates from the SECs Public Reference Room at such address.
You may obtain information regarding the operation of the public reference room by calling
1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding issuers that file electronically with
the SEC.
Item 1A.
Risk Factors
Our future operating results may differ materially from the results described in this report
due to the risks and uncertainties related to our business and our industry, including those
discussed below. In addition, these factors represent risks and uncertainties that could cause
actual results to differ materially from those implied by forward-looking statements in this
report. The risks described below are not the only risks we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial may also
materially and adversely affect our business, financial condition or results of operations.
Risks Relating to Our Business
We are a biopharmaceutical company with a limited operating history and have generated no revenue
from product sales. As a development stage company, we face many risks inherent in our business. If
we do not overcome these risks, our business will not succeed.
Biopharmaceutical product development is a highly speculative undertaking and involves a
substantial degree of risk. We commenced operations in May 1997, and since that time we have been
engaged in research and development activities in connection with our product candidates. We have
never generated any revenue from product sales. All of our current product candidates are at an
early stage of development, and we do not expect to realize revenue from product sales for several
more years, if at all. In addition, we are not currently receiving any significant funding for our
research and development programs from third parties through collaborations or grants, except for
our HHS contract to develop a dose-sparing IS patch for use in the event of a pandemic flu
outbreak. We are seeking to create a business based upon new technology that is intended to change
existing practices of vaccine delivery. As such, we are subject to all the risks incident to the
creation of new products and may encounter unforeseen expenses, difficulties, complications and
delays and other unknown factors. You also should consider that we will need to:
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obtain sufficient capital to support our efforts to develop our
technology and commercialize our product candidates;
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complete and continue to enhance the product characteristics and
development of our product candidates; and
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attempt to transition from a development stage company to a company
capable of supporting commercial activities.
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We have a history of operating losses and may never be profitable.
We have incurred substantial losses since our inception, and we expect to continue to incur
substantial losses for the foreseeable future. Our net loss for the year ended December 31, 2007
was $28.3 million. As of December 31, 2007, we had an accumulated deficit of approximately $129.1
million. These losses have resulted principally from costs incurred in our research and development
programs and from our general and administrative costs. We expect to incur additional operating
losses in the future, and we expect these losses to increase significantly, whether or not we
generate revenue, as we expand our product development and clinical trial efforts. These losses
have had, and are expected to continue to have, an adverse impact on our working capital, total
assets and stockholders equity.
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To date, we have generated no revenue from product sales or royalties. We do not expect to
achieve any revenue from product sales or royalties unless and until we receive regulatory approval
and begin commercialization of our product candidates. We are not certain of when, if ever, that
will occur.
Even if the regulatory authorities approve any of our product candidates and we commercialize
these candidates, we may never be profitable. Even if we achieve profitability for a particular
period, we may not be able to sustain or increase profitability.
We will need additional funding, and we cannot guarantee that we will find adequate sources of
capital in the future.
As of December 31, 2007, we had approximately $15.5 million in unrestricted cash, cash
equivalents and marketable securities. We have incurred negative cash flows from operations since
inception and have expended, and expect to continue to expend, substantial funds to conduct our
research and development programs. In January 2007, we were awarded a five-year, $128 million
contract by HHS to fund our development of a dose-sparing patch for use with a pandemic flu
vaccine. During the first 15 months of the contract, HHS has allotted approximately $14.5 million
to reimburse us for our activities under that contract. As of December 31, 2007, we had recognized
revenue under the HHS contract of approximately $10.7 million, of which approximately $8.4 million
has been billed and approximately $6.6 million has been paid. We currently expect to bill
the government for the full $14.5 million authorized under the initial phase of the contract. We believe that
our current working capital and reimbursement of expenses under our existing government grants and
contracts will be sufficient to fund our operating expenses and capital requirements into the third
quarter of 2008, although we cannot assure you that we will not require additional funds before
then as our operating plan may change as a result of many factors currently unknown to us. In
budgeting for our activities, we have relied on a number of assumptions, including assumptions that
we will continue to expend funds in preparation for the Phase 3 trials for our travelers diarrhea
vaccine, that we will not receive any proceeds from potential partnerships, that we will not
receive any funds under the HHS contract beyond the $14.5 million allocated for the initial phase
of that contract, that government will pay our invoices timely, that we will continue to evaluate
preclinical candidates for potential development, that we will not engage in further in-licensing
activities, that we will be able to retain our key personnel, and that we will not incur any
significant contingent liabilities any of which might change in light of developments.
In particular, we will need additional funding prior to the commencement of our pivotal Phase
3 clinical trial of our needle-free travelers diarrhea vaccine, for which we expect preparations
to begin in late 2008 and, based on our current estimates, we expect our Phase 3 program to cost in
the range of $30 to $45 million in third-party expenses. We also may seek additional capital due to
favorable market conditions or strategic considerations even if we believe we have sufficient funds
for our current or future operating plans. We have based this estimate on assumptions that may
prove to be wrong. Our future capital requirements will depend on many factors, including:
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the number, size and complexity of our clinical trials;
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our progress in developing our product candidates;
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the timing of and costs involved in obtaining regulatory approvals;
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costs of manufacturing our product candidates;
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costs to maintain, expand and protect our intellectual property portfolio; and
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costs to develop our sales and marketing capability.
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We expect to raise additional funds in advance of when we exhaust our cash resources, which,
if we raise additional funds by issuing equity securities, will result in further dilution to our
stockholders. Any equity securities issued also may provide for rights, preferences or privileges
senior to those of holders of our common stock. If we raise additional funds by issuing debt
securities, these debt securities would have rights, preferences and privileges senior to those of
holders of our common stock, and the terms of the debt securities issued could impose significant
restrictions on our operations. If we raise additional funds through collaborations and licensing
arrangements, we might be required to relinquish significant rights to our technology, product
candidates or products that we would otherwise seek to develop or commercialize ourselves, or to
grant licenses on terms that are not favorable to us.
We do not know whether additional financing will be available on commercially acceptable terms
when needed. If adequate funds are not available or are not available on commercially acceptable
terms, we may need to downsize or halt our operations and may be unable to continue developing our
product candidates.
22
We will need to demonstrate the safety and efficacy of our needle-free travelers diarrhea vaccine
in one or more Phase 3 clinical trials in order to obtain approval by the FDA and other regulatory
authorities, and there can be no assurance that our needle-free travelers diarrhea vaccine will
achieve positive results in further clinical testing.
Positive results in early clinical trials of a vaccine candidate may not be replicated in
later clinical trials. A number of companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in late-stage clinical trials even after achieving promising
results in earlier-stage development.
Although our recently completed Phase 2 field trial of our needle-free travelers diarrhea
vaccine showed that our vaccine resulted in a 75% reduction in moderate-to-severe diarrhea from any
cause, the planned Phase 3 efficacy trial, which we plan to conduct during the summer of 2009 when
the travelers diarrhea season in Latin America is at its peak, may not achieve similar positive
results. A number of factors could contribute to a lack of positive results in our planned Phase 3
clinical trial. For example, the incidence of diarrhea or causative organisms could be different in
a particular year than we predict or if our subjects do not travel during the peak travelers
diarrhea season, the performance of our patch system may not replicate results observed in prior
trials, and we may not meet our recruitment targets because of changes in travel patterns. Our
current rationale for selecting the primary endpoints for our travelers diarrhea vaccine is based
on existing clinical trial results and our understanding of the mechanism of action of this product
candidate. However, our understanding of the product candidates mechanism of action may be
incomplete or incorrect, or the mechanism may not be clinically relevant to preventing travelers
diarrhea. In such cases, our product candidate may prove to be ineffective in the Phase 3 efficacy
clinical trial.
We presently intend to seek regulatory approval for our needle-free travelers diarrhea
vaccine in both the United States and the European Union, so we expect to meet with the FDA and
European regulatory authorities during 2008 to review our plans for the Phase 3 trials for this
product candidate. At this time, we are evaluating various possible primary endpoints. We can
give no assurances, however, that the FDA, European Medicines Agency (EMEA), or any other
regulatory body will not require a different primary endpoints or additional efficacy endpoints for
registration. Moreover, given that we currently plan to follow only travelers to Guatemala and
Mexico in the efficacy trial, the FDA, EMEA and other regulatory authorities may not allow us to
claim prevention of travelers diarrhea on a global basis without additional sites in other endemic
areas. If the FDA or EMEA requires different or any additional efficacy endpoints, we may be
required to conduct larger or longer Phase 3 clinical trials than currently planned to achieve a
statistically significant result to enable approval of our needle-free travelers diarrhea vaccine
or accept a narrow label indication.
Prior to our end-of-Phase 2 meeting with the FDA, we plan to conduct at least one more Phase 2
trial to confirm that the patches from our recently installed commercial patch manufacturing line
yield immunogenicity results similar to those observed in prior studies. We expect results from
this Phase 2 trial in the third quarter of 2008. If the results of this trial do not confirm data
from our prior studies, or if, after our end-of-Phase 2 meeting, the FDA requires us to conduct
additional Phase 2 clinical trials of our needle-free travelers diarrhea vaccine prior to
initiating our Phase 3 efficacy trial, we will incur significant additional development costs, and
the initiation of our Phase 3 program may be delayed or cancelled.
Our current plan is for the second dose of the two-dose regimen for our travelers diarrhea
vaccine to be self-applied two weeks after the first immunization by a clinician, so that full
vaccination requires only one visit to a doctors office. This strategy is based on the interim
results of our 160-subject Phase 2 study, which we announced in February 2008. Four groups were
evaluated: two groups received both doses of the vaccine from a medical professional and two other
groups of volunteers administered the second vaccine patch themselves. All groups had robust
responses to the vaccine, and a statistical analysis of immune parameters following vaccination
showed no significant differences between treatment groups at measured time points. While we
believe that our travelers diarrhea vaccine may be amenable to self-administration based on these
results, the FDA or other regulatory authorities may not concur with our analysis. Whether any
approved product would be self-administered would depend on many factors, including the outcome of
any future studies evaluating self-administration and the views of regulatory agencies.
If we do not receive positive results in our Phase 3 clinical program for our needle-free
travelers diarrhea vaccine, we may not be able to obtain regulatory approval or commercialize this
product and our development of our needle-free travelers diarrhea vaccine may be delayed or
cancelled.
23
The success of some programs may depend on licensing biologics from, and entering into
collaboration arrangements with, third parties. We cannot be certain that our licensing or
collaboration efforts will succeed or that we will realize any revenue from them.
The success of our business strategy is, in part, dependent on our ability to enter into
multiple licensing and collaboration arrangements and to manage effectively the numerous
relationships that will result. For example, we currently do not intend to manufacture any product
components other than heat labile toxin (LT) adjuvant and formulated patches. Therefore, we will
need to negotiate agreements to acquire biologics, such as the flu antigens contained in our
needle-free flu vaccine patch development candidate, and other product components from third
parties in order to develop some of our vaccine candidates (other than our needle-free travelers
diarrhea vaccine patch and IS patch). We are seeking a collaboration with respect to our
needle-free flu patch.
We are also seeking potential collaborations for our needle-free travelers diarrhea vaccine.
The remaining development program and potential commercialization of our travelers diarrhea
vaccine will require substantial additional cash to fund expenses. In particular, we will need
additional funding prior to the commencement of our Phase 3 clinical trial of our needle-free
travelers diarrhea vaccine, and, based on our current estimates, we expect our Phase 3 program to
cost in the range of $30 to $45 million in third-party expenses. Our current strategy includes
potentially selectively collaborating with a leading pharmaceutical or biotechnology company to
assist us in furthering development and potential commercialization of this product candidate. We
are currently evaluating whether to advance this program ourselves or through one or more
collaborations. We face significant competition in seeking appropriate collaborators, and these
collaborations are complex and time-consuming to negotiate and document. We may not be able to
negotiate collaborations on acceptable terms, or at all. If that were to occur, we may have to
curtail the development of a particular drug candidate, reduce or delay its development program or
one or more of our other development programs, delay its potential commercialization or reduce the
scope of our activities, or increase our expenditures and undertake development or
commercialization activities at our own expense. If we elect to increase our expenditures to fund
development or commercialization activities on our own, we may need to obtain additional capital,
which may not be available to us on acceptable terms, or at all. If we do not have sufficient
funds, we will not be able to bring our drug candidates to market and generate product revenue.
A failure to enter into a collaboration could delay development of our product candidates.
Also, we may not establish a direct sales force for any of our products and, therefore, may need to
establish marketing arrangements with third parties or major pharmaceutical companies.
Our ability to enter into agreements with commercial partners depends in part on convincing
them that our TCI technology can help achieve and accelerate their goals or efforts. This may
require substantial time and effort on our part. While we anticipate expending substantial funds
and management effort, we cannot assure you that a strategic relationship will result or that we
will be able to negotiate additional strategic agreements in the future on acceptable terms, if at
all. Furthermore, we may incur significant financial commitments to collaborators in connection
with potential licenses or sponsored research agreements. Generally, we will not be able to
directly control the areas of responsibility undertaken by our strategic partners and we will be
adversely affected should these partners prove unable to carry the product candidates forward to
full commercialization or should they lose interest in dedicating the necessary resources toward
developing such products quickly.
Third parties may terminate our licensing and other strategic arrangements if we do not
perform as required under these arrangements. Generally, we expect that agreements for rights to
develop technologies will require us to exercise diligence in bringing product candidates to market
and will require us to make milestone and royalty payments that, in some instances, are
substantial. Our failure to exercise the required diligence or make any required milestone or
royalty payment could result in the termination of the relevant license agreement, which could have
a material adverse effect on us and our operations. In addition, these third parties may also
breach or terminate their agreements with us or otherwise fail to conduct their activities in
connection with our relationships in a timely manner. If we or our partners terminate or breach any
of our licenses or relationships, we:
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may lose our rights to develop and market our product candidates;
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may lose patent and/or trade secret protection for our product candidates;
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may experience significant delays in the development or commercialization of
our product candidates;
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may not be able to obtain any other licenses on acceptable terms, if at all; and
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may incur liability for damages.
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24
Licensing arrangements and strategic relationships in our industry can be very complex,
particularly with respect to intellectual property rights. Disputes may arise in the future
regarding ownership rights to technology developed by or with other parties. These and other
possible disagreements between us and third parties with respect to our licenses or our strategic
relationships could lead to delays in the research, development, manufacture and commercialization
of our product candidates. These disputes could also result in litigation or arbitration, both of
which are time-consuming and expensive. These third parties also may pursue alternative
technologies or product candidates either on their own or in strategic relationships with others in
direct competition with us.
We may not be able to manufacture our product candidates in commercial quantities, which would
prevent us from initiating Phase 3 trials and commercializing our product candidates.
To date, our product candidates have been manufactured in small quantities by us and third
party manufacturers for preclinical and clinical trials. As we prepare our facility for Phase 3 and
commercial manufacturing, this may require scale up of our fermentation, downstream processing and
patch manufacturing as compared to our current levels. For example, we have recently installed
manufacturing equipment capable of producing initial commercial quantities of our vaccine patches.
While we have completed initial engineering runs on this upgraded equipment, we have limited
experience manufacturing patches on this upgraded equipment and this may cause delays in
manufacturing clinical materials for future studies. We are also making some modifications to our
manufacturing facility during the first half of 2008 in order to ready it for production of Phase 3
materials. Once these modifications are complete, we will then have to requalify the manufacturing
facilitys major systems before we are able to make any Phase 3 materials. In addition, we are
conducting risk-based pre-process validation studies to identify and test critical control
parameters for our travelers diarrhea product candidate and our manufacturing process. We intend
to share the results from these experiments with the FDA at our end-of-Phase 2 meeting, so we can
agree on the approaches for validating the manufacturing process and process controls. These
projects may result in unanticipated delays and cost more than expected due to a number of factors,
including complying with current Good Manufacturing Practices, or cGMP, regulations for clinical
and commercial production, such as qualification and validation of these equipment, and this could
result in the delay of initiation of our planned Phase 3 trials and commercial launch of products.
Presently, we plan to conduct at least one more Phase 2 trial for our needle-free travelers
diarrhea vaccine to confirm that the patches from this recently installed commercial patch
manufacturing line yield immunogenicity results similar to those observed in prior studies. We
expect results from this Phase 2 trial in the third quarter of 2008. If the results of this trial
do not confirm data from our prior studies, we may incur significant additional development costs
and initialization of our Phase 3 program may be delayed or cancelled.
If any of our product candidates is approved by the FDA or other regulatory agencies for
commercial sale, we will need to manufacture it in larger quantities. We or our third party
manufacturers may not be able to successfully increase the manufacturing capacity for any of our
product candidates in a timely or economic manner, or at all. If we are unable to successfully
increase the manufacturing capacity for a product candidate, the regulatory approval or commercial
launch of that product candidate may be delayed or there may be a shortage in the supply of the
product candidate. Our product candidates require precise, high quality manufacturing that is
subject to cGMP. Our failure or the failure of our third party manufacturers to achieve and
maintain these high manufacturing standards and comply with the cGMP, including the incidence of
manufacturing errors, could result in injury or death, product recalls or withdrawals, delays or
failures in product testing or delivery, cost overruns or other problems that could seriously harm
our business. In addition, our manufacturing facilities will be subject to unannounced inspections
by the FDA, and significant scale-up of manufacturing may require additional validation studies,
which the FDA must review and approve.
25
Our IS patch for pandemic flu program relies on government health organizations for funding
clinical development and for ultimately procuring the product, if approved.
We are currently relying upon the United States government to fund our IS patch for pandemic
flu. In January 2007, we entered into a five-year, $128 million cost-reimbursement contract with
the HHS to develop a dose-sparing patch for use in the event of an influenza pandemic where the
HHS will fund our costs for research, development and capital and will pay a fixed fee. Currently,
HHS has allocated $14.5 million through the first 15 months of the contract for us to assess the
safety and adjuvant effect of the IS patch in an initial clinical trial and to develop plans on how
we would produce 150 million IS patches in a six-month period, as required under the contract. In
March 2008, we announced the interim results from the 500-subject Phase 1/2 trial to assess the
safety and adjuvant effect of the IS patch. We have shared the data with HHS and are now working
with them to determine possible next steps. Upon completion of its review of the data, HHS will
make a determination as to whether and, if so, how to continue the development of this product. If
the results for this clinical trial are not deemed adequate by HHS or we fail to satisfy, from
HHSs perspective, the requirements regarding our product development and manufacturing plans, HHS
may not extend the contract through its full term, in which event we may not be able to proceed
with the balance of the contract.
In our performance under the HHS contract, we are highly dependent on timely and adequate
performance of our subcontractors, including Solvay Pharmaceuticals, which is supplying us with
injectable pandemic flu vaccine and regulatory support for our clinical trials, and our
architectural design and engineering firm. If the performance of our subcontractors is not adequate
or timely, our performance under our HHS contract may be delayed, and we therefore may not be able
to satisfy the contracts requirements, which could cause us to be in breach under those contracts
and cause those contracts to be terminated. We cannot assure you that one or more of these
subcontractors will not be delayed in performing, or fail to perform their obligations under these
contracts in compliance with applicable legal requirements.
Although the government has advised us that funding under our HHS contract has been
appropriated for this program outside of the annual appropriations process, government funding is
still subject to changing priorities within the government and other political risks, particularly
in an election year. As a result, the receipt by us of funds from the United States government to
fund our research and development of our IS patch for pandemic flu beyond the $14.5 million already
allotted cannot be assured. In addition, we expect that United States and foreign governments would
be the entities procuring any pandemic flu products, if approved, and not individual consumers.
While there has recently been increased public awareness of the risks of pandemic flu, government
health organizations may not devote significant resources to the prevention of an outbreak and may
not seek to procure pandemic flu products from us. The acceptance of our product candidate for
pandemic flu may depend on whether government health organizations adopt a dose-sparing strategy to
prevent pandemic flu and whether a competing technology for dose sparing is adopted. If a
dose-sparing strategy is not endorsed or a competing technology for dose sparing is adopted, our
product candidate will not yield any revenues.
The development and clinical testing of our IS patch for pandemic flu product candidate will
likely take several years. Even if our IS patch for pandemic flu obtains regulatory approval, by
that time the threat of a pandemic flu outbreak may be reduced or government health organizations
may have adequate stockpiles of flu vaccine or have adopted other technologies or strategies to
prevent or limit outbreaks.
Even if our IS patch for pandemic flu gains regulatory approval and governmental health
organizations choose to stockpile the product, we may be not be able to produce enough of the
product to fulfill public health and safety needs.
U.S. government agencies have special contracting requirements, which create additional risks.
We have entered into a contract with HHS, which is a U.S. government agency. Currently, HHS
has allocated $14.5 million through the first 15 months of the contract for us to assess the safety
and adjuvant effect of the IS patch in an initial clinical trial and to develop plans on how we
would produce 150 million IS patches in a six-month period, as required under the contract. In
contracting with government agencies, we are subject to various U.S. government agency contract
requirements. Future revenues from HHS and other U.S. government agencies will depend, in part, on
our ability to meet U.S. government agency contract requirements, certain of which we may not be
able to satisfy.
U.S. government contracts typically contain unfavorable termination provisions allowing the
U.S. government to terminate the contract at any time and are subject to audit and modification by
the government at its sole discretion, which subjects us to additional risks. These risks include
the ability of the U.S. government to unilaterally:
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suspend or prevent us for a set period of time from receiving new contracts or extending
existing contracts based on violations or suspected violations of laws or regulations;
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terminate our existing contracts;
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reduce the scope and value of our existing contracts;
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audit and object to our contract-related costs and fees, including allocated indirect costs;
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control and potentially prohibit the export of our products; and
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change certain terms and conditions in our contracts.
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The U.S. government may terminate any of its contracts with us either for its convenience or
if we default by failing to perform in accordance with the contract schedule and terms. Termination
for convenience provisions generally enable us to recover only our costs incurred or committed and
profit on the work completed prior to termination, and settlement expenses incurred in the
termination for convenience process. Termination for default provisions do not permit these
recoveries and may make us liable for excess costs incurred by the U.S. government in procuring
undelivered items from another source.
As a U.S. government contractor, we are required to comply with applicable laws, regulations
and standards relating to our accounting practices and are subject to periodic audits and reviews.
