UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
x
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
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For the quarterly period ended March 31, 2008
or
¨
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
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For the transition period from
to
.
Commission
File Number: 000-31633
Kosan Biosciences Incorporated
(Exact name of registrant as specified in its charter)
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Delaware
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94-3217016
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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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3832 Bay Center Place, Hayward, California 94545
(address of principal executive offices)
(510) 732-8400
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes
x
No
¨
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.
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Large accelerated filer
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Accelerated filer
x
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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
¨
No
x
As of April 30, 2008, 42,656,290 shares of the registrants Common Stock, $.001 par value were outstanding.
KOSAN BIOSCIENCES INCORPORATED
Form 10-Q
Quarter Ended March 31, 2008
INDEX
2
PART I. FINANCIAL INFORMATION
Item 1.
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Financial Statements
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KOSAN BIOSCIENCES INCORPORATED
CONDENSED BALANCE SHEETS
(in thousands)
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March 31,
2008
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December 31,
2007 (1)
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(unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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43,661
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$
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46,950
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Short-term investments
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14,412
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23,058
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Accounts receivable
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1,203
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1,301
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Prepaid and other current assets
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594
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521
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Total current assets
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59,870
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71,830
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Restricted cash
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949
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949
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Property and equipment, net
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5,119
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4,848
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Other assets
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240
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240
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Total assets
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$
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66,178
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$
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77,867
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Liabilities and Stockholders Equity
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Current liabilities:
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Accounts payable
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$
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2,593
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$
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2,840
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Accrued liabilities
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10,745
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10,656
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Current portion of deferred revenue
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3,268
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Current portion of equipment loans
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730
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844
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Total current liabilities
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14,068
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17,608
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Equipment loans, less current portion
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541
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699
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Stockholders equity:
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Common stock
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43
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43
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Additional paid-in capital
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249,012
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248,452
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Accumulated other comprehensive income
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22
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29
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Accumulated deficit
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(197,508
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)
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(188,964
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)
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Total stockholders equity
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$
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51,569
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$
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59,560
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Total liabilities and stockholders equity
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$
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66,178
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$
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77,867
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(1)
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The balance sheet data at December 31, 2007 has been derived from the audited financial statements at that date.
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See accompanying notes.
3
KOSAN BIOSCIENCES INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except
per share data)
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Three Months Ended
March 31,
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2008
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2007
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Contract revenue
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$
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4,649
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$
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12,918
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Operating expenses:
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Research and development
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10,799
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8,990
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General and administrative
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2,922
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2,151
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Total operating expenses
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13,721
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11,141
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(Loss) income from operations
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(9,072
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)
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1,777
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Other income, net
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528
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967
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Net (loss) income
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$
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(8,544
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)
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$
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2,744
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Basic and diluted net (loss) earnings per common share
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$
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(0.20
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)
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$
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0.07
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Shares used in computing basic net (loss) earnings per common share
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42,593
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39,100
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Shares used in computing diluted net (loss) earnings per common share
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42,593
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39,170
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See accompanying notes.
4
KOSAN BIOSCIENCES INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
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Three Months Ended
March 31,
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2008
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2007
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Operating activities
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Net (loss) income
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$
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(8,544
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)
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$
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2,744
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Adjustment to reconcile net (loss) income to net cash used in operating activities:
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Depreciation and amortization
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438
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579
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Amortization of investment premiums and discounts
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(88
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)
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(110
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)
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Stock-based compensation
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467
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1,052
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Changes in assets and liabilities:
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Accounts receivable
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98
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(284
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)
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Prepaid and other assets
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(73
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)
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(243
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Accounts payable and accrued liabilities
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30
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(658
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)
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Deferred revenue
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(3,268
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)
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(11,380
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)
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Net cash used in operating activities
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(10,940
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)
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(8,300
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)
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Investing activities
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Acquisition of property and equipment
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(897
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)
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(45
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)
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Purchase of investments
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(6,373
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)
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(23,026
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)
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Proceeds from maturity of investments
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15,100
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12,850
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Net cash provided by (used in) investing activities
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7,830
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(10,221
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)
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Financing activities
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Proceeds from issuance of common stock
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93
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43,014
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Proceeds from equipment loans
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678
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Principal payments under equipment loans
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(272
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)
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(407
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)
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Net cash (used in) provided by financing activities
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(179
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)
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43,285
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Net (decrease) increase in cash and cash equivalents
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(3,289
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)
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24,764
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Cash and cash equivalents at beginning of period
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46,950
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35,655
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Cash and cash equivalents at end of period
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$
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43,661
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$
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60,419
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See accompanying notes.
5
KOSAN BIOSCIENCES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Summary of
Significant Accounting Policies
Overview
Kosan Biosciences Incorporated (the Company or Kosan) was incorporated under the laws of the State of California on January 6, 1995 and commenced operations in 1996. In July 2000, the Company was reincorporated
under the laws of the State of Delaware.
Kosan is a cancer therapeutics company
focused on advancing two new classes of anticancer agents through clinical development: heat shock protein 90, or Hsp90, inhibitors and epothilones. Hsp90 inhibitors have a novel mechanism of action targeting multiple pathways involved in cancer
cell growth and survival. Kosans Hsp90 inhibitor product candidates may have the potential to overcome resistance after relapse and to synergize the initial activity of existing cancer therapies. Kosans Hsp90 inhibitor product candidates
have demonstrated antitumor activity in multiple indications in early clinical trials. Kosans proprietary injectable suspension formulation of tanespimycin (KOS-953), its first-generation Hsp90 inhibitor and most advanced product candidate, is
in a Phase 3 clinical trial in combination with Velcade
®
(bortezomib) for multiple myeloma, as well as a Phase 2 clinical trial in combination with Herceptin
®
(trastuzumab) for HER-2 positive metastatic breast cancer. In February 2008, the Company discontinued the development of alvespimycin, which it had evaluated in clinical trials, in order to focus the Companys
resources on the development of its lead Hsp90 inhibitor, tanespimycin.
Kosan is also developing KOS-1584, the Companys lead
epothilone product candidate, and has completed enrollment in Phase 1 dose escalating clinical trials in patients with solid tumors. A Phase 2 trial in patients with non-small cell lung cancer has been initiated. Epothilones inhibit cell division
with a mechanism of action similar to taxanes, one of the most successful classes of anti-tumor agents.
Kosan has a motilin receptor
agonist program for the stimulation of gastrointestinal movement, or GI motility. In December 2006, the Company established a worldwide exclusive license agreement with Pfizer Inc. for its motilin agonist program, including KOS-2187 and related
compounds. Pfizer is responsible for all development, regulatory and commercial activities related to the motilin agonist program. Pfizer is conducting a Phase 1 clinical trial of KOS-2187 as a potential treatment for gastroesophageal reflux
disease.
Kosan has next-generation Hsp90 inhibitor, next-generation epothilone and nuclear export inhibitor programs for cancer that are
undergoing preclinical evaluation.
Kosan has funded its operations primarily through equity financing, contract payments under its
collaboration agreements, equipment financing arrangements and government grants.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United
States for interim financial information. The information as of March 31, 2008, and for the three months ended March 31, 2008 and 2007, reflect all adjustments (including normal recurring adjustments) that management of the Company
believes are necessary for a fair presentation of the results for the periods presented. Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying unaudited
condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange
Commission on March 17, 2008.
6
KOSAN BIOSCIENCES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)
1. Organization and Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the
accompanying notes. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the financial statements in the period they are determined. Actual results could differ from those estimates.
Cash Equivalents and Investments
The Company
considers all highly liquid investments with a maturity from date of purchase of three months or less to be cash equivalents. The Company limits its concentration of risk by diversifying its investments among a variety of issuers. All investment
securities are classified as available-for-sale and are recorded at fair value based on quoted market prices, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Purchase premiums and discounts
are recognized in interest income using the interest method over the terms of the securities. Realized gains and losses and declines in the fair value that are deemed to be other-than-temporary are reflected in earnings. The cost of securities sold
is based on the specific identification method.