As part of any such audit or review, the U.S. government may review the adequacy of, and our
compliance with, our internal control systems and policies, including those relating to our
purchasing, property, estimating, compensation and management information systems. Based on the
results of its audits, the U.S. government may adjust our contract-related costs and fees,
including allocated indirect costs. If our costs are challenged, reimbursement may fail to cover
the expenses we incur discharging our role under the contract. In addition, if an audit or review
uncovers any improper or illegal activity, we may be subject to civil and criminal penalties and
administrative sanctions, including termination of our contracts, forfeiture of profits, suspension
of payments, fines and suspension or prohibition from doing business with the U.S. government. We
could also suffer serious harm to our reputation if allegations of impropriety were made against
us. Although adjustments arising from government audits and reviews have not seriously harmed our
business in the past, future audits and reviews could cause adverse effects. In addition, under
U.S. government purchasing regulations, some of our costs, including most financing costs,
amortization of intangible assets, portions of our research and development costs, and some
marketing expenses, may not be reimbursable or allowed under our contracts. Further, as a U.S.
government contractor, we are subject to an increased risk of investigations, criminal prosecution,
civil fraud, whistleblower lawsuits and other legal actions and liabilities to which purely private
sector companies are not.
Our technology is unproven and presents challenges for our product development efforts.
Our TCI technology represents a novel approach to stimulating the bodys immune system. There
is no precedent for the successful commercialization of product candidates based on our technology.
Developing biopharmaceuticals based on new technologies presents inherent risks of failure,
including:
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research could demonstrate that the scientific basis of our technology
is incorrect or less sound than we had believed;
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unexpected research results could reveal side effects or other
unsatisfactory conditions that either will add cost to development of
our product candidates or jeopardize our ability to complete the
necessary clinical trials; and
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time and effort required to solve technical problems could
sufficiently delay the development of product candidates such that any
competitive advantage that we may enjoy is lost.
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All of our product candidates currently in development rely on LT, a naturally occurring
bacterial toxin, as an adjuvant. LT has been shown to cause undesirable side effects when delivered
through conventional mechanisms such as injection, intranasal and oral delivery methods. LT cannot
be administered orally as an adjuvant and was linked to an increase in the risk of Bells palsy, a
temporary paralysis of the facial muscles, when used in a nasal flu vaccine that was on the market
in Europe during the 2000/2001 flu season. If we find that LT is not safe when administered to
subjects to the skin using our TCI technology, we will not be able to use LT as an adjuvant in our
products. This would have a material adverse effect on our product development efforts.
Successful commercialization of our TCI technology will require integration of multiple
dynamic and evolving components, such as antigens, adjuvants and a delivery mechanism, into
finished product candidates. This complexity will likely increase the number of technical problems
that we can expect to confront in the clinical and product development processes and, therefore,
add to the cost and time required to commercialize each product candidate.
27
We rely on third parties to conduct our clinical trials, and those third-parties may not perform
satisfactorily, including failing to meet established deadlines for the completion of such trials.
We do not have the ability to independently conduct clinical trials for our vaccine
candidates, and we rely on third parties such as contract research organizations, medical
institutions and clinical investigators to enroll qualified subjects and conduct our clinical
trials. Our reliance on these third parties for clinical development activities reduces our control
over these activities. Furthermore, these third parties may also have relationships with other
entities, some of which may be our competitors. If these third parties do not successfully carry
out their contractual duties or meet expected deadlines, our efforts to obtain regulatory approvals
for and commercialize our vaccine candidates may be delayed or prevented.
We rely on third parties to provide us with materials necessary to manufacture our product
candidates that may not be available on commercially reasonable terms, or at all, which may delay
the development, regulatory approval and commercialization of our product candidates.
We purchase from third-party suppliers the materials necessary to produce the bulk LT and
final patches for our travelers diarrhea vaccine and IS patches for our clinical trials. Suppliers
may not sell these materials to us at the times we need them or on commercially reasonable terms.
Moreover, we currently do not have any agreements for the commercial production of these materials.
If we are unable to obtain these materials for our clinical trials, then product testing and
potential regulatory approval of our product candidates could be delayed, significantly affecting
our ability to develop our product candidates. If we are unable to purchase these materials after
regulatory approval has been obtained for our product candidates for any reason, including due to
regulatory requirements or actions, adverse financial developments at or affecting the supplier, or
labor shortages or disputes, the commercial launch of our product candidates would be delayed or
there would be a shortage in supply, which would materially affect our ability to generate revenues
from the sale of our product candidates.
In some cases, we expect these materials to be specifically cited in our future marketing
applications with regulatory authorities, so that they must be obtained from that specific source
unless and until the applicable authority approved another supplier. In addition, there may only be
one available source for a particular component or chemical. Our suppliers also may be subject to
FDA regulations or the regulations of other governmental agencies outside the United States
regarding manufacturing practices. As such, their facilities could be subject to ongoing
inspections, and minor changes in manufacturing processes for these materials may require
additional regulatory approvals, either of which could cause delay or a shortage in supply. We may
be unable to manufacture our products in a timely manner or at all if these third party suppliers
were to cease or interrupt production or otherwise fail to supply these materials to us, either of
which could cause us to incur significant additional costs and lose revenue.
We rely on a limited number of manufacturers for our skin preparation systems, and our business
will be seriously harmed if these manufacturers are not able to satisfy our demand and alternative
sources are not available.
We do not have an in-house manufacturing capability for our skin preparation systems (SPS) and
depend completely on a small number of third-parties for the manufacture of our SPS. We do not
have long-term agreements with any of these third parties, and if they are unable or unwilling to
perform for any reason, we may not be able to locate alternative acceptable manufacturers or enter
into favorable agreements with them. Any inability to acquire sufficient quantities of our SPS in a
timely manner from these third parties could delay clinical trials and prevent us from developing
our product candidates in a cost-effective manner or on a timely basis. In addition, manufacturers
of our SPS are subject to cGMP and similar foreign standards and we do not have control over
compliance with these regulations by our manufacturers. If one of our contract manufacturers fails
to maintain compliance, the production of our product candidates could be interrupted, resulting in
delays and additional costs. In addition, if the facilities of such manufacturers do not pass a
pre-approval plant inspection, the FDA will not grant pre-market approval of our products.
28
The skin preparation systems used in connection with our product candidates may make our products
less attractive to consumers.
We have observed in our product development efforts that the delivery of antigens and
adjuvants to Langerhans cells through the skin is significantly improved by prepping the skin to
disrupt the outer dead layer of skin, known as the stratum corneum. Based on animal studies, we
believe that the method and level of skin preparation may differ from one product candidate to
another because of the different physical properties of the active ingredients. Therefore, more
than one skin preparation system (SPS) may be required for our different products to be effective.
In recent clinical studies for our needle-free travelers diarrhea and flu vaccine patches, we have
tested simple abrasive materials to disrupt the stratum corneum and are now working to design and
test improved embodiments of these materials for use in our future clinical trials of our product
candidates. We believe our SPS will be simple to perform and will not involve discomfort to the
subject. However, to the degree that our SPS is not perceived to be simple to perform or involve
discomfort to the consumer, it could reduce the attractiveness of our products since alternative
vaccines or treatments are available for many of the indications that our product candidates under
development seek to address.
As part of our product development efforts, we may make significant changes to our product
candidates. These changes may not yield the benefits that we expect.
We have made changes in the design or application of our product candidates in response to
preclinical and clinical trial results and technological changes, and we may make additional
changes in the future before we are able to commercialize our products. These and other changes to
our product candidates may not yield the benefits that we expect and may result in complications
and additional expenses that delay the development of our product candidates. In addition, changes
to our product candidates may not be covered by our existing patents and patent applications, and
may not qualify for patent protection, which could have a material adverse effect on our ability to
commercialize our product candidates. See the risk factor entitled If we are unable to protect our
intellectual property, we may not be able to operate our business profitably.
We may be required to conduct clinical trials of our IS patch with flu vaccines developed by
different manufacturers, which may lead to added cost and delay in approval and commercialization
of our IS patch.
Approval by the FDA of our IS patch with flu vaccines will be based on clinical data with the
relevant commercial flu vaccines. In order for our IS patch to gain approval from the FDA for use
with multiple commercially available injectable flu vaccines, we may need to conduct multiple
clinical trials of our IS patch with multiple flu vaccines developed by different manufacturers.
This may substantially expand the cost and time required for the clinical trials of our IS patch,
which could delay its potential approval by the FDA and its commercialization.
None of our product candidates has been approved for commercial sale, and we may never receive such
approval.
All of our product candidates are in early pre-commercial stages, and we do not expect our
product candidates to be commercially available for several years, if at all. We expect that each
of our product candidates, consisting of a patch and one or more active ingredients, will be
treated together as a separate investigational product by the FDA, even if any active ingredient is
part of an existing approved product. None of the active ingredients in our product candidates have
been approved by the FDA for commercial sale in any product. Our product candidates are subject to
stringent regulation by regulatory authorities in the United States and in other countries. We
cannot market any product candidate until we have completed our clinical trials and have obtained
the necessary regulatory approvals for that product candidate. We do not know whether regulatory
authorities will grant approval for any of our product candidates.
Conducting clinical trials and obtaining regulatory approvals are uncertain, time consuming
and expensive processes. Our product candidates must complete rigorous preclinical testing and
clinical trials. It will take us many years to complete our testing, and failure could occur at any
stage of testing. For example, in May 2007, we announced that the interim results from a Phase 1
clinical trial comparing our needle-free flu vaccine patch to an injected intramuscular vaccine.
While the trial showed that a needle-free flu vaccine patch stimulated an immune response to each
of the three antigens in a dose-dependent manner, the results showed that the injected vaccine
prompted a greater immune response compared with our patch vaccine. In addition, results of early
trials frequently do not predict results of later trials, and acceptable results in early trials
may not be repeated.
Even if we complete preclinical and clinical trials successfully, we may not be able to obtain
regulatory approvals. Data obtained from preclinical and clinical studies are subject to varying
interpretations that could delay, limit or prevent regulatory approval, and failure to observe
regulatory requirements or inadequate manufacturing processes are examples of other problems that
could prevent approval. In addition, we may encounter delays or rejections due to additional
government regulation from future legislation, administrative action or changes in FDA policy.
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We intend to meet with the FDA and European regulatory authorities during 2008 to review our
plans for the Phase 3 trial for our needle-free travelers diarrhea vaccine to seek regulatory
approval in both the United States and European Union. At this time, we are evaluating various
possible primary endpoints. We can give no assurances, however, that the FDA, EMEA, or any other
regulatory body will not require a different primary endpoint or additional efficacy endpoints for
registration. Moreover, given that we currently plan to follow only travelers to Guatemala and
Mexico in the efficacy trial, the FDA, EMEA and other regulatory authorities may not allow us to
claim prevention of travelers diarrhea on a global basis without additional sites in other endemic
areas. If the FDA or EMEA requires different or any additional efficacy endpoints, it could limit
the indications for which our travelers diarrhea vaccine might be approved, and an approval for a
limited indication could negatively our ability to market and sell this product candidate. While we
believe that our travelers diarrhea vaccine may be amenable to self-administration based on recent
clinical results, the FDA or other regulatory authorities may not concur with our analysis.
Whether any approved product would be self-administered would depend on many factors, including the
outcome of any future studies evaluating self-administration and the views of regulatory agencies.
In addition, if, after regulatory approval, we would desire to expand the indication or apply for a
different indication, we will be required to file a supplementary application, along with the
necessary clinical data to support any new label claims. In this case, we may incur significant
additional development costs, and we may not be able to obtain regulatory approval or commercialize
this product for the new indication in an acceptable timeframe.
Outside the United States, our ability to market any of our potential products is contingent
upon receiving marketing authorizations from the appropriate regulatory authorities. These foreign
regulatory approval processes include all of the risks associated with the FDA approval process
described above.
If our research and testing is not successful, or if we cannot show that our product
candidates are safe and effective, we will be unable to commercialize our product candidates, and
our business may fail.
Federal regulatory reforms may create additional burdens that would cause us to incur additional
costs and may adversely affect our ability to commercialize our products.
From time to time, legislation is drafted, introduced and passed in Congress that could
significantly change the statutory provisions governing the approval, manufacturing and marketing
of products regulated by the FDA. For example, on September 27, 2007, the Food and Drug
Administration Amendments Act of 2007 (FDAAA) was enacted, giving the FDA enhanced post-market
authority, including the authority to require post-market studies and clinical trials, labeling
changes based on new safety information, and compliance with risk evaluation and mitigation
strategies approved by the FDA. The FDAs post-market authority takes effect 180 days after the
enactment of the law. Failure to comply with any requirements under the FDAAA may result in
significant penalties. The FDAAA also authorizes significant civil money penalties for the
dissemination of false or misleading direct-to-consumer advertisements and allows the FDA to
require companies to submit direct-to-consumer television drug advertisements for FDA review prior
to public dissemination. Additionally, the new law expands the clinical trial registry so that
sponsors of all clinical trials, except for Phase 1 trials, are required to submit certain clinical
trial information for inclusion in the clinical trial registry data bank. The FDAs exercise of its
new authority could result in delays or increased costs during the period of product development,
clinical trials and regulatory review and approval, increased costs to assure compliance with new
post-approval regulatory requirements, and potential restrictions on the sale of approved products.
In addition to the FDAAA, FDA regulations and guidance are often revised or reinterpreted by the
agency in ways that may significantly affect our business and our products. It is impossible to
predict whether further legislative changes will be enacted, or FDA regulations, guidance or
interpretations will change, and what the impact of such changes, if any, may be.
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If physicians and patients do not accept our products, we may be unable to generate significant
revenue.
Even if any of our vaccine candidates obtain regulatory approval, they still may not gain
market acceptance among physicians, patients and the medical community, which would limit our
ability to generate revenue and would adversely affect our results of operations. Physicians will
not recommend products developed by us or our collaborators until clinical data or other factors
demonstrate the safety and efficacy of our products as compared to other available treatments. Even
if the clinical safety and efficacy of our products is established, physicians may elect not to
recommend these products for a variety of factors, including the reimbursement policies of
government and third-party payors. There are other established treatment options for the diseases
that many of our product candidates target, such as travelers diarrhea and the flu. In order to
successfully launch a product based on our TCI technology, we must educate physicians and patients
about the relative benefits of our products. If our products are not perceived as easy and
convenient to use, for example as compared to an injectable vaccine or antibiotics, or are
perceived to present a greater risk of side effects or are not perceived to be as effective as
other available treatments, physicians and patients might not adopt our products. A failure of our
technology to gain commercial acceptance would have a material adverse effect on our business. We
expect that, if approved for commercialization, our needle-free travelers diarrhea vaccine patch
will be paid for by patients out of pocket. We originally designed our needle-free travelers
diarrhea vaccine patch to protect against only those cases of travelers diarrhea caused by
enterotoxigenic
E. coli
bacteria, or ETEC, and in which the LT toxin is present. We estimate this
to be approximately one-third of all cases of travelers diarrhea. If we do not demonstrate
protection against other forms of travelers diarrhea, this could limit commercial acceptance of
this product. Because our needle-free flu vaccine patch and IS patch candidates are targeted at
preventing or ameliorating the effects of flu infection, if the launch of these products for a
particular flu season fails, we may not receive significant revenues from either product until the
next season, if at all. See the risk factors set forth below entitled Our competitors may have
superior products, manufacturing capability or marketing expertise, Our ability to generate
revenues will be diminished if we fail to obtain acceptable prices or an adequate level of
reimbursement for our products, and We have no experience in sales, marketing and distribution
and will depend on the sales and marketing efforts of third parties.
Our license to use TCI technology from The Walter Reed Army Institute of Research, or WRAIR, is
critical to our success. Under some circumstances, WRAIR may modify or terminate our license or
sublicense the TCI technology to third parties which could adversely affect our business.
We license substantially all of our patented and patentable TCI technology through an
exclusive license from WRAIR, a federal government entity. This license will terminate
automatically on the expiration date of the last to expire patent subject to the license, which,
based on currently issued patents and our assumption that such patents will not be invalidated,
would be February 2019. WRAIR may unilaterally modify or terminate the license if we, among other
things:
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do not expend reasonable efforts and resources to carry out the development and marketing of
the licensed TCI technology and do not manufacture, use, or operate products that use the
TCI technology by December 31, 2011 (subject to extension based upon a showing of reasonable
diligence in developing the technology);
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do not continue to make our TCI-based products available to the public on commercially
reasonable terms after we have developed such products;
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misuse the licensed TCI technology or permit any of our affiliates or sub-licensees to do so;
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fail to pay royalties or meet our other payment or reporting obligations under the license;
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become bankrupt; or
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otherwise materially breach our obligations under the license.
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If we violate the terms of the WRAIR license, or otherwise lose our licensed rights to the TCI
technology, we would likely be unable to continue to develop our products. WRAIR and third parties
may dispute the scope of our rights to the TCI technology under the license. Additionally, WRAIR
may breach the terms of its obligations under the license or fail to prevent infringement or fail
to assist us to prevent infringement by third parties of the patents underlying the licensed TCI
technology. Loss or impairment of the WRAIR license for any reason could materially harm our
financial condition and operating results.
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In addition to WRAIRs termination and modification rights described above, our license is
subject to a non-exclusive, non-transferable, royalty-free right of the United States government to
practice the licensed TCI technology for research and other governmental purposes on behalf of the
United States and on behalf of any foreign government or international organization pursuant to any
existing or future treaty or agreement with the United States. WRAIR also reserves the right to
require us to grant sublicenses to third parties if WRAIR determines that:
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such sublicenses are necessary to fulfill public health and safety needs
that we are not reasonably addressing;
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such sublicenses are necessary to meet requirements for public use
specified by applicable United States government regulations with which
we are not reasonably in compliance; or
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we are not manufacturing our products substantially in the United States.
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Although we are currently the only parties licensed to actively develop the TCI technology, we
cannot assure you that WRAIR will not in the future require us to sublicense the TCI technology.
Any action by WRAIR to force us to issue such sublicenses or development activities instituted by
the United States government pursuant to its reserved rights in the TCI technology would erode our
ability to exclusively develop products based on the TCI technology and could materially harm our
financial condition and operating results.
Licenses of technology owned by agencies of the United States government, including the WRAIR
license, require that licenseesin this case, usand our affiliates and sub-licensees agree that
products covered by the license will be manufactured substantially in the United States. This may
restrict our ability to contract for manufacturing facilities, if we attempt to do so, outside the
United States and we may risk losing our rights under the WRAIR license, which could materially
harm our financial condition and operating results.
If we are unable to protect our intellectual property, we may not be able to operate our business
profitably.
We base our TCI technology in large part on innovations for which WRAIR has sought protection
under the United States and certain foreign patent laws. We consider patent protection of our TCI
technology to be critical to our business prospects. As of February 21, 2008, there are four issued
and one allowed United States patents, 42 issued foreign patents and 43 United States and foreign
patent applications relating to TCI and improvements on the technology. The four issued United
States patents will expire between November 2016 and February 2019. The 42 issued foreign patents
will expire between November 2016 and February 2019. Under our license agreement with WRAIR, we
bear financial responsibility for the preparation, filing, prosecution and maintenance of any and
all patents and patent applications licensed. With respect to enforcement, we have the right to
bring actions to enforce patents licensed under the WRAIR license agreement, subject to WRAIRs
continuing right to intervene, and WRAIR maintains the right to bring enforcement actions if we
fail to do so.
Our contract with HHS includes certain patent and data rights provisions governing our rights
and those of the U.S. government in respect of patentable processes and inventions and works
subject to copyright, including software, that we may develop under the contract and that are paid
for by HHS. While we do not believe that our performance under the HHS contract will result in
patentable processes or inventions, or works subject to copyright, including software, that we
would need to market our IS patch technology in the future, our performance under the HHS contract
subjects us to the risk that the U.S. government may claim rights or interests in such patentable
processes or inventions or works subject to copyright.
Patent protection in the field of biopharmaceuticals is highly uncertain and involves complex
legal and scientific questions and has recently been the subject of much litigation. We cannot
control when or if any patent applications will result in issued patents. Even if issued, our
patents may not afford us protection against competitors marketing similar products. Neither the US
Patent and Trademark Office nor the courts have a consistent policy regarding the breadth of claims
allowed or the degree of protection afforded under many biopharmaceutical patents.
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The claims of our existing US patents and those that may issue in the future, or those
licensed to us, may not offer significant protection of our TCI technology and other technologies.
Our patents on transcutaneous immunization, in particular, are broad in that they cover the
delivery of antigens and adjuvants to the skin to induce an immune response. While our TCI
technology is covered by issued patents and we are not aware of any challenges, patents with broad
claims tend to be more vulnerable to challenge by other parties than patents with more narrowly
written claims. Patent applications in the United States and many foreign jurisdictions are
typically not published until 18 months following their priority filing date, and in some cases not
at all. In addition, publication of discoveries in scientific literature often lags significantly
behind actual discoveries. Therefore, neither we nor our licensors can be certain that we or they
were the first to make the inventions claimed in our issued patents or pending patent applications,
or that we or they were the first to file for protection of the inventions set forth in these
patent applications. In addition, changes in either patent laws or in interpretations of patent
laws in the United States and other countries may diminish the value of our intellectual property
or narrow the scope of our patent protection. Furthermore, our competitors may independently
develop similar technologies or duplicate technology developed by us in a manner that does not
infringe our patents or other intellectual property.
If we are unable to protect the confidentiality of our proprietary information and know-how, the
value of our technology and products could be adversely affected.
In addition to patented technology, we rely upon unpatented proprietary technology, processes
and know-how. We and our licensors seek to protect this information in part by confidentiality
agreements with employees, consultants and third parties. These agreements may be breached, and
there may not be adequate remedies for any such breach. In addition, our trade secrets may
otherwise become known or be independently developed by competitors. If we are unable to protect
the confidentiality of our proprietary information and know-how, competitors may be able to use
this information to develop products that compete with our products, which could adversely impact
our business.
If the use of our technology conflicts with the intellectual property rights of third parties, we
may incur substantial liabilities, and we may be unable to commercialize products based on this
technology in a profitable manner, if at all.
Our competitors or others may have or acquire patent rights that they could enforce against
us. In addition, we may be subject to claims from others that we are misappropriating their trade
secrets or confidential proprietary information. If our technology conflicts with the intellectual
property rights of others, they could bring legal action against us or our licensors, licensees,
suppliers, customers or collaborators. If a third party claims that we infringe upon its
proprietary rights, any of the following may occur:
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we may become involved in time-consuming and expensive litigation,
even if the claim is without merit;
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we may become liable for substantial damages for past infringement if
a court decides that our technology infringes upon a competitors
patent;
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a court may prohibit us from selling or licensing our product without
a license from the patent holder, which may not be available on
commercially acceptable terms, if at all, or which may require us to
pay substantial royalties or grant cross licenses to our patents; and
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we may have to redesign our product so that it does not infringe upon
others patent rights, which may not be possible or could be very
expensive and time-consuming.