The Company recognizes an impairment charge when the decline in the estimated fair value
of a marketable security below the amortized cost is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration of time during which the fair value
has been less than its amortized cost, any adverse changes in the investees financial condition and associated downgrades to credit ratings and the Companys intent and ability to hold the marketable security for a period of time
sufficient to allow for any anticipated recovery in market value. For the three months ended March 31, 2008 and 2007, the Company did not recognize an impairment charge related to its investment securities.
Revenue Recognition
The Company generated revenue
under license agreements with pharmaceutical companies. The arrangements included up-front non-refundable fees, reimbursement for personnel and supply costs, milestone payments for the achievement of defined collaboration objectives and royalties on
potential sales of commercialized products. The Company recognizes revenue under these arrangements when (i) persuasive evidence of an arrangement exists; (ii) delivery of the services, supplies or technology license has occurred;
(iii) the price is fixed and determinable; and (iv) collectibility is reasonably assured.
The Company recognizes license and
other up-front fees pursuant to research and development collaboration agreements over the Companys estimated period of continuing involvement with research and development of the respective agreement. These estimates are reviewed on a
periodic basis and updated if the underlying assumptions are modified. Any changes in these estimates will result in either an acceleration or further deferral of the related revenue recognition. Payments related to substantive performance
milestones that are at risk at the initiation of an agreement are recognized upon successful completion of a performance milestone event.
7
KOSAN BIOSCIENCES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)
1. Organization and Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
Contract revenues related to research and development efforts are
recognized as revenue as the related services are performed or delivered in accordance with contract terms. Such payments generally are made based on the number of full-time equivalent researchers assigned to the project and the related research and
development expenses incurred or as other deliverables under the contracts are fulfilled.
Research and Development
Research and development consists of costs incurred for Company-sponsored and collaborative research and development activities. These costs consist
primarily of salaries and other personnel-related expenses, including associated stock-based compensation, facility-related expenses, licensing-related expenses, depreciation of facilities and equipment, lab consumables, services performed by
clinical research organizations and research institutions and other outside service providers. Expenses related to clinical trials and drug manufacturing generally are accrued based on estimates of work performed or the level of patient enrollment
and activities according to the protocols and agreements. The Company monitors planned protocols, work performed, patient enrollment levels and related activities to the extent possible and adjusts estimates accordingly.
Net (Loss) Earnings per Share
Basic (loss) earnings
per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted (loss) earnings per common share is calculated based on the weighted-average number of shares of common stock and
other dilutive securities outstanding during the period. The Company excludes convertible preferred stock, outstanding stock options, restricted stock unit awards and warrants from the calculation of diluted net (loss) earnings per common share when
such securities are antidilutive. The total number of outstanding stock options, restricted stock unit awards and warrants excluded from the calculations of diluted net (loss) earnings per share, prior to application of the treasury stock method for
options, was 5,247,418 and 5,141,190 for the three months ended March 31, 2008 and 2007, respectively. The following table presents the calculation of basic and diluted (loss) earnings per share (in thousands, except per share data):
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Three Months Ended
March 31,
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2008
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2007
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Numerator:
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Net (loss) income
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$
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(8,544
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)
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$
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2,744
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Denominator:
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Weighted-average shares outstanding used to compute basic earnings per share
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42,593
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39,100
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Effect of dilutive securities
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70
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|
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Weighted-average shares outstanding and dilutive securities used to compute dilutive earnings per share
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42,593
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39,170
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|
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Basic and diluted (loss) earnings per share
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$
|
(0.20
|
)
|
|
$
|
0.07
|
8
KOSAN BIOSCIENCES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)
1. Organization and Summary of Significant Accounting Policies (continued)
Income Taxes
The Company recognizes income taxes under the liability method. Deferred income taxes
are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory rates in effect for years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company accounts for its
uncertain income tax positions in accordance with FASB Interpretation No. (FIN) 48 Accounting for Uncertainty in Income Taxes. FIN 48 prescribes the minimum recognition threshold a tax position is required to meet before
being recognized in the financial statements. The Companys policy is to classify interest accrued or penalties related to unrecognized tax benefits as a component of income tax expense. All tax years remain open to examination by the major
taxing jurisdictions to which the Company is subject. The Company does not anticipate significant changes to its uncertain tax positions through the next twelve months.
New Accounting Pronouncements
On January 1, 2008, the Company adopted Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (SFAS 157) for financial instruments. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements. With respect to nonfinancial assets and nonfinancial liabilities, SFAS 157 is effective January 1, 2009 and the Company is currently
evaluating the impact on its financial statements. SFAS 157 establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are Level 1, quoted prices in active markets for identical assets or
liabilities using observable inputs; Level 2, inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, significant unobservable inputs in which little or no market data exists. The adoption of
SFAS 157 for financial assets and liabilities did not significantly impact the Companys financial statements.
On January 1,
2008, the Company adopted Emerging Issues Task Force (EITF) No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities. Under EITF 07-3,
nonrefundable advance payments for goods or services to be received in the future for use in research and development activities should be deferred and capitalized. Such amounts should be expensed as the related goods are delivered or services are
performed. If the Companys expectations change such that it does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. EITF 07-3 is effective for new contracts entered
into beginning January 1, 2008. The adoption of EITF 07-3 did not have a significant impact on the Companys financial statements.
On January 1, 2008, the Company adopted Staff Accounting Bulletin (SAB) No. 110, which permits entities, under certain circumstances, to continue to use the simplified method as the basis for estimating the expected
term of plain vanilla share options as allowed under the provisions of SAB 107. Expected term is a valuation assumption used to determine stock-based compensation expense. The use of the simplified method was scheduled to expire on December 31,
2007. Through December 31, 2007, the Company was applying the simplified method as prescribed by SAB 107 and the extension of this method under SAB 110 had no impact on the Companys financial statements.
9
KOSAN BIOSCIENCES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)
2. Research and Development Agreements
Roche
In September 2002, the Company entered into a research and development collaboration agreement (the Roche Agreement) with
Hoffmann-La Roche, Inc. and F. Hoffmann-La Roche Ltd. (collectively, Roche). Under the terms of the Roche Agreement, Roche was granted worldwide exclusive rights to market and sell KOS-1584 and any other epothilones developed under the
collaboration in the field of oncology, and the Company was granted the right to co-promote in the United States any epothilone products developed under the collaboration. The Roche Agreement provided, among other things, for the Company to receive
payments for the reimbursement of agreed upon research and development expenditures. The Roche Agreement was terminated in its entirety effective in late February 2008 and the rights licensed to Roche reverted to the Company. Roches
development funding commitments under the agreement continued until the termination date, after which Roche is obligated to reimburse the Company for certain costs of completing the KOS-1584 Phase 1 clinical trials.
The Company recognized revenue related to the Roche Agreement of approximately $4.6 million and $2.2 million for the three months ended March 31,
2008 and 2007, respectively. Such amounts, excluding the ratable portion of up-front fees and milestone payments, approximated research and development expenses incurred under the Roche Agreement. Included in total Roche-related revenue was
approximately $3.3 million and $0.7 million for the three months ended March 31, 2008 and 2007, respectively, related to the ratable portion of the $25.0 million up-front fee that was recognized through February 2008. At March 31, 2008,
approximately $1.2 million, or 100%, of accounts receivable represented unbilled accounts receivable due from Roche.
Pfizer
In December 2006, the Company entered into an exclusive license agreement (the Pfizer Agreement) with Pfizer Inc. under which the Company
granted to Pfizer a worldwide exclusive license to its motilin agonist program. Under the terms of the Pfizer Agreement, Pfizer and the Company agreed to collaborate on filing of regulatory documents for the initiation of a Phase 1 clinical trial of
the Companys product candidate, KOS-2187. Pfizer is responsible for all development, regulatory and commercial activities related to the motilin agonist program. The Company received an up-front fee of $12.5 million in December 2006 and is
eligible to receive milestone payments for the successful development and commercialization of licensed compounds, including milestone payments for achieving certain sales amounts, as well as royalties on worldwide sales. For the three months ended
March 31, 2007, the Company recognized revenue of approximately $10.7 million related to the up-front fee. The $12.5 million up-front fee was fully recognized as of March 31, 2007.