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If any of these events occurs, our business will suffer and the market price of our common
stock will likely decline.
We may be involved in lawsuits to protect or enforce our patents or the patents of our
collaborators or licensors, which could be expensive and time consuming.
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 the technology in
question. An adverse result in any litigation or proceeding 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.
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Interference proceedings brought by the US Patent and Trademark Office 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.
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, 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, it could have a substantial
adverse effect on the price of our common stock.
We depend on our key personnel, the loss of whom may adversely affect our operations. If we fail to
attract and retain the talent required for our business, our business will be materially harmed.
We are a small company with 112 full-time employees as of December 31, 2007, and we depend to
a great extent on principal members of our management and scientific staff. If we lose the services
of any key personnel, in particular, Stanley Erck, our President and Chief Executive Officer, or
Gregory Glenn, our Chief Scientific Officer, it could significantly impede the achievement of our
research and development objectives and could delay our product development programs and approval
and commercialization of our product candidates. We do not currently have any key man life
insurance policies. While we have entered into agreements with certain of our executive officers
relating to severance after a change of control and these officers have agreed to restrictive
covenants relating to non-competition and non-solicitation, we have not entered into employment
agreements with members of our senior management team other than Stanley Erck. Our agreement with
Stanley Erck does not ensure that we will retain his services for any period of time in the future.
Our success depends on our ability to attract and retain highly qualified scientific, technical and
managerial personnel and research partners. Competition among biopharmaceutical and biotechnology
companies for qualified employees is intense, and we may not be able to retain existing personnel
or attract and retain qualified staff in the future. If we fail to hire and retain personnel in key
positions, we will be unable to develop or commercialize our product candidates in a timely manner.
Our competitors may have superior products, manufacturing capability or marketing expertise.
Our business may fail because it faces intense competition from major pharmaceutical
companies, specialized biopharmaceutical and biotechnology companies and drug development companies
engaged in the development and production of vaccines, vaccine delivery technologies and other
biopharmaceutical products. Several companies are pursuing programs that target the same markets we
are targeting. In addition to pharmaceutical, biopharmaceutical and biotechnology companies, our
competitors include academic and scientific institutions, government agencies and other public and
private research organizations. Many of our competitors have greater financial and human resources
and more experience. Our competitors may:
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develop products or product candidates earlier than we do;
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form collaborations before we do, or preclude us from forming collaborations with others;
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obtain approvals from the FDA or other regulatory agencies for such products more rapidly than
we do;
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develop and validate manufacturing processes more rapidly than we do;
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obtain patent protection or other intellectual property rights that would limit our ability to
use our technologies or develop our product candidates;
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develop products that are safer or more effective than those we develop or propose to develop; or
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implement more effective approaches to sales and marketing.
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Alternative competitive technologies and products could render our TCI technology and our
product candidates based on this technology obsolete and non-competitive. Presently, there are a
number of companies developing alternative methods to the syringe for delivering vaccines. These
alternative methods include microneedles, electroporations, microporations, jet injectors, nasal
sprays and oral delivery, and several of these delivery mechanisms are in clinical trials.
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While there are no vaccines against infection by ETEC that have been approved for sale in the
United States, we are aware of several companies with ETEC vaccine product candidates that are in
development, which, if approved, would compete against our needle-free travelers diarrhea vaccine
patch. Those companies with potential ETEC vaccine candidates include ACE BioSciences A/S, Avant
Immunotherapeutics, Inc., Cambridge Biostability Ltd., Crucell, N.V., Emergent BioSolutions, Inc.,
and Intercell AG. One of our competitors, Crucell announced in 2005 results from a study of an ETEC
vaccine indicating the vaccine may be effective in preventing diarrhea caused by ETEC. In the
absence of vaccines, travelers diarrhea is generally treated, either prophylactically or following
onset, with antibiotics or over-the-counter, or OTC, products that alleviate symptoms. Some of
these OTC products and antibiotics, such as Cipro, are marketed by pharmaceutical companies with
substantial resources and enjoy widespread acceptance among physicians and patients. In addition,
Salix Pharmaceuticals, Inc. has announced that it has completed a Phase 3 study and initiated
another to evaluate the efficacy and safety of an antibiotic specifically designed to be taken
prophylactically for the prevention of travelers diarrhea, and is targeting filing a marketing
application in the first half of 2008.
There are multiple influenza vaccines approved for sale in both the United States and Europe.
In many cases, these products are manufactured and distributed by pharmaceutical companies with
substantial resources, such as Novartis AG, GlaxoSmithKline plc, sanofi-aventis SA, Solvay SA and
MedImmune, Inc. FluMist, a nasal flu vaccine, has received marketing approval from the FDA and
would compete against our needle-free flu vaccine, if it is approved for marketing. We are also
aware of other flu vaccine candidates to be delivered by alternative methods, such as nasal spray
and skin delivery, which, if approved, would compete against our needle-free flu vaccine, if it is
approved for marketing. In addition, we know of multiple flu vaccine candidates that incorporate
adjuvants to enhance immune responses, particularly in the elderly. Some of these adjuvanted flu
vaccines are being developed by pharmaceutical companies with substantial resources, such as
sanofi-aventis, GlaxoSmithKline and Novartis. These adjuvanted vaccines would compete against our
IS patch for the elderly and for pandemic flu applications, if either is approved for marketing.
For example, both GlaxoSmithKline and Novartis were awarded dose-sparing contracts by HHS
totaling $63.3 million and $54.8 million, respectively, in January 2007 to develop pandemic flu
vaccines with their proprietary adjuvant systems. Both GlaxoSmithKline and Novartis have reported
separately initial data indicating that low doses (3.8 ug and 7.5 ug, respectively) of their
respective adjuvanted pandemic flu vaccines have elicited immune responses at levels considered
protective by health authorities, as well as strong immune responses against drifted strains of
pandemic flu that have changed over time. In March 2008, GlaxoSmithKline announced that its H5N1
split antigen pre-pandemic influenza vaccine, which utilizes its proprietary adjuvant along with
3.8 ug of pandemic flu antigen, received a positive opinion from European regulatory authorities on
its marketing authorization application. In addition, sanofi-aventis announced in February 2008
that it had filed for European approval of the first seasonal influenza vaccine delivered by a
intradermal microinjection system, aimed at providing a superior immune response in the elderly.
Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an
adequate level of reimbursement for our products.
The continuing efforts of government and third-party payors to contain or reduce the costs of
health care through various means may limit our commercial opportunity. For example, in some
foreign markets, pricing and profitability of prescription biopharmaceuticals are subject to
government control. In the United States, we expect that there will continue to be a number of
federal and state proposals to implement similar government controls. In addition, increasing
emphasis on managed care in the United States will continue to put pressure on the pricing of
biopharmaceutical products. Cost control initiatives could decrease the price that we would receive
for any products in the future.
Our ability to commercialize biopharmaceutical product candidates, alone or with third
parties, could be adversely affected by cost control initiatives and also may depend in part on the
extent to which reimbursement for the product candidates will be available from:
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government and health administration authorities;
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private health insurers; and
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other third-party payors.
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Significant uncertainty exists as to the reimbursement status of newly approved health care
products. Third-party payors, including Medicare, are challenging the prices charged for medical
products and services. Government and other third-party payors increasingly attempt to contain
health care costs by limiting both coverage and the level of reimbursement for new
biopharmaceutical products and by refusing, in some cases, to provide coverage for uses of approved
products for disease indications for which the FDA has not granted labeling approval. In the United
States, there have been a number of legislative and regulatory proposals to change the healthcare
system in ways that could affect our ability to market and sell our product candidates profitably.
In particular, in December 2003, President Bush signed into law new Medicare prescription drug
coverage legislation which went into effect on January 1, 2006. Under this legislation, the Centers
for Medicare and Medicaid Services, or CMS, the agency within the Department of Health and Human
Services that administers Medicare and is responsible for reimbursement of the cost of drugs, has
asserted the authority of Medicare to elect not to cover particular drugs if CMS determines that
the drugs are not reasonable and necessary for Medicare beneficiaries or to elect to cover a drug
at a lower rate similar to that of drugs that CMS considers to be therapeutically comparable.
Changes in reimbursement policies or health care cost containment initiatives that limit or
restrict reimbursement for our products may cause our potential revenues to decline. Third party
insurance coverage may not be available to patients for any product candidates we discover and
develop, alone or through our strategic relationships. If government and other third-party payors
do not provide adequate coverage and reimbursement levels for our product candidates, the market
acceptance of these product candidates maybe reduced.
We have no experience in sales, marketing and distribution and will depend on the sales and
marketing efforts of third parties.
We plan to establish marketing arrangements with third parties or major pharmaceutical
companies and do not expect to establish direct sales capability for several years. However, these
types of marketing arrangements might not be available on commercially acceptable terms, or at all.
In the future, to market any of our product candidates directly, we would need to develop a
marketing and sales force with technical expertise and distribution capability. To the extent that
we enter into marketing or distribution arrangements, any revenues we receive will depend upon the
efforts of third parties. We cannot assure you that we will be successful in gaining market
acceptance for any products we may develop.
Our business exposes us to potential product liability claims.
Our proposed products could be the subject of product liability claims. A failure of our
product candidates to function as anticipated, whether as a result of the design of these products,
unanticipated health consequences or side effects, or misuse or mishandling by third parties of
such products, could result in injury. Claims also could be based on failure to immunize as
anticipated. Tort claims could be substantial in size and could include punitive damages. We cannot
assure you that any warranty disclaimers provided with our proposed products would be successful in
protecting us from product liability exposure. Damages from any such claims could be substantial
and could affect our financial condition.
Our business exposes us to potential product liability risks that are inherent in the testing,
manufacturing and marketing of biopharmaceutical products. We have obtained clinical trial
liability insurance for our clinical trials in the aggregate amount of $10 million. We cannot be
certain that we will be able to maintain adequate insurance for our clinical trials. We also intend
to seek product liability insurance in the future for products approved for marketing, if any.
However, we may not be able to acquire or maintain adequate insurance at a reasonable cost. Any
insurance coverage may not be sufficient to satisfy any liability resulting from product liability
claims. A successful product liability claim or series of claims could have a material adverse
impact on our operations.
We deal with hazardous materials that may cause injury to others and are regulated by environmental
laws that may impose significant costs and restrictions on our business.
Our research and development programs and manufacturing operations involve the controlled use
of potentially harmful biological materials such as toxins from
E. coli
and other hazardous
materials. We cannot completely eliminate the risk of accidental contamination or injury to others
from the use, manufacture, storage, handling or disposal of these materials. In the event of
contamination or injury, we could be held liable for any resulting damages, and any liability could
exceed our resources or any applicable insurance coverage we may have. We are also subject to
federal, state and local laws and regulations governing the use, manufacture, storage, handling or
disposal of hazardous materials and waste products. If we fail to comply with these laws and
regulations or with the conditions attached to our operating licenses, then our operating licenses
could be revoked, we could be subjected to criminal sanctions and substantial liability and we
could be required to suspend, modify or terminate our operations. We may also have to incur
significant costs to comply with future environmental laws and regulations. We do not currently
have a pollution and remediation insurance policy.
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Until 2006, we operated as a private company and as a result, we have limited experience attempting
to comply with public company obligations. Attempting to comply with these requirements will
increase our costs and require additional management resources, and we still may fail to comply.
In February 2006, we closed our initial public offering. Previously, as a private company, we
maintained a small finance and accounting staff. While we expect to continue to expand our staff,
we may encounter substantial difficulty attracting qualified staff with requisite experience due to
the high level of competition for experienced financial professionals.
We face increased legal, accounting, administrative and other costs and expenses as a public
company that we did not incur as a private company. Efforts to comply with the Sarbanes Oxley Act
of 2002, as well as other rules of the SEC, the Public Company Accounting Oversight Board and The
Nasdaq Stock Market have significant initial and ongoing legal, audit and financial compliance
costs. As a public company, we are subject to Section 404 of the Sarbanes Oxley Act relating to
internal control over financial reporting and we may fail to comply for the reasons outlined in the
next risk factor.
If we fail to maintain an effective system of internal control over financial reporting, we may not
be able to accurately report our financial results or prevent fraud. As a result, stockholders
could lose confidence in our financial and other public reporting, which would harm our business
and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable
financial reports and, together with adequate disclosure controls and procedures, are designed to
prevent fraud. If we cannot continue to provide reliable financial reports or prevent fraud, our
operating results could be harmed. Also, to account for our continued growth, as well the
additional reporting obligations under the HHS contract, we have installed a new financial system,
which went live on January 1, 2007. Our experience with this new system is limited and could impact
our ability in the future to provide timely financial reports. Management has assessed the
effectiveness of our internal control over financial reporting as of December 31, 2007. There are
inherent limitations in the effectiveness of any internal control over financial reporting,
including the possibility of human error and the circumvention or overriding of controls. As a
result of these inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. Therefore, even those
internal controls determined to be effective can provide only reasonable assurance with respect to
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
Given the status of our efforts, coupled with the fact that guidance from regulatory
authorities in the area of internal controls continues to evolve, uncertainty exists regarding our
ability to comply by applicable deadlines. Any failure to implement required new or improved
controls, or difficulties encountered in their implementation, could harm our operating results or
cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause
investors to lose confidence in our reported financial information, which could have a negative
effect on the trading price of our common stock.
Investment Risks
We expect that our stock price will fluctuate significantly, which may adversely affect holders of
our stock and our ability to raise capital.
The stock market, particularly in recent years, has experienced significant volatility
particularly with respect to pharmaceutical, biopharmaceutical and biotechnology stocks. The
volatility of pharmaceutical, biopharmaceutical and biotechnology stocks often does not relate to
the operating performance of the companies represented by the shares. Factors that could cause
volatility in the market price of our common stock include:
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the timing and the results from our clinical trial programs;
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developments concerning current or future strategic alliances;
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FDA or international regulatory actions;
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failure of any of our product candidates, if approved, to achieve commercial success;
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announcements of clinical trial results or new product introductions by our competitors;
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market conditions in the pharmaceutical, biopharmaceutical and biotechnology sectors;
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developments concerning intellectual property rights;
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|
litigation or public concern about the safety of our potential products;
|
|
|
|
|
actual and anticipated fluctuations in our quarterly operating results;
|
|
|
|
|
announcements regarding transactions with third parties;
|
|
|
|
|
deviations in our operating results from the estimates of securities analysts;
|
|
|
|
|
additions or departures of key personnel; and
|
|
|
|
|
third-party reimbursement policies.
|
These and other factors may cause the market price and demand for our common stock to
fluctuate substantially. In certain situations, such fluctuations may limit or prevent investors
from readily selling their shares of common stock and may otherwise negatively affect the liquidity
of our common stock and our ability to raise capital.
If the price and volume of our common stock experience extreme fluctuations, then we could face
costly litigation.
In the past, companies that experience volatility in the market price of their securities have
often faced securities class action litigation. Whether or not meritorious, if any of our
stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit.
Such a lawsuit could also divert the time and attention of our management and harm our ability to
grow our business.
Our directors and management exercise significant control over our company.
Our directors and executive officers and their affiliates collectively control approximately
31% of our outstanding common stock. These stockholders, if they act together, may be able to
influence our management and affairs and all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. The concentration of
ownership may have the effect of delaying or preventing a change in control of our company and
might affect the market price of our common stock.
We may not achieve our projected development goals in the time frames we announce and expect.
We set goals for and make public statements regarding timing of the accomplishment of
objectives material to our success, such as the commencement and completion of clinical trials. The
actual timing of these events can vary dramatically due to factors such as delays or failures in
our clinical trials, the uncertainties inherent in the regulatory approval process, transactions
with third parties and delays in achieving manufacturing or marketing arrangements sufficient to
commercialize our products. We can provide no assurance that our clinical trials will be completed,
that we will make regulatory submissions or receive regulatory approvals as planned, that we will
enter into collaborations, or that we will be able to adhere to our current schedule for the launch
of any of our products. If we fail to achieve one or more of these milestones as planned, the
market price of our shares could decline.
Provisions of Delaware law or our charter documents could delay or prevent an acquisition of our
company, even if the acquisition would be beneficial to our stockholders, and could make it more
difficult for you to change management.
Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a
merger, acquisition or other change in control that stockholders may consider favorable, including
transactions in which stockholders might otherwise receive a premium for their shares. This is
because these provisions may prevent or frustrate attempts by stockholders to replace or remove our
current management or members of our board of directors.
These provisions include:
|
|
|
a staggered board of directors;
|
|
|
|
|
a prohibition on stockholder action through written consent;
|
|
|
|
|
a requirement that special meetings of stockholders be called only by the chairman of the board of
directors, the chief executive officer, or the board of directors pursuant to a resolution adopted
by a majority of the total number of authorized directors;
|
|
|
|
|
advance notice requirements for stockholder proposals and nominations; and
|
38
|
|
|
the authority of the board of directors to issue preferred stock with such terms as it may determine.
|
As a result, these provisions and others available under Delaware law could limit the price
that investors are willing to pay for shares of our common stock.
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.
Item 1B.
Unresolved Staff Comments
Not applicable.
Item 2.
Properties
We currently lease approximately 53,500 square feet of research, manufacturing and
administrative space in Gaithersburg, Maryland for our principal laboratories, manufacturing
facility and corporate offices. In January 2007, we signed a lease amendment under which we leased
an additional 1,365 square feet in our current facility beginning on July 1, 2007 and an additional
5,650 square feet in our current facility beginning on September 1, 2007. As of September 2007, we
occupied the entire facility. The lease expires in May 2013 and has a five-year renewal option.
Item 3.
Legal Proceedings
We are not party to any material legal proceedings.
Item 4.
Submission of Matters to a Vote of Security Holders
No matters were submitted to stockholders for a vote during the fourth quarter of 2007.
Executive Officers of the Registrant
The following table sets forth the names and ages of our executive officers as of December 31,
2007.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
Stanley C. Erck
|
|
|
59
|
|
|
President, Chief Executive Officer, Treasurer and Director
|
Gregory M. Glenn, M.D.
|
|
|
53
|
|
|
Senior Vice President and Chief Scientific Officer
|
Russell P. Wilson
|
|
|
48
|
|
|
Senior Vice President, Chief Financial Officer, General
Counsel and Secretary
|
Stanley C. Erck.
Mr. Erck has served as President, Chief Executive Officer, Treasurer and
Director since May 2000. Mr. Erck has 30 years of management experience in healthcare and
biotechnology. Mr. Erck has worked at Baxter International, Procept, and Integrated Genetics.
Mr. Erck has a B.S. from the University of Illinois and an M.B.A. from the University of Chicago.
39
Gregory M. Glenn, M.D.
Dr. Glenn has served as Senior Vice President and Chief Scientific
Officer since September 1997 and was a Director from February 1998 through May 2000. Dr. Glenn is
the co-discoverer of the TCI technology and a co-founder of Iomai. He has been responsible for the
conception, implementation and development of the basic science and early clinical trials relating
to TCI, and has multiple patents, publications and book chapters describing TCI. Dr. Glenn is a
pediatrician who completed the Medical Research Fellowship at the Walter Reed Army Institute of
Research, or WRAIR, where he continued his research in vaccine delivery while on active duty. He
received a B.A. from Whitman College and his M.D. from Oral Roberts University School of Medicine,
where he received the Pediatrics Award and Deans Award for Academic Excellence.
Russell P. Wilson.
Mr. Wilson has served as Senior Vice President since May 2005, Chief
Financial Officer since June 2002, General Counsel since March 2000 and Secretary since May 2000,
and served as Vice President, Business Development from March 2000 to June 2002. Mr. Wilson
received a B.A. from Princeton University and holds a joint M.B.A./J.D. degree from the University
of Virginia.
40
PART II
Item 5.
Market for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Our common stock has been traded on the NASDAQ Global Market under the symbol IOMI since
February 1, 2006.
The following table sets forth, for the periods indicated, the high and low sale prices per
share of our common stock as reported on the NASDAQ Global Market.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
7.34
|
|
|
$
|
5.22
|
|
Second Quarter
|
|
|
6.00
|
|
|
|
3.91
|
|
Third Quarter
|
|
|
4.81
|
|
|
|
2.61
|
|
Fourth Quarter
|
|
|
6.40
|
|
|
|
4.60
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
6.85
|
|
|
$
|
4.56
|
|
Second Quarter
|
|
|
5.15
|
|
|
|
1.61
|
|
Third Quarter
|
|
|
2.15
|
|
|
|
1.57
|
|
Fourth Quarter
|
|
|
1.96
|
|
|
|
0.92
|
|
As of March 20, 2008, there were approximately 137 registered holders and approximately 1,220
beneficial owners of our common stock.
We have never declared or paid any cash dividends on our capital stock and we do not currently
anticipate declaring or paying cash dividends on our capital stock in the foreseeable future. We
currently intend to retain all of our future earnings, if any, to finance operations. Any future
determination relating to our dividend policy will be made at the discretion of our board of
directors and will depend on a number of factors, including future earnings, capital requirements,
financial conditions, future prospects, contractual restrictions and covenants and other factors
that our board of directors may deem relevant.
Securities Authorized For Issuance Under Equity Compensation Plans
The following table summarizes the number of securities issuable under our incentive
compensation plans as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of Securities
|
|
|
Securities to Be
|
|
|
|
|
|
Remaining Available for
|
|
|
Issued Upon
|
|
Weighted-average
|
|
Future Issuance Under
|
|
|
Exercise of
|
|
Exercise Price of
|
|
Equity Compensation
|
|
|
Outstanding
|
|
Outstanding
|
|
Plan (Excluding
|
|
|
Options, Warrants
|
|
Options, Warrants
|
|
Securities Reflected in
|
|
|
and Rights (1)
|
|
and Rights
|
|
Column (a)) (2)
|
Plan Category
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity compensation
plans approved by
security holders
|
|
|
4,126,218
|
|
|
$
|
3.16
|
|
|
|
540,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,126,218
|
|
|
|
|
|
|
|
540,632
|
|
41
|
|
|
(1)
|
|
Includes (i) outstanding options to purchase 50,380 shares of common stock under the 1998
Plan, of which 50,380 have been vested; and (ii) outstanding awards to purchase 1,681,577
shares of common stock under the 1999 Plan, of which 1,438,492 have been vested; and (iii)
outstanding awards to purchase 2,394,261 shares of common stock under the 2005 Plan, of which
265,465 have been vested. Options granted under the 1999 Plan to purchase 151,657 shares of
common stock were exercised prior to December 31, 2007.
|
|
(2)
|
|
Includes (i) up to 26,543 shares of common stock that may be issued under the 1998 Plan;
(ii) up to 168,350 shares of common stock that may be issued under the 1999 Plan; and
(iii) 345,739 shares of common stock that may be issued under the 2005 Plan. Does not include
up to 80,000 shares that may be issued under the 2006 Employee Stock Purchase Plan which
became effective upon our initial public offering.
|
Item 6.