License Agreements
The Company has license
agreements with several academic, government and medical institutions. Included in research and development expenses were fees incurred in connection with these agreements of approximately $115,000 and $92,000 for the three months ended
March 31, 2008 and 2007, respectively.
10
KOSAN BIOSCIENCES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(unaudited)
3. Cash Equivalents and Investments
The Companys cash equivalents and investments are measured at fair value using the following inputs (in thousands) as of March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash equivalents
|
|
$
|
42,233
|
|
$
|
|
|
$
|
42,233
|
|
$
|
|
Short-term investments
|
|
|
14,412
|
|
|
|
|
|
14,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,645
|
|
$
|
|
|
$
|
56,645
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
December 31,
2007
|
Research and development-related
|
|
$
|
8,003
|
|
$
|
7,775
|
Compensation-related
|
|
|
1,629
|
|
|
1,639
|
Professional services
|
|
|
516
|
|
|
632
|
Facilities-related
|
|
|
529
|
|
|
514
|
Other
|
|
|
68
|
|
|
96
|
|
|
|
|
|
|
|
|
|
$
|
10,745
|
|
$
|
10,656
|
|
|
|
|
|
|
|
5. Stockholders Equity
In January 2008, the Company granted approximately 291,000 restricted stock unit, or RSU, awards under the Companys 2006 Equity Incentive Plan. Each RSU represents a nontransferable right to receive one share of
the Companys common stock (subject to adjustment for certain specified changes in the capital structure of the Company) upon meeting certain vesting criteria. The RSUs vest over three years, 50% based on the achievement of performance goals in
the next fiscal year and the remaining 50% in equal annual amounts for the following two years of service. During the three months ended March 31, 2008, no RSUs vested, approximately 68,000 RSUs were forfeited and approximately 223,000 unvested
RSUs were outstanding.
6. Restructuring Charge
In March 2008, the Company committed to a restructuring that will result in a workforce reduction of approximately 35 full-time employees, primarily in research and general and administration. The Company undertook the workforce reduction
in order to focus its resources on supporting the advancement of its lead clinical programs, Hsp90 inhibitor candidate tanespimycin in multiple myeloma and in metastatic breast cancer, and KOS-1584 in non-small cell lung cancer. The reduction in
workforce resulted in a one-time severance-related charge of approximately $0.7 million, substantially all of which was recognized in research and development and general and administrative expenses in the first quarter of 2008. As of March 31,
2008, approximately $0.2 million of severance-related charges remained unpaid and were classified as accrued liabilities in the balance sheet.
11
Item 2
.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
Forward-Looking Statements
The following discussion
of our financial condition and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, which are subject to the safe harbor created by those sections. These forward-looking statements include, but are not limited to, statements about:
|
|
|
our strategy, including our plans with respect to presenting clinical data and initiating clinical trials;
|
|
|
|
our research and development programs, including clinical testing;
|
|
|
|
sufficiency of our cash resources;
|
|
|
|
revenues from our current licensing arrangement with Pfizer;
|
|
|
|
our research and development and other expenses; and
|
|
|
|
our operations and legal risks.
|
In
some cases, forward-looking statements can be identified by words such as expect, anticipate, intend, believe, hope, assume, estimate, plan,
will and other similar words and expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Discussions containing these
forward-looking statements may be found throughout this Form 10-Q, including the section entitled Part I, Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking
statements involve risks and uncertainties, including the risks discussed below in Part II, Item 1A Risk Factors that could cause our actual results to differ materially from those in the forward-looking statements. We undertake no
obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. The risks discussed below in Part II, Item 1A Risk Factors and elsewhere in this
report should be considered in evaluating our prospects and future financial performance.
The name Kosan Biosciences Incorporated, our
logo and all other Kosan names are our trademarks. All other trademarks or brand names appearing in this Quarterly Report are the property of their respective holders.
Overview
We are a cancer therapeutics company focused on advancing two new classes of anticancer
agents through clinical development: Hsp90 inhibitors and epothilones. The following is the status of our product candidates.
12
Hsp90 Inhibitors
Tanespimycin
Our proprietary injectable suspension formulation of
tanespimycin, or KOS-953 (also known as 17-AAG), is in a Phase 3 clinical trial in combination with Velcade
®
(bortezomib) for multiple myeloma, as well as a Phase 2 clinical trial in
combination with Herceptin
®
(trastuzumab) for HER2-positive metastatic breast cancer. Our Tanespimycin in Myeloma Evaluation, or TIME, clinical program includes TIME-1, a Phase 3 pivotal
clinical trial of tanespimycin in combination with Velcade in first-relapse patients with multiple myeloma, which has been initiated. We also plan to conduct a second clinical trial in multiple myeloma to support the pivotal TIME-1 clinical trial
with additional safety and efficacy data. We plan to initiate this supporting clinical trial in early 2009 and anticipate that the clinical trial can be completed within the timeframe of TIME-1. In addition to multiple myeloma, we intend to advance
tanespimycin in metastatic breast cancer. We anticipate presenting updated data with the injectable suspension formulation of tanespimycin from our Phase 2 clinical trial of tanespimycin in combination with Herceptin in patients with HER2-positive
metastatic breast cancer in the second quarter of 2008. We expect to conduct enabling studies evaluating tanespimycin as monotherapy and in combination with other agents.
Alvespimycin
Alvespimycin, or KOS-1022 (also known as 17-DMAG), is a highly-potent, water-soluble
and orally-active Hsp90 inhibitor. We have evaluated both intravenous and oral formulations of alvespimycin in clinical trials. In February 2008, we discontinued development of alvespimycin in order to focus our resources on the development of our
lead Hsp90 inhibitor, tanespimycin.
Epothilones
KOS-1584
KOS-1584 is our lead epothilone anticancer product candidate. Enrollment in Phase 1 dose escalating clinical
trials in patients with solid tumors has been completed. KOS-1584 has demonstrated antitumor activity and favorable tolerability in Phase 1 clinical trials in patients with solid tumors, including non-small cell lung, ovarian and pancreatic cancers.
In April 2008, we initiated a Phase 2 clinical trial of KOS-1584 in non-small cell lung cancer patients who have received one prior chemotherapy regimen.
Our epothilone program was partnered with Hoffmann-La Roche, Inc. and F. Hoffmann-La Roche Ltd., or collectively Roche, through a global development and commercialization agreement. Our agreement with Roche was
terminated in its entirety effective late in February 2008. Following the termination of the agreement, the rights licensed to Roche reverted to us, and in connection with the termination, Roche provided us with certain license rights, data and
other assistance related to the product candidates licensed to Roche under the agreement. Roches development funding commitments under the agreement continued until the termination date in late February 2008, after which Roche is obligated to
reimburse us for certain costs of completing the KOS-1584 Phase 1 clinical trials.
Other Programs
We have a motilin receptor agonist program for the stimulation of gastrointestinal movement, or GI motility. In December 2006, we established a worldwide
exclusive license agreement with Pfizer for our motilin agonist program, including KOS-2187 and related compounds. Pfizer is responsible for all development, regulatory and commercial activities related to the motilin agonist program. Pfizer is
conducting Phase 1 testing of KOS-2187 as a potential treatment for gastroesophageal reflux disease (GERD).
13
We have next-generation Hsp90 inhibitor, next-generation epothilone and nuclear export inhibitor programs
for cancer that are undergoing preclinical evaluation.
We have incurred significant losses since inception and as of March 31, 2008,
our accumulated deficit was approximately $197.5 million. We expect to incur additional operating losses over the next several years as we continue to advance our product candidates into and through clinical trials.
We believe that our existing cash and investment securities as of March 31, 2008 will be sufficient to support our current operating plan for the
next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we expect that substantial additional financing will be required in order to fund our operations.
Critical Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations are based upon our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States for interim
financial information. The preparation of these condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities as of the date of the financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period they are determined. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from these estimates. The basis of our current estimates or assumptions has not significantly changed since we filed our Annual Report on Form 10-K for the year ended December 31, 2007 with the
Securities and Exchange Commission on March 17, 2008.