Selected Financial Data
The following table sets forth selected financial data that is qualified in its entirety by
and should be read in conjunction with Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations and our financial statements and notes thereto appearing
elsewhere in this annual report on Form 10-K. The financial data for the fiscal years ended
December 31, 2007, 2006 and 2005 are derived from our audited financial statements appearing
elsewhere in this document. The financial data for the fiscal years ended December 31, 2004 and
2003 are derived from our audited financial statements not included in this document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Statement of Operations Data:
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
|
(In thousands, except share and per share data)
|
Revenues
|
|
$
|
1,601
|
|
|
$
|
2,345
|
|
|
$
|
2,371
|
|
|
$
|
1,475
|
|
|
$
|
10,667
|
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
13,332
|
|
|
|
14,349
|
|
|
|
16,529
|
|
|
|
28,041
|
|
|
|
31,605
|
|
General and administrative
|
|
|
3,348
|
|
|
|
3,206
|
|
|
|
3,780
|
|
|
|
5,857
|
|
|
|
8,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
16,680
|
|
|
|
17,555
|
|
|
|
20,309
|
|
|
|
33,898
|
|
|
|
39,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(15,079
|
)
|
|
|
(15,210
|
)
|
|
|
(17,938
|
)
|
|
|
(32,423
|
)
|
|
|
(29,110
|
)
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
953
|
|
|
|
620
|
|
|
|
392
|
|
|
|
1,006
|
|
|
|
1,144
|
|
Interest expense
|
|
|
(128
|
)
|
|
|
(265
|
)
|
|
|
(467
|
)
|
|
|
(377
|
)
|
|
|
(297
|
)
|
Other expense, net
|
|
|
(448
|
)
|
|
|
(225
|
)
|
|
|
(17
|
)
|
|
|
(8
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
|
377
|
|
|
|
130
|
|
|
|
(92
|
)
|
|
|
621
|
|
|
|
836
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(14,702
|
)
|
|
|
(15,080
|
)
|
|
|
(18,030
|
)
|
|
|
(31,785
|
)
|
|
|
(28,274
|
)
|
Dividends on and accretion of convertible
preferred stock
|
|
|
(5,466
|
)
|
|
|
(5,525
|
)
|
|
|
(5,562
|
)
|
|
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(20,168
|
)
|
|
$
|
(20,605
|
)
|
|
$
|
(23,592
|
)
|
|
$
|
(32,256
|
)
|
|
$
|
(28,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of common
stock basic and diluted
|
|
$
|
(26.43
|
)
|
|
$
|
(26.90
|
)
|
|
$
|
(30.14
|
)
|
|
$
|
(2.03
|
)
|
|
$
|
(1.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock
outstanding basic and diluted
|
|
|
763,075
|
|
|
|
765,945
|
|
|
|
782,715
|
|
|
|
15,915,797
|
|
|
|
24,412,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
Balance Sheet Data:
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
|
(In thousands)
|
Cash, cash equivalents and marketable securities
|
|
$
|
38,213
|
|
|
$
|
22,397
|
|
|
$
|
5,190
|
|
|
$
|
15,336
|
|
|
$
|
15,500
|
|
Working capital
|
|
|
34,945
|
|
|
|
18,878
|
|
|
|
270
|
|
|
|
10,401
|
|
|
|
13,534
|
|
Total assets(1)
|
|
|
41,511
|
|
|
|
28,942
|
|
|
|
11,861
|
|
|
|
23,085
|
|
|
|
27,355
|
|
Debt and capital lease obligations
|
|
|
2,966
|
|
|
|
5,273
|
|
|
|
4,239
|
|
|
|
4,759
|
|
|
|
3,655
|
|
Redeemable convertible preferred stock and
Series C warrant
|
|
|
59,555
|
|
|
|
65,357
|
|
|
|
70,386
|
|
|
|
|
|
|
|
|
|
Common stock subject to put right
|
|
|
1,958
|
|
|
|
1,958
|
|
|
|
1,959
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(26,038
|
)
|
|
|
(45,993
|
)
|
|
|
(68,458
|
)
|
|
|
14,035
|
|
|
|
17,953
|
|
|
|
|
(1)
|
|
As of December 31, 2007, we had net operating loss (NOL) and research
and development credit carryforwards of approximately $109.8 million
and $3.4 million, respectively. Tax benefits may arise from these
carryforwards in the future in the event that we realize U.S. taxable
income. Potential tax benefits arising from these carryforwards are
not reflected in our total assets. Despite the NOL carryforward, we
may have an income tax liability in future years due to the
application of the alternative minimum tax rules. The NOL may also be
limited in its ability to offset future losses in the event that there
is a change in the stock ownership as defined by federal tax
regulations.
|
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 financial statements and the notes to those financial statements appearing
elsewhere in this annual report on
Form 10-K
. This discussion contains forward-looking statements,
which are identified under our Cautionary Statement Regarding Forward-Looking Statements at the
beginning of this report, that involve significant risks and uncertainties. As a result of many
factors, such as those set forth under Risk Factors in Item 1A and elsewhere in this annual
report on
Form 10-K
, our actual results may differ materially from those anticipated in these
forward-looking statements.
Overview
We are a biopharmaceutical company focused on the discovery, development and commercialization
of vaccines and immune system stimulants delivered to the skin via a novel, needle-free technology
called transcutaneous immunization (TCI). TCI exploits the unique benefits of a major group of
antigen-presenting cells found in the outer layers of the skin (Langerhans cells) to generate an
enhanced immune response. TCI has the potential to enhance the efficacy of existing vaccines,
enable new vaccines that are viable only through transcutaneous administration and expand the
global vaccine market. We are developing two distinct product applications: (1) a needle-free
vaccine patch and (2) an immunostimulant, or IS, patch. We currently have four product candidates
in development: one to prevent travelers diarrhea and three targeting influenza.
Our four product candidates are (1) a needle-free travelers diarrhea vaccine patch; (2) an IS
patch intended to stimulate an immune response to even small doses of a pandemic flu vaccine,
thereby extending vaccine supply in the event of an influenza pandemic; (3) a needle-free vaccine
patch for seasonal flu; and (4) an IS patch intended to boost the immune response of the elderly to
the standard flu vaccine. None of our product candidates has been approved for commercial sale by
the U.S. Food and Drug Administration (FDA) or any comparable foreign agencies.
As of December 31, 2007, we had an accumulated deficit of $129.1 million. We expect that
advancing the clinical program for the needle-free travelers diarrhea vaccine patch into Phase 3
trials; continuing the clinical development of the IS patch to extend the supply of pandemic flu
vaccines and the IS patch for elderly receiving flu vaccines; exploring the use of new flu antigens
for the needle-free flu vaccine patch; increasing manufacturing capabilities for product
candidates; and expanding TCI research and development activities would require substantial
expenditures over the next several years.
43
We anticipate advancing the TCI platform in 2008 and 2009 will be focused on conducting
additional development for the product candidates in clinical development, particularly given the
goal of an end-of-Phase 2 meeting with the FDA in 2008 prior to conducting a pivotal Phase 3 study
in Latin America for the needle-free travelers diarrhea vaccine in 2009.
Management Review of 2007
The following is a summary of key events that occurred during 2007:
Program Update
Needle-free travelers diarrhea vaccine
Since the beginning of 2007, we have made significant advances in our travelers diarrhea
program through a series of Phase 2 trials.
In April 2007, we announced the results of our Phase 2 dose-ranging study for our travelers
diarrhea vaccine patch. In the dose-ranging trial, four different doses, as well as a placebo
patch, were tested, and antibody levels were checked at 21 and 42 days. The interim results from
that trial showed that nearly all subjects in the four different dosing groups responded to the
vaccine, with even the lowest dose of the vaccine patch applied to the arm evoking a response in
more than 95% of subjects. There were also no vaccine-related serious adverse events.
In August 2007, we announced the results from a safety and immunogenicity trial of our
travelers diarrhea vaccine in elderly subjects (65 and older) and healthy adults. In this trial,
we compared the safety and immune response of elderly subjects given our travelers diarrhea
vaccine patch with the immune response prompted in healthy adults. Because the immune system is
often less able to mount an effective immune response in the elderly, many vaccines do not work
well in this group. However, the interim results showed that 100% of subjects who received our
travelers diarrhea vaccine patch, regardless of age, seroconverted that is, had an immune
response to the vaccine as measured by serum antibody levels. There were also no vaccine-related
serious adverse events.
In September 2007, we presented data from a Phase 2 field trial of the travelers vaccine at
the Interscience Conference on Antimicrobial Agents and Chemotherapy
(ICAAC) that indicated that people who received the vaccine before traveling to Mexico or Guatemala were significantly less likely to
report clinically significant diarrhea. In that study, we observed that travelers who received our
needle-free travelers diarrhea vaccine were significantly less likely to be sickened as compared
with travelers who received a placebo. The Phase 2 field study was designed to evaluate the
logistics around how to best conduct a larger pivotal field study for our travelers diarrhea
program. Based on the interim results, the study met its primary endpoints, which were designed to
evaluate the safety of the vaccine and the incidence of illness from enterotoxigenic
E. coli
(ETEC)
bacteria, the most common cause of travelers diarrhea. No vaccine-related serious adverse events
were reported. The secondary objectives included evaluation of vaccine preventable outcomes,
immunogenicity and stool frequency.
The field study also gathered data on the protective efficacy of the vaccine. This data showed
that of the 59 individuals who received the patch-based vaccine, only three suffered moderate (4 to
5 loose stools per 24-hour period) or severe (6 or more loose stools per 24-hour period) diarrhea,
while 23 of the 111 who received a placebo suffered moderate or severe diarrhea, a 75 percent
reduction (p=0.007). One of the 59 volunteers in the vaccine group reported severe diarrhea,
compared with 12 of the 111 in the placebo group, an 84 percent reduction (p=0.033). The study,
which was conducted in Mexico and Guatemala, also found that when vaccinated subjects were
sickened, the illness lasted only half a day on average, while those in the placebo group endured
two days of illness and more than twice as many loose stools. The data from this Phase 2 field
study amplify the results observed in our previous challenge study in which 47 healthy volunteers
were given either our travelers diarrhea vaccine or a placebo and then exposed to high levels of
ETEC organisms. The results from the challenge study, published in the journal
Vaccine
in 2007,
showed that subjects who received the vaccine had significantly fewer loose stools (p=0.04) and
were significantly less likely to require intravenous fluids (14 percent compared with 40 percent,
p=0.003).
44
Finally, in February 2008, we announced that interim results of another Phase 2 study that
showed that the second dose of the two-dose regimen for our travelers diarrhea vaccine patch
yielded a robust immune response when self-applied by subjects outside of a clinical setting. Four
groups of forty subjects each were evaluated: two groups received both doses of the vaccine from a
medical professional (one group on the arm twice, the other on the arm and then thigh); and two
other groups of volunteers administered the second vaccine patch themselves on the thigh either
observed by the clinician or at home unobserved. All groups had robust responses to the vaccine,
and a statistical analysis of immune parameters following vaccination showed no significant
differences between treatment groups at measured time points. These results confirm our belief
that the Iomai patch can be effectively used by patients without a health care provider present,
removing the need for a second trip to a travel clinic. Our market research has shown that
self-application of the second dose further enhances the market potential of this product. As with
past studies of the vaccine, no serious vaccine-related adverse events were reported.
Based on the results from these trials, we intend to move quickly to complete our Phase 2 work
for our travelers diarrhea vaccine in 2008, which could allow a Phase 3 efficacy study in
travelers to Guatemala and Mexico during summer of 2009, when the travelers diarrhea season in
Latin America is at its peak. We have been meeting with our scientific advisors to review our data
and finalize the design of our Phase 3 program. Giving consideration to the results for our Phase
2 field trial, which showed protection against travelers diarrhea of any cause, we are considering
whether our endpoints will target travelers diarrhea caused by LT-secreting ETEC or by any
bacteria. We intend to meet with the FDA and European regulatory authorities during 2008 to review
these plans for our Phase 3 program in order to seek regulatory approval in both the United States
and European Union. Before commencing a Phase 3 trial, we anticipate that there will be at least
one more Phase 2 trial to confirm that the patches from our recently installed commercial patch
manufacturing line yield immunogenicity results similar to those observed in prior studies. We
expect results from this Phase 2 trial in the third quarter of 2008.
We are also seeking potential collaborations for our needle-free travelers diarrhea vaccine.
The remaining development program and potential commercialization of our travelers diarrhea
vaccine will require substantial additional cash to fund expenses. In particular, we will need
additional funding prior to the commencement of our Phase 3 clinical trial of our needle-free
travelers diarrhea vaccine, and, based on our current estimates, we expect our Phase 3 program to
cost in the range of $30 to $45 million in third-party expenses. Our current strategy includes
potentially selectively collaborating with a leading pharmaceutical or biotechnology company to
assist us in furthering development and potential commercialization of this product candidate for
international travelers from developed countries, including the United States and the European
Union. At this point, we would expect to sell directly to the military market. As for countries
in which the diarrhea is endemic, we expect to establish strategic partnerships with local
manufacturers and non-governmental organizations, or NGOs, to cover distribution of this vaccine
patch to both children and adults in those countries.
IS patch for pandemic flu program
In January 2007, the Department of Health and Human Services, or HHS, awarded us a five-year,
cost-plus reimbursement contract to fund our development of a dose-sparing patch for use with a
pandemic flu vaccine. If the product is developed through licensure, the total cost reimbursed by
HHS, plus a fixed fee, is estimated to be $128 million. During the first 15 months of the contract,
HHS has allotted approximately $14.5 million for us to assess the safety and adjuvant effect of the
IS patch in an initial clinical trial and to develop plans on how we would produce 150 million IS
patches in a six-month period, as required under the contract. Once we demonstrate the safety and
dose-sparing capability of our IS patch, we hope to sell up to 150 million IS patches to the United
States government for its stockpile of pandemic flu products. In April 2007, we submitted our first
milestone under this contract in the form of a product development plan; in July 2007, we submitted
our second milestone in the form of a clinical and regulatory development plan; and in January
2008, we submitted our third milestone in the form of a production plan that describes a facility,
processes, and plans to produce 150 million doses of the IS patches in a six-month period. In
March 2008, we announced the interim results from the 500-subject Phase 1/2 trial to assess the
safety and adjuvant effect of the IS patch. The trial met a key endpoint, demonstrating a
clinically relevant adjuvant effect when our IS patch was used with a single dose of the
45-microgram H5N1 vaccine. The trial found that a single 45-microgram dose of an H5N1 influenza
vaccine, coupled with a single 50-microgram IS patch, was sufficient to provide an immune response
considered protective in 73 percent of those tested, a statistically significant improvement over
those who received the H5N1 influenza vaccine alone. This is one of the first trials to demonstrate
that a single dose of pandemic influenza vaccine may meet the level of protection suggested in U.S.
Food and Drug Administration guidance, which recommends that a pandemic vaccine achieve immune
response levels considered protective in 70 percent or more of vaccine recipients. We have shared
the data with HHS and are now working with them to determine possible next steps. Upon completion
of its review of the data, HHS will make a determination as whether and, if so, how to continue the
development of these patches.
45
Needle-free flu vaccine patch
In late May 2007, we announced interim results from the Phase 1 clinical trial of our
needle-free vaccine for seasonal influenza. The study compared the immune responses generated by
our needle-free vaccine patch and an injected intramuscular vaccine. Both vaccines contained the
same three flu antigens from a split-virus influenza vaccine. The trial showed that our needle-free
vaccine patch stimulated an immune response to each of the three antigens in a dose-dependent
manner; however, the results show that the injected vaccine prompted a greater immune response
compared with our patch vaccine. While use of a split-virus is the traditional approach for
injected flu vaccines, we believe that the method by which split-virus antigens are processed can
result in highly crossed-linked antigens prone to aggregation, which may be difficult to
efficiently deliver in a skin patch. Antigens in this form may not be best suited for patch
application, so we are now working on a preclinical program that is exploring other methods of
formulating flu antigens that may be a better match for our needle-free patch. Preliminary
research suggests that modification of patch formulation or flu antigens into discrete particles
may be better suited for TCI administration, and we are adjusting our development and partnering
plan accordingly. The timing of any future trials of our needle-free seasonal flu vaccine will be
determined in part by the availability of antigens from either our internal programs or in
collaboration with a partner.
IS patch for elderly receiving flu vaccines
We are developing our IS patch to improve the immune response of the elderly to existing
injectable influenza vaccines. In 2007, we completed a Phase 1 safety study in Australia with our
current dry patch formulation, and the data from this 50-person study confirmed that our current
dry patch formulation of the IS patch was safe for this indication. After we complete a full
review of the results from our Phase 1/2 clinical trial to assess the safety and adjuvant effect of
the IS patch under our HHS contract, which we believe is based on similar biological principles as
the IS patch to improve the immune response to injectable influenza vaccines, we will re-evaluate
our plans to commence a Phase 2 study in the United States to confirm the results observed in our
prior European study that demonstrated proof-of-concept with a previous patch formulation.
Operations Update
In January 2007, we amended our facility lease to acquire access to approximately 7,000
additional square feet in our building during the third quarter of 2007. We now occupy the entire
building, which houses our principal laboratories, manufacturing facility and corporate offices in
approximately 53,500 square feet. The lease expires in May 2013 and has a five-year renewal
option.
Financial Update
In early March 2007, we raised $30.2 million in net proceeds when we sold 6,291,828 units,
each unit consisting of one share of our common stock and two warrants to purchase, in total, 0.7
additional shares of Common Stock, at a purchase price of $5.0675 per unit. The purchase price for
the share component of each unit was $4.98 per share. Each warrant provides the right to acquire
0.35 shares of common stock at an exercise price of $5.25 per full share. One warrant is
exercisable at any time until March 2, 2012, and the other warrant expired unexercised in
accordance with its terms on September 1, 2007.
In late June 2007, we borrowed approximately $500,000 to finance the purchase of laboratory
equipment under our existing line of credit. The amount financed is represented by a note in the
amount of $496,189, which bears interest at 11.51% and contemplates repayment over 48 months in
installments of $12,825 each month.
FINANCIAL OPERATIONS REVIEW
Revenues
Prior to 2007, our revenues were generally limited to amounts we received under U.S. federal
grant programs. With the award of the HHS contract in January 2007, our principal source of revenue
in 2007 was from reimbursement of expenses incurred under that contract. During the first 15
months of the contract, HHS has allotted approximately $14.5 million for us to assess the safety
and adjuvant effect of the IS patch in a Phase 1/2 clinical trial and to develop plans on how we
would produce 150 million IS patches in a six-month period, as required under the contract. In
2007, we recognized government contract revenues of approximately $10.7 million, and we currently
expect to bill the government for the full $14.5 million for the initial phase of the contract.
These amounts include reimbursement for our employees time and benefits and other expenses related
to performance under the HHS contract.
46
Research and development expenses
Our research and development expenses consist primarily of:
|
|
|
salaries and related expenses for personnel;
|
|
|
|
|
fees paid to consultants and clinical research organizations in conjunction with their monitoring our
clinical trials and acquiring and evaluating data in conjunction with our clinical trials;
|
|
|
|
|
consulting fees paid to third parties in connection with other aspects of our product development efforts;
|
|
|
|
|
fees paid to research organizations in conjunction with preclinical animal studies;
|
|
|
|
|
costs of materials used in research and development;
|
|
|
|
|
depreciation of facilities and equipment used to develop our product candidates; and
|
|
|
|
|
milestone payments, license fees, and royalty payments for technology licenses.
|
We expense both internal and external research and development costs as incurred, other than
those capital expenditures that have alternative future uses, such as the build-out of our
manufacturing facility. Due to the early stage of development of our product candidates, we at
times have to allocate certain costs across multiple product candidates. The following table shows,
for the periods presented, our estimate of the total costs that have been incurred for our lead
product candidates from January 1, 2003 to December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Cumulative Since
|
|
Product Candidate
|
|
2007
|
|
|
2006
|
|
|
January 1, 2003
|
|
|
|
(in thousands)
|
|
|
|
|
Needle-free travelers diarrhea vaccine patch
|
|
$
|
11,724
|
|
|
$
|
16,726
|
|
|
$
|
38,651
|
|
IS patch for pandemic flu
|
|
|
10,180
|
|
|
|
2,593
|
|
|
|
15,186
|
|
Needle-free flu vaccine patch
|
|
|
5,169
|
|
|
|
5,889
|
|
|
|
18,263
|
|
IS patch for elderly receiving flu vaccines
|
|
|
1,176
|
|
|
|
1,262
|
|
|
|
16,992
|
|
Other programs
|
|
|
3,356
|
|
|
|
1,571
|
|
|
|
14,762
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
31,605
|
|
|
|
28,041
|
|
|
|
103,854
|
|
We expect our research and development costs will continue to be substantial and that they
would increase if we advance our current portfolio of product candidates through clinical trials
and move other product candidates into preclinical and clinical trials.
General and administrative expense
General and administrative expense consists primarily of compensation for employees in
executive and operational functions, including finance and accounting, business development, and
corporate development. Other significant costs include facilities costs and professional fees for
accounting and legal services. Since the completion of our initial public offering, our general and
administrative expenses have increased due to increased costs for insurance, professional fees,
public company reporting requirements, and investor relations costs associated with operating as a
publicly-traded company. In addition, there will likely be further increases going forward related
to the hiring of additional personnel.
47
RESULTS OF OPERATIONS
Comparison of the years ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
(in thousands, except percentages)
|
|
2007
|
|
|
2006
|
|
|
$ Change
|
|
|
% Change
|
|
Revenues
|
|
$
|
10,667
|
|
|
$
|
1,475
|
|
|
$
|
9,192
|
|
|
|
623.2
|
%
|
Costs & Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & development
|
|
|
31,605
|
|
|
|
28,041
|
|
|
|
3,564
|
|
|
|
12.7
|
%
|
General & administrative
|
|
|
8,172
|
|
|
|
5,857
|
|
|
|
2,315
|
|
|
|
39.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs & expenses
|
|
|
39,777
|
|
|
|
33,898
|
|
|
|
5,879
|
|
|
|
17.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
836
|
|
|
|
621
|
|
|
|
215
|
|
|
|
34.6
|
%
|
Cumulative effect of a change in
accounting principle
|
|
|
|
|
|
|
17
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(28,274
|
)
|
|
$
|
(31,785
|
)
|
|
$
|
3,511
|
|
|
|
(11.0
|
)%
|
Revenues.
The $9.2 million increase in revenues was principally the result of revenue recognized
under our HHS contract, which commenced in January 2007. We recognized revenues of approximately
$10.7 million under our HHS contract in 2007. The revenue in 2006 was from the second-year award
under a $2.9 million NIH grant to further development of our IS patch technology for pandemic flu
applications, which ended in the second quarter of 2006.
Research and Development Expenses.
The $3.6 million increase in research and development
expenditures was driven by four major factors associated with supporting our clinical and product
development programs: (1) higher payroll and stock compensation costs associated with a 25%
increase in full-time employee equivalents, (2) higher facility costs associated with leasing
additional space, (3) increased animal study costs associated with work performed under our HHS
contract, and (4) higher contract manufacturing costs associated with procuring and finishing the
pandemic flu vaccine for the clinical trial under the HHS contract. These increased costs were
partially offset by lower development costs for our skin preparation system.
General and Administrative Expenses.
The $2.3 million increase in general and administrative
expenses was principally due to higher payroll and stock compensation costs associated with a 48%
increase in full-time employee equivalents and to higher consulting costs associated with market
studies for our product candidates.
Interest Income (Expense) and Other Net.
The net interest and other income reflects the interest
received on our cash and marketable securities, offset by interest expense on financing to purchase
equipment and leasehold improvements. The $215,000 increase in net interest and other income was a
result of a higher average cash balance in 2007.
Net Loss.
The $3.5 million decrease in our net loss for 2007 was principally a result of revenue
recognized under our HHS contract awarded in January 2007, offset by higher operating expenses.
Comparison of the years ended December 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
(in thousands, except percentages)
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
Revenues
|
|
$
|
1,475
|
|
|
$
|
2,371
|
|
|
$
|
(896
|
)
|
|
|
(37.8
|
)%
|
Costs & Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & development
|
|
|
28,041
|
|
|
|
16,529
|
|
|
|
11,512
|
|
|
|
69.6
|
%
|
General & administrative
|
|
|
5,857
|
|
|
|
3,780
|
|
|
|
2,077
|
|
|
|
54.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs & expenses
|
|
|
33,898
|
|
|
|
20,309
|
|
|
|
13,589
|
|
|
|
66.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
621
|
|
|
|
(92
|
)
|
|
|
713
|
|
|
|
(775.0
|
)%
|
Cumulative effect of a change in
accounting principle
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(31,785
|
)
|
|
$
|
(18,030
|
)
|
|
$
|
(13,755
|
)
|
|
|
76.3
|
%
|
48
Revenues.
The $0.9 million decrease in grant revenues was principally the result of fewer active
grants in 2006. The principal grant revenue in 2006 was from the second-year award under a $2.9
million NIH grant to further development of our IS patch technology for pandemic flu applications,
which ended in the second quarter of 2006. There was only one other small active grant in the
second half of 2006. Grant revenues in 2005 were principally from reimbursable expenses incurred
under the first year of our NIH grant to further development of our IS patch technology for
pandemic flu applications, as well as revenues from a cancer grant that ended in the fourth quarter
of 2005.
Research and Development Expenses.
The $11.5 million increase in research and development
expenditures was driven by three major factors associated with supporting our clinical and product
development programs: (1) increased clinical trial activity, (2) increased development costs for
our skin preparation system; and (3) higher payroll costs associated with a 41% increase in
headcount and the expensing of stock options. These increased costs were partially offset by lower
depreciation and amortization costs associated with our pilot manufacturing plant in 2006. Prior to
signing the lease extension for our facility in October 2005, we amortized all leasehold
improvements for the facility over the lesser of the useful life or the expiration of the lease
term, which was May 2006. Once we entered into the lease extension, the amortization period for the
remaining unamortized leasehold improvements was extended to May 2013.
General and Administrative Expenses.
The $2.1 million increase in general and administrative
expenses was principally due to (1) higher payroll costs associated with expensing stock options,
(2) higher insurance, legal, and investor relation costs associated with being a public company,
and (3) higher facilities cost associated with leasing additional space in our facility.
Interest Income (Expense) and Other Net.
The net interest and other income reflects the interest
received on our cash and marketable securities, offset by interest expense on financing to purchase
equipment and leasehold improvements, and the amortization income / expense associated with the
purchase of marketable securities at a discount or premium. The increase in other income was
primarily the result of amortization income associated with securities purchased at a discount
after our initial public offering in February 2006.
Net Loss.
The $13.8 million increase in our net loss was principally a result of increased
research and development expenses in the year ended December 31, 2006.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred annual operating losses since inception, and, as of December 31, 2007, we had
an accumulated deficit of $129.1 million. We expect that advancing the clinical program for the
needle-free travelers diarrhea vaccine patch into Phase 3 trials; continuing the clinical
development of the IS patch to extend the supply of pandemic flu vaccines and the IS patch for
elderly receiving flu vaccines; exploring the use of new flu antigens for the needle-free flu
vaccine patch; increasing manufacturing capabilities for product candidates; and expanding TCI
research and development activities would require substantial expenditures over the next several
years. Since our inception, we have financed our operations primarily through the sale of equity
securities, interest income earned on cash, cash equivalents, and short-term investment balances,
and debt. We have also generated limited revenues during this time from our HHS contract,
collaborative partners, and research grants.
As of December 31, 2007 we had approximately $15.5 million in unrestricted cash, cash
equivalents, and marketable securities. We invest in cash equivalents and U.S. government and
agency obligations. Our investment objectives are, primarily, to assure liquidity and preservation
of capital and, secondarily, to obtain investment income. All of our marketable securities are
classified as available-for-sale. These securities are carried at fair value, plus any accrued
interest. We have used cash primarily to finance our research operations, including clinical
trials. In 2007, these costs were offset by reimbursements under our HHS contract. As of December
31, 2007, we had recognized revenue under the HHS contract of approximately $10.7 million, of which
approximately $8.4 million had been billed and approximately
$6.6 million had been paid. We
currently expect to bill the government for the full
$14.5 million authorized under the initial phase of the
contract. Also, in March 2007, we closed a private placement in our common stock in which we raised
approximately $30.2 million in net proceeds.
49
We believe that our current working capital and reimbursement of expenses under our existing
government grants and contracts would be sufficient to fund our operating expenses and capital
requirements into the third quarter of 2008. In order to fund our needs subsequently, we will need
to raise additional money and may seek to do so by: (1) out-licensing technologies or product
candidates to one or more corporate partners, (2) completing an outright sale of assets or the
company, (3) securing debt financing, and/or (4) selling additional equity securities. Our ability
to successfully enter into any such arrangements is uncertain, and, if funds are not available, or
not available on terms acceptable to us, we may be required to revise our planned clinical trials,
other development activities, capital expenditure requirements, and the scale of our operations. We
expect to attempt to raise additional funds in advance of depleting our existing cash balances;
however, we may not be able to raise funds or raise amounts sufficient to meet the long-term needs
of the business. Satisfying long-term needs will require the successful commercialization of our
product candidates and, at this time, we cannot reliably estimate if or when that will occur.
Our future cash requirements include, but are not limited to, supporting our clinical trial
efforts and continuing our other research and development programs. We have entered into various
agreements with institutions and clinical research organizations to conduct and monitor our current
clinical studies. Under these agreements, subject to the enrollment of patients and performance by
the applicable institution of certain services, we have estimated our commitments to be $11.6
million over the term of currently ongoing studies. Through December 31, 2007, approximately $8.6
million of this amount has been expensed as research and development expenses and $6.5 million has
been paid related to these clinical studies. We also estimate that we have remaining commitments of
approximately $440,000 related to the close-out of trials that are substantially complete. The
timing of our expense recognition and future payments related to these agreements are subject to
the enrollment of patients and performance by the applicable institutions of certain services. As
we expand our clinical studies, we plan to enter into additional agreements.
The following table summarizes sources and uses of cash and cash equivalents for the years
ended December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
$ Change
|
|
Net cash used in operating activities
|
|
$
|
(27,554
|
)
|
|
$
|
(28,866
|
)
|
|
$
|
1,312
|
|
Net cash (used in) provided by investing activities
|
|
|
21
|
|
|
|
(4,357
|
)
|
|
|
4,378
|
|
Net cash provided by (used in) financing activities
|
|
|
29,186
|
|
|
|
41,880
|
|
|
|
(12,694
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,653
|
|
|
|
8,657
|
|
|
|
(7,004
|
)
|
Cash and cash equivalents at end of period
|
|
$
|
15,500
|
|
|
$
|
13,847
|
|
|
$
|
1,653
|
|
|
|
|
|
|
|
|
|
|
|
The $1.3 million decrease in net cash used in operations was primarily the result of a
decrease in net loss from the prior period and an increase in accounts payable principally related
to subcontractor charges under our HHS contract for which we are awaiting reimbursement. These
factors were partially offset by an increase in accounts receivable from the prior period resulting
from work performed under our HHS contract. As we develop our technologies and further our clinical
trial programs, we expect to increase our spending. Our future ability to generate cash from
operations will depend on achieving regulatory approval of our products, market acceptance of such
products, and our ability to enter into collaborations.
The $4.4 million decrease in net cash used by investing activities was principally the result
of greater investing activities in 2006 following our initial public offering. During 2007, we
invested our available cash in short-term treasury funds because of a relatively flat yield curve.
Consequently, during 2007, we did not invest any of our available cash in marketable securities and
we received $1.5 million from the maturity of prior such investments, as compared to 2006 when we
invested $17.7 million of our available cash in marketable securities and received proceeds of
$16.5 million from the maturity of such investments. Additionally, during 2007, we invested
approximately $1.5 million in the purchase of equipment, furniture, and fixtures, for our pilot
manufacturing facility and our build-out of additional office and laboratory space, as compared to
approximately $2.5 million for such purchases in 2006.
50
The $12.7 million decrease in net cash provided by financing activities was principally the
result of the difference in net proceeds between the sale of equity securities in 2007 and 2006.
The March 2007 private placement resulted in approximately $30.2 million in net proceeds, while the
companys initial public offering in February 2006 resulted in approximately $30.9 million in net
proceeds and the October 2006 private placement to existing shareholders resulted in approximately
$9.9 million in net proceeds. In addition, net proceeds from debt borrowings, including landlord
financing, decreased. During 2007 and 2006, net proceeds from debt borrowings, including landlord
leasehold financing, totaled $500,000 and $2.3 million, respectively, as we financed the build-out
of additional office space and the purchase of additional equipment. During 2007, we repaid $1.6
million of our debt, as compared to $1.7 million during the comparable period in 2006.
The following summarizes our long-term contractual obligations as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
More Than
|
|
(in thousands)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
Long-Term Debt
(1)
|
|
$
|
4,422
|
|
|
$
|
1,533
|
|
|
$
|
2,021
|
|
|
$
|
731
|
|
|
$
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Obligations
(2)
|
|
|
6,846
|
|
|
|
1,196
|
|
|
|
2,489
|
|
|
|
2,602
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,268
|
|
|
$
|
2,729
|
|
|
$
|
4,510
|
|
|
$
|
3,333
|
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes interest payable in the period.
|
|
(2)
|
|
These amounts include payments for additional facility space leased
under a lease amendment signed in January 2007. See discussion of
amended lease terms below.
|
In January 2007, we amended our facility lease to acquire access to approximately 7,000
additional square feet in the building in the third quarter of 2007. We now lease the entire
building.
Under our existing license agreements, we could be required to pay up to a total of $800,000
for each product candidate in milestone payments through product approval, in addition to sales
milestones, and royalties on commercial sales, if any occur.
Our future capital uses and requirements depend on numerous forward-looking factors. These
factors include but are not limited to the following:
|
|
|
the progress and costs of preclinical development and laboratory testing and clinical trials;
|
|
|
|
|
our ability to establish, enforce, and maintain collaborations required for product commercialization;
|
|
|
|
|
the number of product candidates we pursue;
|
|
|
|
|
the time and costs involved in obtaining regulatory approvals;
|
|
|
|
|
delays that may be caused by evolving requirements of regulatory agencies;
|
|
|
|
|
the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims;
|
|
|
|
|
our plans to establish sales, marketing, and/or manufacturing capabilities;
|
|
|
|
|
the acquisition of technologies, products, and other business opportunities that require financial
commitments; and
|
|
|
|
|
our revenues, if any, from successful development and commercialization of our products.
|
51
As of December 31, 2007, we did not have any relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance or special purpose
entities, which would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. In addition, we do not engage in
trading activities involving non-exchange traded contracts. Therefore, we are not materially
exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in
these relationships.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based 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 and related disclosure of contingent assets and liabilities. We review our estimates on an
ongoing basis. We base our estimates on historical experience and on various other assumptions that
we believe to be reasonable under the circumstances. Actual results may differ from these estimates
under different assumptions or conditions. While our significant accounting policies are described
in more detail in the notes to our financial statements included in this report, we believe the
following accounting policies to be critical to the judgments and estimates used in the preparation
of our financial statements.
Revenue Recognition
.
We recognize revenue when all terms and conditions of the agreements have
been met, including persuasive evidence of an arrangement, services have been rendered, price is
fixed or determinable, and collectability is reasonably assured. For reimbursable cost contracts
and research grants, we recognize revenue as costs are incurred once the funding is authorized.
Funding of government contracts and grants beyond the U.S. governments current fiscal year is
subject to annual congressional appropriations, and the Company cannot recognize revenue for
subsequent years until the period in which such funding is duly authorized. Provisions for
estimated losses on contracts and grants are made in the period such losses are determined.
Research and Development Costs
.
The Company expenses its research and development costs as
incurred; however, equipment and facilities that are acquired or constructed for research and
development activities that have alternative future uses (in research and development projects or
otherwise) are capitalized and depreciated as tangible assets.
Stock-Based Compensation
.
We have four stock-based employee compensation plans, described more
fully in Note 11 to the Financial Statements, and we record compensation expense based upon the
fair value of stock-based awards. Effective January 1, 2003, we adopted the fair value recognition
provisions of SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS 123). The recognition
provisions have been applied to all employee awards granted, modified, or settled after January 1,
2003.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB
Statement No. 123(R), Share-Based Payment (Statement 123(R)), using the
modified-prospective-transition method. As we have expensed options since 2003, the adoption of
Statement 123(R) did not have a material impact on our stock-based compensation expenses in 2006,
and management believes that the adoption of Statement 123(R) will not have a material impact on
its financial statements going forward. We have continued to use the Black-Scholes-Merton formula
to estimate the fair value of stock-based awards with the adoption of Statement 123(R).
With the adoption of Statement 123(R), we recognized in our statement of operations for the
year ended December 31, 2006, a one-time charge recorded as the cumulative effect of a change in
accounting principle, which reflects an estimate of forfeitures for unvested awards outstanding as
of the adoption of Statement 123(R). This charge represents a reduction in the compensation cost
for prior periods for any unvested options remaining that would not have been recognized in those
prior periods had forfeitures for such unvested options been estimated during those prior periods.
The cumulative effect for this change in accounting principle totaled $16,726 and is recorded on
the statement of operations for the year ended December 31, 2006.
As of December 31, 2007, we anticipate recognizing approximately $4.5 million of total
unrecognized compensation expense, less estimated forfeitures, related to nonvested options under
the stock compensation plans in future periods. These expenses are expected to be recognized over
a weighted-average period of 3.0 years.
Based on the closing price of our stock on December 31, 2007, the intrinsic value of options
outstanding as of that date was approximately $247,000 of which approximately $209,000 related to
vested options and approximately $38,000 related to unvested options.
52
We account for equity instruments issued to nonemployees under the provisions of SFAS 123 and
Emerging Issues Task Force Issue No. 96-18,
Accounting for Equity Instruments That are Issued to
Other Than Employees for Acquiring, or in conjunction with, Selling, Goods and Services
.
Accordingly, the estimated fair value of the equity instrument is recorded on the earlier of the
performance commitment date or the date the services required are completed.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Our primary exposure to market risk is interest income sensitivity, which is affected by
changes in the general level of U.S. interest rates, particularly because the majority of our
investments are in short-term US government and agency debt securities. The market value of these
investments fluctuates with changes in current market interest rates. In general, as rates
increase, the market value of a debt investment would be expected to decrease. Likewise, as rates
decrease, the market value of a debt investment would be expected to increase. To minimize such
market risk, we generally hold these instruments to maturity at which time they are redeemed at
their stated or face value. Due to the nature of our short-term investments, we believe that we are
not subject to any material market risk exposure.
The interest rates on our debt obligations are fixed so repayment of these obligations is not
subject to any material market risk exposure.
We do not have any foreign currency or other derivative financial instruments.
Item 8.
Financial Statements and Supplementary Data
Financial Statements and Supplementary Data are submitted as a separate section of this report
commencing on Page F-1.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not Applicable.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
We currently have in place systems relating to disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Our principal executive
officer and our principal financial officer evaluated the effectiveness of these disclosure
controls and procedures as of the end of our 2007 fiscal year in connection with the preparation of
this annual report. They concluded that the controls and procedures were effective and adequate at
that time.
53
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934, as amended). Our internal control over financial reporting was designed to provide
reasonable assurance to our management and board of directors regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. There are inherent limitations in the effectiveness
of any internal control over financial reporting, including the possibility of human error and the
circumvention or overriding of controls. As a result of these inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Therefore, even those internal controls determined to be effective can
provide only reasonable assurance with respect to reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
Our management assessed the effectiveness of our internal control over financial reporting as
of December 31, 2007, based on the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in
Internal ControlIntegrated Framework
. Managements
assessment included an evaluation of the design of our internal control over financial reporting
and testing of the operational effectiveness of our internal control over financial reporting.
Based on this assessment, our management concluded that, as of December 31, 2007, our internal
control over financial reporting was effective.
Attestation Report of Independent Registered Public Accounting Firm
This annual report does not include an attestation report of the Companys registered public
accounting firm, Ernst & Young LLP, regarding internal control over financial reporting.
Managements report was not subject to attestation by Ernst & Young LLP pursuant to temporary rules
of the SEC that permit the Company to provide only managements report in this annual report.
Changes in Internal Controls Over Financial Reporting
There have been no significant changes in our internal control over financial reporting during
the quarter ended December 31, 2007, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B.
Other Information
None.
54
PART III
The information required by Item 10 Directors, Executive Officers and Corporate Governance;
Item 11 Executive Compensation; Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters; Item 13 Certain Relationships and Related
Transactions, and Director Independence; and Item 14 Principal Accountant Fees and Services is
incorporated into Part III of this Annual Report on Form 10-K by reference to our Proxy Statement
for the Annual Meeting of Stockholders scheduled to be held on May 14, 2008, except that the
information required by Item 10 pertaining to our executive officers is contained in Part I of this
report.
PART IV
Item 15.
Exhibits, Financial Statement Schedules
(a) 1.
Financial Statements
The financial statements are listed under Item 8 of this report.
2.
Financial Statement Schedules
The financial statement schedules required under this Item and Item 8 are omitted because they
are not applicable or the required information is shown in the financial statements or the
footnotes thereto.
3.
Exhibits
The exhibits are listed below under Part IV Item 15(b).
(b)
Exhibits
The exhibits are set forth in the Exhibit Index.
55
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
Location
|
3.1.3
|
|
Third Amended and Restated Certificate of Incorporation.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
3.2.3
|
|
Third Amended and Restated By-laws.
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
4.2
|
|
Grant of Put Option dated April 6, 2001 by Iomai Corporation to the Walter Reed Army
Institute of Research as representative of the United States of America.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.3
|
|
Option Agreement dated December 4, 2002 by and between Iomai Corporation and Elan
Corporation, plc.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.4
|
|
Stock Purchase Warrant dated December 4, 2002 issued by Iomai Corporation to Friedman
Billings Ramsey & Co., Inc.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.5.1
|
|
Investor Rights Agreement dated December 4, 2002 between Iomai Corporation and the
individuals specified in Exhibit A thereto.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.5.2
|
|
Amendment to the Investor Rights Agreement dated March 27, 2003 among Iomai
Corporation and the Purchasers listed on the signature pages thereto.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.5.3
|
|
Amendment to Investor Rights Agreement and Consent dated May 30, 2003 among Iomai
Corporation and the Purchasers listed on the signature pages thereto.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.5.4
|
|
Amendment to Investor Rights Agreement and Consent dated December 1, 2005 among Iomai
Corporation and the purchasers listed on the signature pages thereto.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.6
|
|
Registration Rights Agreement dated April 6, 2001 by and between Iomai Corporation
and MdBio, Inc. as trustee for and on behalf of the Walter Reed Army Institute of
Research, a representative of the United States of America.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.7
|
|
Registration Rights Agreement dated March 30, 1999 by and between Iomai Corporation
and Maryland Health Care Product Development Corporation.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.8
|
|
Registration Rights Agreement dated July 18, 2000 by and between Iomai Corporation
and Eiicha Ida.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.9
|
|
Registration Rights Agreement dated July 18, 2000 by and between Iomai Corporation
and Yuichi Suzuki.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.10
|
|
Registration Rights Agreement dated July 18, 2000 by and between Iomai Corporation
and Toshiro Osoegawa.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.11
|
|
Registration Rights Agreement dated August 15, 2000 by and between Iomai Corporation
and CZ Venture Operations, Inc.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.12
|
|
Registration Rights Agreement dated January 4, 2001 by and between Iomai Corporation
and Alexandria Real Estate Equities, L.P.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
4.13
|
|
Form of common stock warrant dated March 2, 2007.
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
4.14
|
|
Form of common stock warrant dated March 2, 2007.
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
9.1
|
|
Voting Trust and Escrow Agreement dated April 6, 2001 between Iomai Corporation and
MdBio, Inc., as trustee for and on behalf of Walter Reed Army Institute of Research,
a representative of the United States of America.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.1
|
|
Employment Agreement dated May 18, 2002 between Iomai Corporation and Stanley Erck,
as amended on October 25, 2002.**
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.1.1
|
|
Amendment No. 2, dated December 1, 2005, to the Employment Agreement between Iomai
Corporation and Stanley Erck.**
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.2
|
|
1998 Stock Option Plan, as amended January 16, 2002.**
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.3.1
|
|
1999 Stock Incentive Plan.
|
|
|
(1
|
)
|
56
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
Location
|
10.3.2
|
|
Form of Incentive Stock Option Agreement.**
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.3.3
|
|
Form of Nonqualified Stock Option Agreement.**
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.4
|
|
2005 Incentive Plan, as amended and restated as of June 5, 2007.**
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
10.5
|
|
2006 Employee Stock Purchase Plan.**
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.6
|
|
Terms of Non-Employee Director Compensation.**
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.7
|
|
Amended and Restated License Agreement dated April 6, 2001 by and between Iomai
Corporation and the Walter Reed Army Institute of Research as representative of the
United States of America.+
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.7.1
|
|
Amendment No. 1 to the Amended and Restated License Agreement dated February 4, 2008
by and between Iomai Corporation and the Walter Reed Army Institute of Research as
representative of the United States of America.
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
|
Form of Subordinated Convertible Promissory Note issued by Iomai Corporation to the
Walter Reed Army Institute of Research as representative of the United States of
America.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.9
|
|
Commercial License Agreement dated June 30, 2005 by and between Iomai Corporation and
Dow Global Technologies Incorporated.+
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.10.1
|
|
Master Security Agreement dated September 26, 2003 by and between Iomai Corporation
and Oxford Finance Corporation.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.10.2
|
|
Form of Promissory Note issued by Iomai Corporation to Oxford Finance Corporation
together with schedule identifying dates, principal amounts and interest rates of all
outstanding promissory notes.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.11.1
|
|
Lease Agreement dated December 18, 2000 by and between Iomai Corporation and
ARE-20/22/1300 Firstfield Quince Orchard, LLC.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.11.2
|
|
First Amendment to Lease dated November 29, 2001 by and between Iomai Corporation and
ARE-20/22/1300 Firstfield Quince Orchard, LLC.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.11.3
|
|
Second Amendment to Lease dated April 14, 2003 by and between Iomai Corporation and
ARE-20/22/1300 Firstfield Quince Orchard, LLC.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.11.4
|
|
Third Amendment to Lease dated August 28, 2003 by and between Iomai Corporation and
ARE-20/22/1300 Firstfield Quince Orchard, LLC.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.11.5
|
|
Fourth Amendment to Lease dated October 26, 2005 by and between Iomai Corporation and
ARE 20/22/1300 Firstfield Quince Orchard, LLC.
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.11.6
|
|
Letter Agreement amending Fourth Amendment to Lease dated January 3, 2006 by and
between Iomai Corporation and ARE 20/22/1300 Firstfield Quince Orchard, LLC.
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
10.11.7
|
|
Sublease Agreement dated February 28, 2006 by and between Geomet Technologies, LLC
and Iomai Corporation.
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
10.11.8
|
|
Fifth Amendment to Lease dated July 25, 2006 by and between Iomai Corporation and ARE
20/22/1300 Firstfield Quince Orchard, LLC.
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
10.11.9
|
|
Sixth Amendment to Lease dated January 26, 2007 by and between Iomai Corporation and
ARE 20/22/1300 Firstfield Quince Orchard, LLC.
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
10.12
|
|
Form of Change in Control Agreement, between Iomai Corporation and certain officers.**
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.13
|
|
Securities Purchase Agreement dated October 23, 2006 by and among Iomai Corporation
and the Purchasers thereto.
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
10.14
|
|
Securities Purchase Agreement dated March 2, 2007 by and among Iomai Corporation and
Investors thereto.
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
10.15
|
|
Contract dated January 17, 2007 by and between Iomai Corporation and the Department
of Health and Human Services (HHS/OS/OPHEP/OPHEMC).+
|
|
|
(9
|
)
|
57
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
Location
|
23.1
|
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934, as amended.
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934, as amended.
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
(10
|
)
|
|
|
|
**
|
|
Indicates a management contract or compensatory plan.
|
|
+
|
|
Confidential Treatment Requested Under 17 C.F.R. §§ 200.80(b)(4) and 230.406. The
confidential portions of this exhibit have been omitted and are marked by an asterisk.
|
|
(1)
|
|
Previously filed as an exhibit to the Companys Form S-1/A (File No. 333-128765) and
incorporated herein by reference thereto.
|
|
(2)
|
|
Previously filed as an exhibit to the Companys Form 8-K filed March 24, 2006 and
incorporated herein by reference thereto.
|
|
(3)
|
|
Previously filed as an exhibit to the Companys Annual Report on Form 10-K filed March 24,
2006 and incorporated herein by reference thereto.
|
|
(4)
|
|
Previously filed as an exhibit to the Companys Form 8-K filed July 7, 2006 and incorporated
herein by reference thereto.
|
|
(5)
|
|
Previously filed as an exhibit to the Companys Form 8-K filed October 24, 2006 and
incorporated herein by reference thereto.
|
|
(6)
|
|
Previously filed as an exhibit to the Companys Form 8-K filed January 30, 2007 and
incorporated herein by reference thereto.
|
|
(7)
|
|
Previously filed as an exhibit to the Companys Form 8-K filed March 2, 2007 and incorporated
herein by reference thereto.
|
|
(8)
|
|
Previously filed as an exhibit to the Companys Registration Statement on Form S-8 (File No.
333-143525) and incorporated herein by reference thereto.
|
|
(9)
|
|
Previously filed as an exhibit to the Companys Quarterly Report on Form 10-Q filed May 14,
2007 and incorporated herein by reference thereto.
|
|
(10)
|
|
This certification accompanies this annual report on Form 10-K and is not filed as part of
it.
|
58
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.
|
|
|
|
|
|
IOMAI CORPORATION
|
|
|
By:
|
/s/
Stanley C. Erck
|
|
|
|
Name:
|
Stanley C. Erck
|
|
|
|
Title:
|
President, Chief Executive Officer, Treasurer and Director
|
|
|
Dated: March 26, 2008
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 in the capacities indicated as of
March 26, 2008.
|
|
|
Signature
|
|
Title
|
/s/
Stanley C. Erck
Stanley C. Erck
|
|
Chief Executive Officer, President,
Treasurer
and Director
(Principal Executive Officer)
|
|
|
|
/s/
Russell P. Wilson
Russell P. Wilson
|
|
Senior Vice President, Chief Financial Officer,
General
Counsel and Secretary
(Principal Financial and Accounting Officer)
|
|
|
|
/s/
M. James Barrett
M. James Barrett, Ph.D.
|
|
Chairman of the Board of Directors
|
|
|
|
/s/
R. Gordon Douglas
R. Gordon Douglas, M.D.
|
|
Director
|
|
|
|
/s/
Richard Douglas
Richard Douglas, Ph.D.
|
|
Director
|
|
|
|
/s/
F. Weller Meyer
F. Weller Meyer
|
|
Director
|
|
|
|
/s/
Thomas Martin Vernon
Thomas Martin Vernon, M.D.
|
|
Director
|
59
Iomai Corporation
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Balance Sheets as of December 31, 2007 and 2006
|
|
|
F-3
|
|
Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005
|
|
|
F-4
|
|
Statements of Changes in Redeemable Preferred Stock and Stockholders Equity
(Deficit) for the Years Ended December 31, 2007, 2006, and 2005
|
|
|
F-5
|
|
Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005
|
|
|
F-6
|
|
Notes to Financial Statements
|
|
|
F-7
|
|
F-1
Iomai Corporation
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders of
Iomai Corporation
We have audited the accompanying balance sheets of Iomai Corporation as of December 31, 2007
and 2006 and the related statements of operations, changes in redeemable preferred stock and
stockholders equity (deficit), and cash flows for each of the three years in the period ended
December 31, 2007. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal control over
financial reporting. Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Iomai Corporation at December 31, 2007 and 2006, and the
results of its operations and its cash flows for each of the three years in the period ended
December 31, 2007 in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Iomai Corporation, Inc.
will continue as a going concern. As more fully described in Note 2, the Company has incurred
recurring operating losses and negative cash flows from operations. These conditions raise
substantial doubt about the Companys ability to continue as a going concern. Managements plans in
regard to these matters are also described in Note 2. The 2007 financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the outcome of this
uncertainty.
As discussed in Note 3 to the financial statements, the Company changed its method of
accounting for stock-based compensation in 2006 upon adoption of Statement of Financial Accounting
Standards No. 123(R), Share-Based Payments.
/s/
Ernst & Young LLP
McLean, Virginia
March 13, 2008
F-2
Iomai Corporation
BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,500
|
|
|
$
|
13,847
|
|
Marketable securities
|
|
|
|
|
|
|
1,489
|
|
Accounts receivable
|
|
|
4,011
|
|
|
|
62
|
|
Prepaid expenses and other current assets
|
|
|
589
|
|
|
|
500
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
20,100
|
|
|
|
15,898
|
|
Property and equipment, net
|
|
|
6,699
|
|
|
|
6,736
|
|
Restricted marketable securities
|
|
|
265
|
|
|
|
268
|
|
Loans to employees
|
|
|
93
|
|
|
|
|
|
Other noncurrent assets
|
|
|
198
|
|
|
|
183
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
27,355
|
|
|
$
|
23,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
2,710
|
|
|
|
1,598
|
|
Accrued expenses
|
|
|
2,656
|
|
|
|
2,353
|
|
Notes payable, current portion
|
|
|
1,005
|
|
|
|
1,369
|
|
Notes payable to related party, current portion
|
|
|
195
|
|
|
|
176
|
|
Capital lease obligation, current portion
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,566
|
|
|
|
5,497
|
|
|
|
|
|
|
|
|
|
|
Notes payable, long-term portion
|
|
|
1,303
|
|
|
|
1,866
|
|
Notes payable to related party, long-term portion
|
|
|
1,152
|
|
|
|
1,347
|
|
Deferred rent
|
|
|
381
|
|
|
|
340
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
9,402
|
|
|
|
9,050
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 200,000,000
shares authorized and 25,588,673 and 19,197,387
shares issued and outstanding as of December 31,
2007 and 2006 respectively
|
|
|
256
|
|
|
|
192
|
|
Additional paid-in capital
|
|
|
146,759
|
|
|
|
114,631
|
|
Accumulated deficit
|
|
|
(129,062
|
)
|
|
|
(100,788
|
)
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
17,953
|
|
|
|
14,035
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
27,355
|
|
|
$
|
23,085
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
Iomai Corporation
STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
$
|
10,667
|
|
|
$
|
1,475
|
|
|
$
|
2,371
|
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
31,605
|
|
|
|
28,041
|
|
|
|
16,529
|
|
General and administrative
|
|
|
8,172
|
|
|
|
5,857
|
|
|
|
3,780
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
39,777
|
|
|
|
33,898
|
|
|
|
20,309
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(29,110
|
)
|
|
|
(32,423
|
)
|
|
|
(17,938
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,144
|
|
|
|
1,006
|
|
|
|
392
|
|
Interest expense
|
|
|
(297
|
)
|
|
|
(377
|
)
|
|
|
(467
|
)
|
Other expense, net
|
|
|
(11
|
)
|
|
|
(8
|
)
|
|
|
( 17
|
)
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
836
|
|
|
|
621
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss before cumulative effect of a change in
accounting principle
|
|
|
(28,274
|
)
|
|
|
(31,802
|
)
|
|
|
(18,030
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
17
|
|
|
|
|
|
Net loss
|
|
|
(28,274
|
)
|
|
|
(31,785
|
)
|
|
|
(18,030
|
)
|
Dividends on and accretion of convertible preferred stock
|
|
|
|
|
|
|
(471
|
)
|
|
|
(5,562
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(28,274
|
)
|
|
$
|
(32,256
|
)
|
|
$
|
(23,592
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders per share of
common stockbasic and diluted
|
|
$
|
(1.16
|
)
|
|
$
|
(2.03
|
)
|
|
$
|
(30.14
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stockbasic
and diluted
|
|
|
24,412,688
|
|
|
|
15,915,797
|
|
|
|
782,715
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
Iomai Corporation
STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
Series C Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
Series B Convertible
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
Balance at December 31, 2004
|
|
|
129,590,034
|
|
|
|
65,321
|
|
|
|
14,734,578
|
|
|
|
147
|
|
|
|
771,921
|
|
|
|
8
|
|
|
|
3,849
|
|
|
|
(26
|
)
|
|
|
(49,970
|
)
|
|
|
(45,992
|
)
|
Amortization of Series C warrants
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of issuance costs
|
|
|
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
|
|
|
|
(110
|
)
|
|
|
(443
|
)
|
Accrual of dividends
|
|
|
|
|
|
|
4,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,084
|
)
|
|
|
|
|
|
|
(504
|
)
|
|
|
(4,588
|
)
|
Issuance of Common Stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Stock option compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
538
|
|
Cash in lieu of fractional common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Exercise of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,658
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,030
|
)
|
|
|
(18,030
|
)
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
129,590,034
|
|
|
|
70,363
|
|
|
|
14,734,578
|
|
|
|
147
|
|
|
|
795,519
|
|
|
|
8
|
|
|
|
|
|
|
|
1
|
|
|
|
(68,614
|
)
|
|
|
(68,458
|
)
|
Amortization of Series C warrants
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Accretion of issuance costs
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
Accrual of dividends
|
|
|
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(389
|
)
|
|
|
(389
|
)
|
Stock option compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
1,065
|
|
Exercise of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,030
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with initial public
offering, net of offering costs
of $4,012,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
50
|
|
|
|
30,892
|
|
|
|
|
|
|
|
|
|
|
|
30,942
|
|
Automatic conversion of common stock subject to put right into
common stock upon initial public
offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,958
|
|
|
|
|
|
|
|
|
|
|
|
1,958
|
|
Automatic conversion of preferred stock into common
stock upon initial public
offering
|
|
|
(129,590,034
|
)
|
|
|
(70,790
|
)
|
|
|
(14,734,578
|
)
|
|
|
(147
|
)
|
|
|
11,101,867
|
|
|
|
111
|
|
|
|
70,849
|
|
|
|
|
|
|
|
|
|
|
|
70,813
|
|
Issuance of common stock, net of offering costs of $86,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,283,106
|
|
|
|
23
|
|
|
|
9,891
|
|
|
|
|
|
|
|
|
|
|
|
9,914
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,785
|
)
|
|
|
(31,785
|
)
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,197,387
|
|
|
|
192
|
|
|
|
114,631
|
|
|
|
|
|
|
|
(100,788
|
)
|
|
|
14,035
|
|
Stock option compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,902
|
|
|
|
|
|
|
|
|
|
|
|
1,902
|
|
Exercise of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,458
|
|
|
|
1
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
Issuance of common stock in connection with PIPE, net of
offering costs of $1,685,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,291,828
|
|
|
|
63
|
|
|
|
30,136
|
|
|
|
|
|
|
|
|
|
|
|
30,199
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,274
|
)
|
|
|
(28,274
|
)
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
25,588,673
|
|
|
$
|
256
|
|
|
$
|
146,759
|
|
|
|
|
|
|
$
|
(129,062
|
)
|
|
$
|
17,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
Iomai Corporation
STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(28,274
|
)
|
|
$
|
(31,785
|
)
|
|
$
|
(18,030
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,600
|
|
|
|
1,261
|
|
|
|
2,670
|
|
Stock-based compensation expense
|
|
|
1,902
|
|
|
|
1,065
|
|
|
|
538
|
|
Non-cash interest expense and amortization of premium/discount of
marketable securities
|
|
|
(21
|
)
|
|
|
(255
|
)
|
|
|
28
|
|
Deferred rent
|
|
|
41
|
|
|
|
194
|
|
|
|
(54
|
)
|
Loss on disposal of property and equipment
|
|
|
6
|
|
|
|
10
|
|
|
|
4
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,949
|
)
|
|
|
(50
|
)
|
|
|
62
|
|
Prepaid expenses and other current assets
|
|
|
(89
|
)
|
|
|
(242
|
)
|
|
|
(40
|
)
|
Loans to employees
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
|
(17
|
)
|
|
|
2
|
|
|
|
(45
|
)
|
Accounts payable
|
|
|
1,037
|
|
|
|
(9
|
)
|
|
|
420
|
|
Accrued expenses
|
|
|
303
|
|
|
|
943
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(27,554
|
)
|
|
|
(28,866
|
)
|
|
|
(14,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,495
|
)
|
|
|
(3,501
|
)
|
|
|
(1,339
|
)
|
Sale of property and equipment
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Restricted cash and marketable securities
|
|
|
16
|
|
|
|
384
|
|
|
|
35
|
|
Sales/maturities of marketable securities
|
|
|
1,500
|
|
|
|
16,500
|
|
|
|
22,150
|
|
Purchases of marketable securities
|
|
|
|
|
|
|
(17,747
|
)
|
|
|
(6,790
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
21
|
|
|
|
(4,357
|
)
|
|
|
14,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
|
91
|
|
|
|
13
|
|
|
|
22
|
|
Cash issued in lieu of fractional common stock
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Proceeds from initial public offering, net of underwriting
commissions
|
|
|
|
|
|
|
32,854
|
|
|
|
|
|
Proceeds from private placement of common stock
|
|
|
31,884
|
|
|
|
10,000
|
|
|
|
|
|
Stock issuance costs
|
|
|
(1,685
|
)
|
|
|
(1,517
|
)
|
|
|
|
|
Deferred stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
(481
|
)
|
Proceeds from notes payable
|
|
|
496
|
|
|
|
2,000
|
|
|
|
468
|
|
Principal payments on notes payable
|
|
|
(1,423
|
)
|
|
|
(1,495
|
)
|
|
|
(1,166
|
)
|
Proceeds from notes payable to related party
|
|
|
|
|
|
|
280
|
|
|
|
|
|
Principal payments on notes payable to related party
|
|
|
(176
|
)
|
|
|
(250
|
)
|
|
|
(333
|
)
|
Payments under capital lease obligations
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
29,186
|
|
|
|
41,880
|
|
|
|
(1,504
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,653
|
|
|
|
8,657
|
|
|
|
(1,752
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
13,847
|
|
|
|
5,190
|
|
|
|
6,942
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
15,500
|
|
|
$
|
13,847
|
|
|
$
|
5,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
445
|
|
|
$
|
435
|
|
|
$
|
497
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-6
Iomai Corporation
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Iomai Corporation (the Company or Iomai) was incorporated in May 1997 as a Delaware
corporation to discover and develop vaccines and immune system stimulants, delivered to the skin
via a novel, needle-free technology called transcutaneous immunization (TCI). TCI exploits the
unique benefits of a major group of antigen-presenting cells found in the outer layers of the skin
(Langerhans cells) to generate an enhanced immune response. TCI has the potential to enhance the
efficacy of existing vaccines, develop new vaccines that are viable only through transcutaneous
administration and expand the global vaccine market. We are developing two distinct product
applications: (1) a needle-free vaccine patch and (2) an immunostimulant, or IS, patch. We
currently have four product candidates in development: one to prevent travelers diarrhea and three
targeting influenza.
2. MANAGEMENTS PLANS AS TO CONTINUING AS A GOING CONCERN
The accompanying financial statements have been prepared on a going-concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of
business. Since inception, the Company has incurred, and continues to incur, significant losses
from operations. In addition, the Company would need to raise additional capital to continue its
business operations as currently conducted and fund deficits in operating cash flows. The Company
may raise additional capital to finance the development of its business operations, although such
capital raising activity cannot be assured.
Potential alternatives for accessing funding include: (1) out-licensing technologies or
product candidates to one or more corporate partners, (2) completing an outright sale of assets or
the company, (3) securing debt financing, and/or (4) selling additional equity securities. There is
no assurance that the Company will raise capital sufficient to enable the Company to continue to
conduct its operations for the next 12 months.
In the event the Company does not access funding to continue to conduct its operations for the
next 12 months, the Company will likely revise its planned clinical trials, other development
activities, capital expenditure plans, and the scale of its operations, until it is able to obtain
sufficient financing to do so, or pursue other alternatives.
These factors could significantly limit the Companys ability to continue as a going concern.
The balance sheets do not include any adjustments relating to recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
3. SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of the financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers demand deposits and all highly liquid investments with original
maturities of three months or less at the date of purchase to be cash equivalents. As of December
31, 2007 and 2006, the Companys cash equivalents consisted of money market accounts, an overnight
repurchase agreement and a savings account.
F-7
Marketable securities
All marketable securities, consisting of U.S. government obligations and U.S. agency
obligations, are classified as available-for-sale. These securities are carried at fair value, plus
accrued interest. Any unrealized holding gains and losses are reported as accumulated other
comprehensive income (loss), which is a separate component of stockholders equity (deficit).
Realized gains and losses are reported in operations, and gains and losses on sales of securities
are computed using the specific-identification method.
The Company periodically reviews its marketable securities to determine whether a decline in
fair value below the carrying value exists and is other-than-temporary. This evaluation consists of
a review of several factors, including but not limited to: the length of time and extent that a
security has been in an unrealized loss position, the existence of an event that would impair the
issuers future earnings potential, the near-term prospects for recovery of the market value of a
security, and the intent and ability of the Company to hold the security until the market value
recovers. Declines in value below cost for debt securities are not assumed to be
other-than-temporary where: it is considered probable that all contractual terms of the security
will be satisfied, the decline is due primarily to changes in interest rates (and not because of
increased credit risk), or the Company intends and has the ability to hold the investment for a
period of time sufficient to allow a market recovery. Unrealized losses related to debt securities
are not significant.
If management determines that such an impairment exists, the carrying value of the investment
will be reduced to the current fair value of the investment and the Company will recognize a change
in the statement of operations equal to the amount of the carrying value reduction.
Restricted marketable securities
Restricted marketable securities at December 31, 2007 and 2006 include marketable securities
with a face value of $265,000, pledged as collateral to secure payment of promissory notes issued
to finance, in part, the build-out of the Companys facilities (see Note 8Long-Term Debt).
Accounts receivable
Accounts receivable that management has the intent and ability to hold until payment are
reported in the balance sheets at outstanding amounts, less the allowance for doubtful accounts.
The Company writes off uncollectible receivables when the likelihood of collection is remote. The
Company maintains an allowance for doubtful accounts, which is determined based on historical
experience and managements expectations of future losses. There was no allowance for doubtful
accounts in either 2007 or 2006.
Unbilled accounts receivable consist principally of expenses incurred on reimbursable research
grants and contracts prior to year-end that have not yet been billed to the contracting agent.
Unbilled accounts receivable at December 31, 2007 and 2006 were approximately $2.2 million and
$25,000, respectively.
Concentration of credit risk and fair value of financial instruments
Financial instruments that potentially subject the Company to concentrations of credit risk
consist primarily of cash and cash equivalents, marketable securities, accounts receivable, and
notes payable. The Company places its cash and cash equivalents with financial institutions, and
its marketable securities consist of U.S. government obligations and U.S. agency obligations.
Management believes that the financial risks associated with its cash and cash equivalents and
marketable securities are minimal. Accounts receivable principally consist of amounts due from
government agencies under government grants and contracts.
The carrying amount of current assets and liabilities approximates their fair values due to
their short-term maturities. The fair value of notes payable approximates their carrying amount as
of December 31, 2007 and 2006 based on rates currently available to the Company for debt with
similar terms and remaining maturities.
F-8
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives as follows:
|
|
|
Asset Description
|
|
Useful Life (Years)
|
Furniture and equipment
|
|
3 - 7
|
Lab equipment
|
|
5
|
Leasehold improvements are amortized over the shorter of the life of the lease or the related
asset. Maintenance and repairs are charged to expense as incurred.
Income taxes
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce net deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
In July 2006, the FASB issued FIN 48,
Accounting for Uncertainty in Income Taxes
, an
interpretation of FASB Statement No. 109,
Accounting for Income Taxes
. FIN 48 clarifies the
accounting for income taxes by prescribing the minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements. FIN 48 also provides guidance
on derecognition, measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The interpretation applies to all tax positions related to
income taxes subject to SFAS 109. FIN 48 is effective for fiscal years beginning after December 15,
2006. The adoption of FIN 48 did not have an impact on the Companys financial condition, results
of operations or cash flows.
Revenue recognition
The Company recognizes revenue when all terms and conditions of the agreements have been met,
including persuasive evidence of an arrangement, services have been rendered, price is fixed or
determinable, and collectability is reasonably assured. For reimbursable cost contracts and
research grants, the Company recognizes revenue as costs are incurred once the funding is
authorized. Funding of government contracts and grants beyond the U.S. governments current fiscal
year is subject to annual congressional appropriations, and the Company cannot recognize revenue
for subsequent years until the period in which such funding is duly authorized. Provisions for
estimated losses on contracts and grants are made in the period such losses are determined.
Research and development costs
The Company expenses its research and development costs as incurred; however, equipment and
facilities that are acquired or constructed for research and development activities that have
alternative future uses (in research and development projects or otherwise) are capitalized and
depreciated as tangible assets.
F-9
Comprehensive loss
Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income
(SFAS No. 130), requires the presentation of the comprehensive loss and its components as part of
the financial statements. Comprehensive loss is comprised of net loss and other changes in equity
that are excluded from net loss. The Company includes unrealized holding gains and losses on
available-for-sale securities in accumulated other comprehensive loss on its balance sheets and
statements of changes in redeemable preferred stock and stockholders equity (deficit).
Stock-based compensation
The Company accounts for share-based payments in accordance with the provisions of FASB
Statement No. 123(R), Share-Based Payment (Statement 123(R)). See Note 11 Stockholders Equity
(Deficit) for discussion of impact of adoption of Statement 123(R). The Company uses the
Black-Scholes-Merton formula to estimate the fair value of stock options granted to employees and
amortizes the expense over the vesting period of the option on a straight-line basis.
Equity instruments issued to nonemployees are accounted for under the provisions of SFAS No.
123 and Emerging Issues Task Force Issue No. 96-18,
Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in conjunction with, Selling, Goods and Services.
Accordingly, the estimated fair value of the equity instrument is recorded on the earlier of the
performance commitment date or the date the services required are completed.
Prior to the Companys initial public offering, our board of directors determined the fair
value of our common stock for options to acquire shares of our common stock. Our board of directors
made contemporaneous determinations of fair value and did not employ a third party valuation firm
to determine fair value. In the absence of a public trading market prior to the Companys initial
public offering, and as a clinical-stage company with no significant revenues, the Company believes
that it was appropriate to consider a range of factors to determine the fair value market value of
the common stock at each option grant date. These factors included: (1) the achievement of clinical
and operational milestones by the Company, (2) the status of strategic relationships with
collaborators, (3) the significant risks associated with the Companys early stage of development
of a new technology, (4) capital market conditions for life science companies, particularly
similarly situated privately-held, early-stage life science companies, (5) the Companys available
cash, financial condition and results of operations, (6) the most recent sales of the Companys
preferred stock, and (7) the preferential rights of the outstanding preferred stock. In connection
with the preparation of the financial statements for the Companys initial public offering, the
Company reassessed its estimate of the fair value for financial reporting purposes of its common
stock following its stock option grants in March 2004. This valuation was done retrospectively by
management, a related party, and the Company did not obtain contemporaneous valuations from an
independent valuation specialist. Based on this reassessment, the Company determined that there
were five periods between March 2004 and October 2005 in which the Companys reassessment of the
fair value of its common stock ranged from $2.75 to $9.00 per share during the period options were
granted.
Basic and diluted net loss available to common stockholders per share of common stock
Basic net loss available to common stockholders per share excludes dilution for potential
common stock issuances and is computed by dividing net loss attributable to common stockholders by
the weighted-average number of shares outstanding for the period. Diluted net loss attributable to
common stockholders per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common stock. Mandatory
redeemable convertible preferred stock, stock options and warrants were not considered in the
computation of diluted net loss attributable to common stockholders per share for the years ended
December 31, 2007, 2006 and 2005 as their effect is antidilutive.
Reverse stock split
All share and per share amounts have been retroactively adjusted to give effect to a 1-for-13
reverse stock split effective on December 2, 2005.
F-10
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS
157 provides guidance for using fair value to measure assets and liabilities. It also responds to
investors requests for expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value and the effect of fair value
measurements on earnings. SAS 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value, and does not expand the use of fair value in any new
circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. The Company believes the adoption of SFAS 157 will not have a material
impact on its financial position and results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS
159 expands the use of fair value accounting but does not affect existing standards that require
assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair
value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities,
equity method investments, accounts payable, guarantees and issued debt. Other eligible items
include firm commitments for financial instruments that otherwise would not be recognized at
inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to
provide the warranty goods or services. If the use of fair value is elected, any upfront costs and
fees related to the item must be recognized in earnings and cannot be deferred, such as debt
issuance costs. The fair value election is irrevocable and generally made on an
instrument-by-instrument basis, even if a company has similar instruments that it elects not to
measure based on fair value. At the adoption date, unrealized gains and losses on existing items
for which fair value has been elected are reported as a cumulative adjustment to beginning retained
earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized in
earnings. SFAS 159 is effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the effect that the adoption of SFAS 159
will have on its financial position and results of operations.
In June 2007, the FASB ratified EITF 07-03, Accounting for Nonrefundable Advance Payments for
Goods or Services Received for Use in Future Research and Development Activities (EITF 07-3).
EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities be deferred and capitalized and recognized
as an expense as the goods are delivered or the related services are performed. EITF 07-3 is
effective, on a prospective basis, for financial statements issued for fiscal years beginning after
December 15, 2007. The Company does not expect the adoption of EITF 07-3 to have a material impact
on its financial statements.
4. GOVERNMENT CONTRACT FOR PANDEMIC FLU
On January 17, 2007, the Company was awarded a five-year, cost-plus reimbursement contract by
the U.S. Department of Health and Human Services (HHS) to fund the development of a dose-sparing
patch for use with a pandemic flu vaccine. The immunostimulant (IS) patch is intended to stimulate
an immune response to influenza when used in conjunction with small doses of influenza vaccine. If
the product is developed through licensure, the total cost reimbursed by HHS, plus a fixed fee, is
estimated to be $128 million. During the first 15 months of the contract, HHS has allotted
approximately $14.5 million for the Company to assess the safety and adjuvant effect of the IS
patch in an initial clinical trial, and to develop plans on how the Company would produce
150 million IS patches in a six-month period, as required under the contract. As of December 31,
2007, we had recognized revenue under the HHS contract of approximately $10.7 million, of which
approximately $8.4 million had been billed and approximately
$6.6 million had been paid.
F-11
5. MARKETABLE SECURITIES
Following is a summary of the available-for-sale marketable securities at December 31, 2007
and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Marketable securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency obligations
|
|
$
|
265
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
265
|
|
Accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restricted marketable securities
|
|
$
|
265
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency obligations
|
|
$
|
1,489
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,489
|
|
Accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Marketable securities
|
|
$
|
1,489
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency obligations
|
|
$
|
265
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
265
|
|
Accrued interest
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restricted marketable securities
|
|
$
|
268
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contractual maturities of the Companys marketable securities and restricted marketable
securities were less than one year at December 31, 2007 and 2006. Actual maturities may differ from
contractual maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties.
The Companys gross proceeds from maturities of its marketable securities for the years ended
December 31, 2007, 2006 and 2005 were $1,500,000, $16,500,000 and $22,150,000, respectively. For
these periods, the Company did not realize any gains or losses related to its marketable
securities.
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Furniture and equipment
|
|
$
|
1,983
|
|
|
$
|
1,465
|
|
Lab equipment
|
|
|
4,729
|
|
|
|
4,225
|
|
Leasehold improvements
|
|
|
6,103
|
|
|
|
6,051
|
|
Construction-in-progress
|
|
|
1,847
|
|
|
|
1,376
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
14,662
|
|
|
|
13,117
|
|
Accumulated depreciation
|
|
|
(7,963
|
)
|
|
|
(6,381
|
)
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
6,699
|
|
|
$
|
6,736
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense on property, plant and equipment totaled approximately
$1.6 million, $1.3 million, and $2.7 million for the years ended December 31, 2007, 2006 and 2005
respectively. For the years ended December 31, 2007, 2006 and 2005, the Company capitalized
interest expense of approximately $147,000, $65,000 and $26,000, respectively.
F-12
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
Salary and employee benefits
|
|
$
|
1,740
|
|
|
$
|
1,282
|
|
Clinical trial obligations
|
|
|
412
|
|
|
|
561
|
|
Other
|
|
|
504
|
|
|
|
510
|
|
|
|
|
|
|
$
|
2,656
|
|
|
$
|
2,353
|
|
|
|
|
8. LONG-TERM DEBT
Notes payable
In September 2003, the Company entered into a loan arrangement with an equipment leasing
company to finance up to $5 million for the build-out of the Companys facility to accommodate (1)
a GMP facility for biological and patch manufacturing to support clinical trials and to advance
patch formulation and development, and (2) laboratories to support patch formulation and
development, as well as small-scale biological research. Under the terms of the loan, the Company
was permitted to draw down up to $5 million, and this facility extended through September 2005. In
May 2006, the Company negotiated an extension of this facility to finance up to $2 million of
additional capital expenditures, and in May 2007, the Company negotiated an additional extension of
approximately $500,000. These extensions were subject to a covenant that any additional drawdowns
maintain a specific collateral mix.
In connection with the original loan agreement, the Company entered into a master security
agreement under which the Company pledged to the equipment leasing company as collateral (i) a
security interest in existing equipment then having a net book value of approximately $416,000,
(ii) a security interest in all laboratory/scientific and related manufacturing equipment, together
with furniture and computer hardware, financed under the facility, and (iii) marketable securities
with a face value of $600,000, which was reduced to a face value of $265,000 during the second
quarter of 2006. The lender has the right to accelerate repayment of the indebtedness upon a
default, including if the lender determines in good faith that there has been a material adverse
change in the Companys business plan which would materially impair the ability of the Company to
perform its obligations or of the lender to enforce the indebtedness or realize upon the
collateral.
The components of notes payable are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Promissory Note dated September 26, 2003; 8.93%, maturing March 26, 2007
|
|
$
|
|
|
|
$
|
114
|
|
Promissory Note dated September 26, 2003; 9.03%, maturing September 26, 2007
|
|
|
|
|
|
|
16
|
|
Promissory Note dated December 30, 2003; 9.24%, maturing June 30, 2007
|
|
|
|
|
|
|
162
|
|
Promissory Note dated February 26, 2004; 9.03%, maturing February 26, 2008
|
|
|
10
|
|
|
|
70
|
|
Promissory Note dated April 30, 2004; 9.48%, maturing April 30, 2008
|
|
|
33
|
|
|
|
127
|
|
Promissory Note dated June 30, 2004; 10.06%, maturing December 30, 2007
|
|
|
|
|
|
|
33
|
|
Promissory Note dated June 30, 2004; 10.03%, maturing June 30, 2008
|
|
|
115
|
|
|
|
327
|
|
Promissory Note dated September 30, 2004; 9.58%, maturing March 30, 2008
|
|
|
2
|
|
|
|
11
|
|
Promissory Note dated September 30, 2004; 9.40%, maturing September 30, 2008
|
|
|
40
|
|
|
|
90
|
|
Promissory Note dated November 30, 2004; 9.72%, maturing November 30, 2008
|
|
|
65
|
|
|
|
129
|
|
Promissory Note dated March 30, 2005; 10.46%, maturing March 30, 2009
|
|
|
25
|
|
|
|
43
|
|
Promissory Note dated March 30, 2005; 10.70%, maturing September 30, 2008
|
|
|
6
|
|
|
|
14
|
|
Promissory Note dated July 27, 2005; 10.32%, maturing July 27, 2009
|
|
|
84
|
|
|
|
131
|
|
Promissory Note dated July 27,2005; 10.66%, maturing January 27, 2009
|
|
|
8
|
|
|
|
15
|
|
Promissory Note dated September 30, 2005; 10.31%, maturing September 30, 2009
|
|
|
76
|
|
|
|
114
|
|
Promissory Note dated May 31, 2006; 11,38%, maturing May 31, 2010
|
|
|
284
|
|
|
|
381
|
|
Promissory Note dated May 31, 2006; 11.73%, maturing November 30, 2009
|
|
|
153
|
|
|
|
220
|
|
Promissory Note dated August 28, 2006; 11.27%, maturing August 28, 2010
|
|
|
403
|
|
|
|
525
|
|
F-13
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Promissory Note dated August 28, 2006, 11.65%, maturing February 28, 2010
|
|
|
57
|
|
|
|
79
|
|
Promissory Note dated December 20, 2006; 10.96%, maturing December 20, 2010
|
|
|
395
|
|
|
|
492
|
|
Promissory Note dated December 20, 2006, 11.35%, maturing June 20, 2010
|
|
|
108
|
|
|
|
142
|
|
Promissory Note dated June 25, 2007, 11.51%, maturing June 25, 2011
|
|
|
444
|
|
|
|
0
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
2,308
|
|
|
|
3,235
|
|
Less current portion of notes payable
|
|
|
(1,005
|
)
|
|
|
(1,369
|
)
|
|
|
|
|
|
|
|
Long-term portion of notes payable
|
|
$
|
1,303
|
|
|
$
|
1,866
|
|
|
|
|
|
|
|
|
The Company has long-term obligations to a related party (see Note 9Related Party
Transactions). Related-party notes payable consist of the following at December 31, 2007 and 2006
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Total related-party notes payable, with interest
rates ranging from 14.0% to 10.5%, maturing May
31, 2013
(1)
|
1,347
|
|
|
|
1,523
|
|
Less current portion of related-party notes payable
|
|
|
(195
|
)
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
Long-term portion of related-party notes payable
|
|
$
|
1,152
|
|
|
$
|
1,347
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
On October 26, 2005, the Company amended its lease agreement to, among
things, to extend the maturity of the related-party notes payable from May 2009 until May
2013. In connection with this lease amendment, the then-remaining balance owed to the
landlord as of May 31, 2006 under the related-party notes payable, which totaled
$1,342,719, is being amortized over the seven-year period until May 2013 at a revised rate
of 10.5%. See Note 9Related Party Transactions.
|
As of December 31, 2007, scheduled principal repayments on notes payable are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
|
|
|
|
|
|
|
|
|
from Related
|
|
|
|
|
|
|
Notes Payable
|
|
|
Party
(1)
|
|
|
Total
|
|
|
Year ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
1,005
|
|
|
$
|
195
|
|
|
$
|
1,200
|
|
2009
|
|
|
750
|
|
|
|
216
|
|
|
|
966
|
|
2010
|
|
|
479
|
|
|
|
240
|
|
|
|
719
|
|
2011
|
|
|
74
|
|
|
|
267
|
|
|
|
341
|
|
2012 and thereafter
|
|
|
|
|
|
|
429
|
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,308
|
|
|
$
|
1,347
|
|
|
$
|
3,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
On October 26, 2005, the Company amended its lease agreement to, among
things, to extend the maturity of the related-party notes payable from May 2009 until May
2013. In connection with this lease amendment, the then-remaining balance owed to the
landlord as of May 31, 2006 under the related-party notes payable, which totaled
$1,342,719, is being amortized over the seven-year period until May 2013 at a revised
rate of 10.5%. See Note 9Related Party Transactions
|
9. RELATED PARTY TRANSACTIONS
The landlord for the Companys laboratory and office facilities participated in the Series C
financing in 2002 and, therefore, is a related party. Accordingly, the landlords financing of the
Companys leasehold improvements has been recorded on the balance sheets as notes payable to
related party.
When the Company entered into its original laboratory and office facilities lease agreement
with the landlord in 2001, the Company also entered into a participation agreement with the
landlord. The agreement provided the landlord with the right to purchase any capital stock of Iomai
or any options, warrants, or other securities convertible into Iomai capital stock in the Companys
next two rounds of equity financing that raise gross proceeds of at least $1.0 million (subject to
certain limitations). The Series C Preferred Stock financing constituted the first of these two
rounds. In the Series C financing, the landlord purchased 565,483 shares of Series Preferred Stock
for $250,000 in the aggregate (see Note 10 Redeemable Preferred Stock). In connection with the
Companys initial public offering in February 2006 (see Note 11 Stockholders Equity (Deficit)),
the landlord agreed to terminate this participation agreement and its shares of Series C Preferred
Stock were automatically converted into 43,498 shares of Common Stock (see Note 10 Redeemable
Preferred Stock).
F-14
Under the terms of the original lease agreement, the Company leased its laboratory and office
facilities from June 2001 through May 31, 2006, and the Company had a three-year renewal option to
extend the term through May 31, 2009. In June 2001, the landlord financed leasehold improvements
of approximately $740,000, which amount was repayable monthly through May 31, 2009 with imputed
interest rate of 14% (assuming exercise of the three-year renewal option). In 2003, the Company
amended its lease agreement to take over the balance of the second floor not already leased by the
Company in its building. In conjunction with the lease amendment, the landlord provided the
Company with a tenant improvement allowance of $29,010 and agreed to finance a portion of any
additional leasehold improvements up to approximately $1.4 million. During 2004, the Company drew
down from the landlord $1,450,500 to finance leasehold improvements for the build-out of its
manufacturing facility. The repayment commenced in June 2004 and was repayable monthly through May
2009 (assuming exercise of three-year renewal option) under the following terms: (1) $870,300 of
principal at an imputed interest rate of 12%, and (2) $580,200 of principal at an imputed interest
rate of 10.5%.
In October 2005, the Company amended its lease to extend its term by seven years from June
2006 to May 2013. In connection with the lease extension, the Company renegotiated with the
landlord the terms of the financing for the build-out of its manufacturing facility and agreed to
lease approximately 8,000 square feet of additional space in the same building. Effective as of
June 1, 2006, the then-remaining balance owed to the landlord under all of its existing debt
financing, which totaled $1,342,719, is being amortized over the seven-year extension period at a
rate of 10.5%. This change resulted in a monthly payment of approximately $22,639 through May 2013,
as opposed to the prior monthly payment of approximately $44,689, which was being amortized through
May 2009. In addition, the Company now has the right to prepay this debt obligation at any time
upon four months written notice to the landlord.
As part of the amended lease, the landlord provided the Company with tenant improvement
allowances totaling approximately $134,000 for the existing space and approximately $120,000 for
the expansion space. As of December 31, 2006, the Company had utilized all of these allowances.
The landlord also provided us with up to $280,000 of additional financing to apply toward
alterations to the expansion space on the same terms and conditions as the existing landlord
financing (that is, amortized from date of draw down through May 2013 at a rate of 10.5%). The
Company drew down the full $280,000 in additional financing during the first half of 2006.
In July 2006, the Company amended its lease again to include an additional 11,689 square feet
in the facility, comprised of (a) 6,117 square feet beginning August 1, 2006 (although rent was
abated through December 31, 2006), and (b) 5,572 square feet beginning March 1, 2007. On
January 26, 2007, the Company amended its lease to include an additional 7,015 square feet in the
facility, comprised of (a) 1,365 square feet beginning July 1, 2007, and (b) 5,650 square feet
beginning September 1, 2007. The Company now occupies the entire facility and is responsible for
all of the operating expenses associated with the facility. The amendment did not change the May
2013 expiration date of the lease.
On January 1, 2007, the Company changed its method of payroll payment from current payments
semi-monthly to bi-weekly payments two weeks in arrears, which meant that employees would only
receive one payroll payment in January 2007. To accommodate this change-over, the Company offered
employees a one-time non-interest bearing loan for the employees approximate bi-weekly net pay
after taxes. This loan is payable to the Company, in whole or in part, upon written demand by the
Company, and upon termination of employment, any unpaid balance is payable in full. In January
2007, the Company loaned approximately $106,000 to 51 employees. As of December 31, 2007, there is
approximately $93,000 outstanding in employee loans to 45 employees.
F-15
10. REDEEMABLE PREFERRED STOCK
Series C convertible redeemable preferred stock
In December 2002, the Company issued 122,935,926 shares of Series C Redeemable Convertible
Preferred Stock (Series C Preferred Stock) for $0.4421 per share for net proceeds of $52,093,856,
which included $60,000 of Series C Preferred Stock issued to an investor for professional fees. In
2003, the Company issued an additional 4,750,056 shares of Series C Preferred Stock at $0.4421 per
share for gross proceeds of $2,100,000. In June 2004, the Company issued an additional 1,904,052
shares of Series C Preferred Stock at $0.4421 per share for gross proceeds of $841,781. All shares
of Series C Preferred Stock were automatically converted by their terms into 9,968,443 shares of
Common Stock upon closing of the Companys initial public offering in February 2006 (see Note 11
Stockholders Equity (Deficit)).
Prior to the Companys initial public offering, the Series C Preferred Stock bore a cumulative
annual dividend at a rate of $0.0354 per share, and had a liquidation preference equal to the
greater of (i) $0.4421 per share increased by an annual implicit growth factor of 20% compounded
annually, subject to certain adjustments, plus any declared or accrued and unpaid dividends, and
(ii) the amount per share that would have been payable had each such share of Series C Preferred
Stock been converted into common stock immediately prior to a liquidation, dissolution, winding up,
sale or merger.
11. STOCKHOLDERS EQUITY (DEFICIT)
Series B convertible preferred stock
In connection with the closing of the Series C Preferred Stock financing, the Company issued
14,734,578 shares of Series B Convertible Preferred Stock (Series B Preferred Stock) to a
subsidiary of Elan Corporation plc (Elan) as part of the unwinding of a pre-existing joint venture.
On January 5, 2006, Elan sold all of the 14,734,578 shares of our Series B Preferred Stock held by
it to certain of the holders of Series C Preferred Stock pursuant to a contractual right of first
refusal. All Series B Preferred Stock were automatically converted into 1,133,424 shares of common
stock upon closing of the Companys initial public offering in February 2006.
Prior to the Companys initial public offering, the Series B Preferred Stock bore a cumulative
annual dividend at a rate of $0.0354 per share, and a liquidation preference equal to the greater
of (i) $0.4421 per share, subject to certain adjustments, plus any declared or accrued and unpaid
dividends, and (ii) the amount per share that would have been payable had each such share of Series
B Preferred Stock been converted into common stock immediately prior to a liquidation, dissolution,
winding up, sale or merger.
Initial Public Offering
On February 6, 2006, the Company closed its initial public offering by selling
5,000,000 shares of its common stock at a public offering price of $7.00 per share. Net proceeds,
before expenses, were $32.8 million. The Companys total expenses for the initial public offering,
including legal, accounting and printing fees, were $1.9 million, so total net proceeds, after
expenses, were $30.9 million.
Upon the closing of the Companys initial public offering, a put option on 57,500 shares of
common stock terminated in accordance with its terms without further financial obligation to the
Company. In 2001, the Company granted the put option to the Walter Reed Army Institute of Research
(WRAIR) in connection with the issuance of those shares to WRAIR as part of an amendment to the
master license agreement for the transcutaneous immunization technology. Prior to initial public
offering WRAIR had the right to put these shares to the Company, upon certain conditions, for the
greater of $1,958,450 or the then fair market value of those shares at the date of exercise.
F-16
Also in connection with the initial public offering, all of the Companys preferred stock was
automatically converted into shares of Common Stock as follows:
|
|
|
All shares of Series B Preferred Stock were automatically converted into
1,133,424 shares of common stock;
|
|
|
|
|
All shares of Series C Preferred Stock were automatically converted into
9,968,443 shares of common stock; and
|
|
|
|
|
A warrant issued to the Companys placement agent in connection with the Series C
Stock financing in December 2002 for 250,000 shares of Series C Preferred Stock was
automatically converted into a warrant to purchase up to 19,231 shares of Common Stock
at an exercise price of $5.7473 per share.
|
In connection with the financing of the build-out of the Companys facility, the Company
previously issued warrants to purchase up to 16,529 shares at an exercise price of $5.75 per share.
Upon the initial public offering, the holder exercised these warrants in accordance with their
terms in a cashless exercise for 2,865 shares of Common Stock.
Upon closing of our initial public offering, the Company amended and restated its certificate
of incorporation to reduce (1) the number of shares of common stock authorized for issuance from
220,000,000 shares to 200,000,000 shares, and (2) the number of shares of preferred stock
authorized for issuance from 166,700,000 shares to 25,000,000 shares.
Private Placement in Public Equity
In October 2006, the Company closed a private placement with two existing stockholders, Essex
Woodlands Health Ventures and New Enterprise Associates (NEA), pursuant to which the Company raised
gross proceeds of approximately $10 million through the sale of 2,283,106 shares of the Companys
Common Stock. The price per share under the securities purchase agreement was $4.38. The Company
incurred costs of $86,593 associated with the sale and registration of these shares as described
below.
Pursuant to the securities purchase agreement dated October 23, 2006, the Company agreed to
file a registration statement on Form S-1 with the SEC to register the resale of the shares. The
registration statement was declared effective on December 8, 2006, and the Company has agreed to
use commercially reasonable efforts to keep it effective until the fourth anniversary of such date,
at the latest. If the registration statement ceases to be effective or useable for resales during
this period, then the Company has agreed to pay each purchaser liquidated damages at a rate equal
to 2.5% per month of the total purchase price of the shares purchased by such purchaser that are
covered by the registration statement immediately prior to such lapse. Notwithstanding the
foregoing provisions, in no event shall the Company be obligated to pay such liquidated damages (a)
to more than one purchaser in respect of the same share for the same period of time or (b) for each
of the first two years following the closing date, in an annual aggregate amount that exceeds 18%
of the purchase price paid by the purchasers for the shares. At this time, management does not
believe that the payment of liquidated damages is probable.
On March 2, 2007, the Company entered into a securities purchase agreement with accredited
investors pursuant to which the Company agreed to sell, in a private placement, an aggregate of
6,291,828 units, each unit consisting of one share of common stock, and two warrants to purchase,
in total, 0.7 additional shares of common stock, at a purchase price of $5.0675 per unit. The
Company received approximately $30.2 million in net proceeds, after expenses, in the private
placement. The purchase price for the share component of each unit was $4.98 per share, the closing
bid price for the common stock on March 1, 2007. Each warrant provides the right to acquire 0.35
shares of common stock at an exercise price of $5.25 per full share. One warrant type is
exercisable at any time until March 2, 2012, and the other type of warrant expired unexercised in
accordance with its terms on September 1, 2007.
F-17
Pursuant to the securities purchase agreement dated March 2, 2007, the Company agreed to file
a registration statement on Form S-3 with the SEC to register the resale of the shares underlying
each unit. The registration statement was declared effective on May 1, 2007, and the Company has
agreed to use commercially reasonable efforts to keep it effective until the seventh anniversary of
such date, at the latest. If the registration ceases to be effective or useable for resales during
this period, then the Company has agreed to pay each purchaser liquidated damages at a rate equal
to 1% per month of the total purchase price of the shares purchased by such purchaser that are
covered by the registration statement immediately prior to such lapse. Notwithstanding the
foregoing provisions, in no event shall the Company be obligated to pay such liquidated damages (a)
to more than one purchaser in respect of the same securities for the same period of time or (b) in
an aggregate amount that exceeds 10% of the purchase price paid by such purchaser for its
securities. At expiration, the warrants convert automatically through a cashless exercise if a
resale registration statement is not available at that time. At this time, management does not
believe that the payment of liquidated damages is probable.
Stock Options
Since 2003, the Company expensed options in accordance with the fair value recognition
provisions of SFAS No. 123, whereby the Company recognizes stock-based compensation based on the
fair value of the options at the date of grant using the Black-Scholes-Merton option-pricing model.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of
Statement 123(R), using the modified-prospective-transition method. Results for prior periods have
not been restated.
Under the modified-prospective-transition method, the Company will continue to recognize
compensation as options vest. The principal change in accounting with the adoption of Statement
123(R) is that beginning with the first quarter of 2006, management must estimate forfeitures of
options (resulting from the failure of optionholders to satisfy service or performance conditions)
prior to vesting, and reduce stock-based compensation expense by the amount of these estimated
forfeitures. Previously, under Statement 123, the Company had elected to adjust stock-based
compensation expense only for actual forfeitures. The Company will periodically monitor the rates
for actual forfeitures and, if necessary, adjust its stock-based compensation expense for changes
in its estimated rate of forfeitures and differences between expectations and actual experience.
Also, with the adoption of Statement 123(R), the Company recognized in the first quarter of
2006 a one-time charge recorded as the cumulative effect of a change in accounting principle, which
reflects an estimate of forfeitures for unvested awards outstanding upon the adoption of Statement
123(R). This amount represents a reduction in the compensation cost for prior periods for any
unvested options remaining that would not have been recognized in those prior periods had
forfeitures for such unvested options been estimated during those prior periods. The cumulative
effect for this change in accounting principle totaled $16,726 and is recorded on the statement of
operations for the year ended December 31, 2006.
A summary of all stock option plan activity during the year ended December 31, 2007 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
|
Weighted-
|
|
Remaining
|
|
Intrinsic Value
|
|
|
|
|
|
|
Average
|
|
Contractual
|
|
(1)
|
|
|
Shares
|
|
Exercise Price
|
|
Term
|
|
($000s)
|
|
Outstanding at December 31, 2006
|
|
|
2,918,805
|
|
|
|
2.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2006
|
|
|
1,195,551
|
|
|
|
1.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,383,500
|
|
|
|
3.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(99,458
|
)
|
|
|
0.91
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(70,305
|
)
|
|
|
3.74
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(6,324
|
)
|
|
|
2.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
4,126,218
|
|
|
|
3.16
|
|
|
|
7.5
|
|
|
$
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2007
|
|
|
3,934,714
|
|
|
|
3.13
|
|
|
|
7.5
|
|
|
$
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
1,754,337
|
|
|
|
2.26
|
|
|
|
5.7
|
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated using the per-share closing price of the Companys common stock on December 31, 2007, which was $1.03.
|
F-18
The total fair value of stock options which vested during the year ended December 31, 2007,
less estimated forfeitures, was approximately $1.9 million. During the year ended December 31,
2007, participants exercised stock options totaling 99,458, and the total intrinsic value of stock
options exercised during the year ended December 31, 2007 was approximately $140,000. Cash received
from option exercises under all stock compensation plans was approximately $91,000 for the year
ended December 31, 2007.
As of December 31, 2007, there was approximately $4.5 million of total unrecognized
compensation expense, less estimated forfeitures, related to unvested options under the Companys
stock compensation plans. The expenses are expected to be recognized over a weighted-average
period of 3.0 years.
Stock options awarded to directors and employees generally are granted with an exercise price
equal to the market price of the Companys stock on the date of grant. Those options generally
vest in equal installments over a four-year period based on continued service and have ten-year
contractual terms. The Company recognizes compensation costs for those options on a straight-line
basis over the requisite service period for the entire award (that is, generally over four years).
During the year ended December 31, 2007, the Company issued 1.4 million options, which vest in
equal installments over a four-year period. The weighted-average fair value of options granted
during the years ended December 31, 2007, 2006, and 2005 was $2.20, $5.18, and $4.62, respectively,
applying the Black-Scholes-Merton option-pricing model utilizing the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
73
|
%
|
|
|
77
|
%
|
|
|
60
|
%
|
Risk-free interest rate
|
|
|
4.24
|
%
|
|
|
4.66
|
%
|
|
|
3.89
|
%
|
Expected average life of options
|
|
5 years
|
|
5 years
|
|
5 years
|
Expected forfeiture rate
|
|
|
3 - 7
|
%
|
|
|
0 - 7
|
%
|
|
|
0 - 7
|
%
|
Dividend Yield
The Company has never declared or paid dividends and has no plans to do so
in the foreseeable future.
Expected Volatility
Volatility is a measure of the amount by which a financial variable
such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected
volatility) during a period. The Company tracks the historical volatility of its own stock, but
since the Company went public only in February 2006, the Company uses an estimated volatility based
on the volatility of the daily stock price of a number of similarly situated biotechnology
companies, along with other factors deemed relevant by management. In 2007, estimated volatility
used to value options ranged between 71.3% and 74.2%.
Risk-Free Interest Rate
This is the U.S. Treasury rate for the week of each option grant
during the quarter having a term that most closely resembles the expected life of the option.
Expected Life of the Option Term
This is the period of time that the options granted are
expected to remain unexercised. Options granted during the year have a maximum term of ten years.
The Company estimates the expected life of the option term to be five years; however, now that the
Company is a public entity, management expects that over time, management will track estimates of
the expected life of the option term so that its estimates will approximate actual past behavior
for similar options.
Expected Forfeiture Rate
The forfeiture rate is the estimated percentage of options
granted that are expected to be forfeited or canceled on an annual basis before becoming fully
vested. The Company estimates the forfeiture rate based on past turnover data ranging anywhere from
the past one to three years, with further consideration given to the class of employees to whom the
options were granted.
F-19
The Company recognized the following stock option compensation expense for the years ended (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Employees and directors
|
|
$
|
1,918
|
|
|
$
|
1,078
|
|
|
$
|
509
|
|
Non-employee consultants
|
|
|
(16
|
)
|
|
|
(13
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,902
|
|
|
$
|
1,065
|
|
|
$
|
538
|
|
|
|
|
|
|
|
|
|
|
|
During 2007, the Company recognized pre-tax share-based compensation cost of approximately
$1.9 million. Of this amount, approximately $980,000 is included in general and administrative
expense and approximately $922,000 is included in research and development expense. During 2006,
the Company recognized pre-tax share-based compensation cost of approximately $1.1 million. Of this
amount, approximately $552,000 is included in general and administrative expense and approximately
$513,000 is included in research and development expense.
Following is a summary of the Companys stock plans:
1998 Stock Incentive Plan
In 1998, the Company adopted a stock option plan (the 1998 Plan) and reserved 76,923 shares of
common stock pursuant to the 1998 Plan. Incentive stock awards are granted with an exercise price
equal to the fair market value of the Companys stock on the date of grant. Nonstatutory options
are granted with an exercise price at not less than 85% of the fair market value of the Companys
stock on the date of grant. The options expire 10 years from the date of grant.
1999 Stock Incentive Plan
In August 1999, the Company adopted the 1999 Stock Incentive Plan (the 1999 Plan). The 1999
Plan currently provides for the issuance of restricted common stock, stock options or the direct
award of common stock, for up to 2,001,584 shares. Incentive stock awards are required to be
granted with an exercise price equal to the estimated fair market value of the Companys stock on
the date of grant. Nonstatutory options are granted with an exercise price at not less than 85% of
the fair market value of the Companys stock on the date of grant. The 1999 Plan options expire 10
years from the date of grant.
In January 2003, the 1999 Plan was amended to increase the number of shares of Common Stock
available for issuance under the 1999 Plan from 423,076 shares to 1,476,923 shares. In September
2003, the 1999 Plan was further amended to increase the number of shares of Common Stock available
for issuance under the 1999 Plan by an additional 524,661 shares to 2,001,584 shares, in the
aggregate.
2005 Stock Incentive Plan
Under the 2005 Incentive Plan (the 2005 Plan), a total of 2,740,000 shares of common stock has
been reserved for issuance upon the exercise of awards granted under the 2005 Plan. The 2005 Plan
provides for the grant of awards consisting of any or a combination of stock options, stock
appreciation rights, restricted stock, unrestricted stock, stock unit, performance and cash awards.
The compensation committee may make grants to key employees of Iomai and its affiliates, board
members, including outside directors and members of an affiliates board of directors, and
consultants, advisors or other independent contractors who perform services for us or any of our
affiliates. The maximum number of shares of stock for which options and stock appreciation rights
may be granted to any particular participant in a calendar year shall be, in each case, 780,000,
and the maximum number of shares of stock subject to other awards that may be delivered to any
particular participant in any calendar year shall be 140,000. These limits, and the total number of
shares reserved under the 2005 Plan, are subject to adjustment in the case of stock dividends and
other transactions affecting the common stock. Options granted under the 2005 Plan generally
expire 10 years from the date of grant. In March 2007, the 2005 Plan was amended to increase the
number of shares of Common Stock available for issuance under the 2005 Plan from 1,040,000 shares
to 1,890,000 shares and in June 2007, the 2005 Plan was amended to increase the number of shares of
Common Stock available for issuance under the 2005 Plan from 1,890,000 to 2,740,000.
F-20
2006 Employee Stock Purchase Plan
Under the 2006 Employee Stock Purchase Plan (the ESPP), a total of 80,000 shares of common
stock has been reserved for issuance under the ESPP. The ESPP will permit eligible employees to
purchase shares of our common stock at a discount from fair market value. The Company intends for
the ESPP to meet the requirements for an employee stock purchase plan under Section 423 of the
Internal Revenue Code.
The ESPP did not go into effect until completion of the Companys initial public offering in
February 2006. As of December 31, 2007, no shares of Common Stock were issued under the ESPP. The
plan is expected to become operational in 2008 and, consequently, is expected to have an impact on
future periods. The compensation committee, or a duly appointed administrator, will determine the
frequency and duration of individual offerings under the ESPP and the dates when employees may
purchase stock.
Eligible employees participate voluntarily and may withdraw from any offering at any time
before they purchase stock. Participation terminates automatically upon termination of employment.
The purchase price per share of common stock in an offering will equal 85% of the fair market value
of the common stock at the first trading day of the offering period or at the last trading day of
the offering period, whichever is less. Employees will pay through payroll deductions.
12. COMMITMENTS AND CONTINGENCIES
The Company leases laboratory and office facilities and scientific equipment under operating
lease agreements. For the years ended December 31, 2007, 2006, and 2005, rent expense was
approximately $1.0 million, $700,000 and $425,000, respectively. All base rents will be subject to
minimum rent escalation of 3.5%.
Future minimum payments under noncancelable operating lease obligations at December 31, 2007
are as follows (in thousands):
|
|
|
|
|
|
|
Operating
|
|
|
2008
|
|
$
|
1,196
|
|
2009
|
|
|
1,236
|
|
2010
|
|
|
1,252
|
|
2011
|
|
|
1,279
|
|
2012
|
|
|
1,323
|
|
Thereafter
|
|
|
559
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
6,845
|
|
|
|
|
|
At December 31, 2007, and 2006, the Company had commitments for capital expenditures relating
primarily to the expansion of the Companys facilities of approximately $0 and $15,767,
respectively.
License agreement with the Walter Reed Army Institute of Research (WRAIR)
On April 6, 2001, the Company entered into an Amended and Restated License Agreement with
WRAIR (the WRAIR Agreement). The WRAIR Agreement grants an exclusive license to Iomai for its TCI
technology as of December 15, 1997. The Company paid a license issuance fee of $150,000, annual
license fees of $15,000 for the first six years and $25,000 thereafter, and additional fees upon
certain milestones.
The Company may terminate the WRAIR Agreement at any time after 60 days notice to WRAIR
without WRAIRs consent. The Company did not expense any milestone payments to WRAIR in 2007,
2006, or 2005. No royalty payments have been made to WRAIR under the license.
In conjunction with the WRAIR Agreement, the Company issued 57,500 shares of common stock to
WRAIR in 2001. These shares are held in escrow by an unrelated third party under a Voting Trust and
Escrow Agreement, which provides economic benefit to WRAIR but removes WRAIR from any voting
control or direct influence over the Companys operations. The fair value of the shares of common
stock was charged to research and development upon issuance.
F-21
In addition, the Company issued a put option (Put Option) to WRAIR related to the 57,500
shares of common stock. The put price was the greater of $34.19 per share (or $1,958,450, in the
aggregate) or the then fair market value at the date of exercise (Put Price). Prior to the
Companys initial public offering, the Put Option could have been exercised immediately had the
Company failed to pay any amounts under the WRAIR Agreement or at any time after April 6, 2005.
Upon the closing of the Companys initial public offering in February 2006, the Put Option
terminated in accordance with its terms without further financial obligation to the Company.
13. INCOME TAXES
For the years ending December 31, 2007, 2006, and 2005, there is no current provision for
federal or state income taxes. The deferred tax benefit has been entirely offset by valuation
allowances.
The Companys net deferred tax asset consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
NOL carryforward
|
|
$
|
42,419
|
|
|
$
|
32,323
|
|
Research and development credit carryforward
|
|
|
3,376
|
|
|
|
2,678
|
|
Deferred temporary differences
|
|
|
2,306
|
|
|
|
2,051
|
|
Valuation allowance
|
|
|
(48,101
|
)
|
|
|
(37,052
|
)
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
The net operating loss carryforwards of approximately $109.8 million and the research and
development credits will begin to expire in the year 2017 if unused. The use of the Companys net
operating loss carryforwards may be restricted due to changes in Company ownership. The Company
paid no income taxes in 2007, 2006, and 2005.
The provision for income taxes differs from the amount of taxes determined by applying the
U.S. federal statutory rate to loss before provision for income taxes as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
Federal tax at statutory rates
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal benefit
|
|
|
4.6
|
|
|
|
4.6
|
|
|
|
4.6
|
|
Research and development credit
|
|
|
2.9
|
|
|
|
3.2
|
|
|
|
2.8
|
|
Permanent difference
|
|
|
(1.9
|
)
|
|
|
(1.0
|
)
|
|
|
(1.2
|
)
|
Change in valuation allowance
|
|
|
(39.6
|
)
|
|
|
(40.8
|
)
|
|
|
(40.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company adopted the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement No. 109
(FIN 48) on January 1, 2007. The adoption of FIN 48 did not impact the Companys
financial position, results of operations or cash flows. The Company recognizes interest accrued
related to unrecognized tax benefits, if any, in interest expense. Penalties, if incurred, would be
recognized as a component of general and administrative expenses. As of December 31, 2007, the
Company has not recorded any interest or penalties. The following table reconciles the beginning
and ending unrecognized tax benefits:
|
|
|
|
|
Balance as of January, 1, 2007
|
|
$
|
|
|
Additions for tax positions related to the current year
|
|
|
|
|
Additions related for tax positions of prior years
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
|
|
|
|
|
|
The tax years 2004 to 2007 remain open to examination by federal and state taxing
jurisdictions to which the Company is subject.
F-22
14. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan (the 401(k) Plan) qualified under Section
401(k) of the Internal Revenue Code. The 401(k) Plan covers substantially all employees. Under the
401(k) Plan, employees may make elective salary deferrals and the Company provides for a 50%
matching of qualified deferrals, up to a maximum of 6% of the employees salary. During the years
ended December 31, 2007, 2006, and 2005, the Company made matching contributions of approximately
$226,000, $164,000 and $133,000, respectively.
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 2007 and 2006 is presented in
the following tables (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
997
|
|
|
$
|
408
|
|
|
$
|
30
|
|
|
$
|
40
|
|
Income (loss) from operations
|
|
|
(5,151
|
)
|
|
|
(7,763
|
)
|
|
|
(9,474
|
)
|
|
|
(10,035
|
)
|
Net income (loss)
|
|
|
(5,020
|
)
|
|
|
(7,544
|
)
|
|
|
(9,326
|
)
|
|
|
(9,895
|
)
|
Net income (loss) per share, basic and diluted
|
|
$
|
(0.45
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(0.53
|
)
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
1,588
|
|
|
|
2,868
|
|
|
|
2,953
|
|
|
|
3,257
|
|
Income (loss) from operations
|
|
|
(9,394
|
)
|
|
|
(7,091
|
)
|
|
|
(6,310
|
)
|
|
|
(6,317
|
)
|
Net income (loss)
|
|
|
(9,222
|
)
|
|
|
(6,784
|
)
|
|
|
(6,087
|
)
|
|
|
(6,182
|
)
|
Net income (loss) per share, basic and diluted
|
|
|
(0.44
|
)
|
|
|
(0.27
|
)
|
|
|
(0.24
|
)
|
|
|
(0.24
|
)
|
F-23
Iomai Corp (MM) (NASDAQ:IOMI)
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