Results of Operations
Revenues
Revenues were approximately $4.6 million and $12.9 million for the three months
ended March 31, 2008 and 2007, respectively. Revenues in 2008 consisted of contract revenues recognized under our agreement with Roche. Revenues in 2007 consisted of contract revenue under our agreements with Roche and Pfizer.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
(In thousands, except for percentages)
|
|
2008
|
|
2007
|
|
% Change
|
|
Contract revenue
|
|
$
|
4,649
|
|
$
|
12,918
|
|
-64
|
%
|
|
|
|
|
|
|
|
|
|
|
Total revenues decreased by approximately 64%, or $8.3 million, for the three months ended
March 31, 2008 compared to the same period in 2007. The decrease was primarily due to decreased contract revenue from Pfizer as a result of the amortization of the remaining $10.7 million up-front fee in 2007, partially offset by increased
contract revenue from Roche due to the acceleration of our up-front fee in connection with the termination of our agreement with Roche in late February 2008. Roches future
14
funding commitments are limited to the reimbursement of certain costs of completing the KOS-1584 Phase 1 clinical trials. We expect that our contract
revenues will significantly decrease over the next several quarters as a result of the termination of our agreement with Roche.
Research and
Development Expenses
Our research and development expenses were approximately $10.8 million and $9.0 million for the three months
ended March 31, 2008 and 2007, respectively. Our research and development activities consisted primarily of salaries and other personnel-related expenses, including associated stock-based compensation, facility-related expenses,
licensing-related expenses, depreciation of facilities and equipment, lab consumables and services performed by clinical research organizations and research institutions, contract manufacturers and other outside service providers. We group these
activities into two major categories: clinical development and research and preclinical. We are unable to estimate the nature, timing or costs to complete our major research and development projects, or when material net cash
inflows to us could be expected to commence, if ever, due to the numerous risks and uncertainties associated with developing pharmaceutical products. These risks and uncertainties include those discussed in this report under Part II, Item 1A
Risk Factors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
Inception -
March 31,
|
(In thousands, except for percentages)
|
|
2008
|
|
2007
|
|
% Change
|
|
|
2008
|
Clinical development
|
|
|
|
|
|
|
|
|
|
|
|
|
Epothilones
|
|
$
|
1,963
|
|
$
|
1,767
|
|
11
|
%
|
|
$
|
67,434
|
Hsp90 inhibitors
|
|
|
5,359
|
|
|
4,236
|
|
27
|
%
|
|
|
63,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total clinical development
|
|
|
7,322
|
|
|
6,003
|
|
22
|
%
|
|
|
131,241
|
Research and preclinical (1)
|
|
|
3,477
|
|
|
2,987
|
|
16
|
%
|
|
|
166,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
$
|
10,799
|
|
$
|
8,990
|
|
20
|
%
|
|
$
|
298,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Research and preclinical constitutes research and development costs for our early stage programs in cancer. Expenses for the three months ended March 31, 2008 and
2007 include allocated personnel-related expenses of approximately $1.8 million and $1.4 million, allocated facility-related expenses of approximately $0.8 million and $0.9 million and allocated lab consumables of approximately $0.1 million and $0.1
million, respectively. Expenses for the period from inception through March 31, 2008 include allocated personnel-related expenses of approximately $81.2 million, allocated facility-related expenses of approximately $41.4 million and allocated
lab consumables of approximately $11.0 million.
|
The increase of 20%, or approximately $1.8 million, in research and
development expenses for the three months ended March 31, 2008 compared to the same period in 2007 was the result of the following:
|
|
|
approximately $1.3 million in increased clinical development costs, primarily due to the increased clinical development activities in the Hsp90 inhibitor and
epothilone programs, including costs associated with TIME-1, a Phase 3 clinical trial in combination with Velcade in first-relapse patients with multiple myeloma, and a KOS-1584 Phase 2 clinical trial in non-small cell lung cancer; and
|
|
|
|
approximately $0.5 million in increased preclinical and research costs, primarily related to our March 2008 corporate restructuring and investment in our
next-generation epothilone and nuclear export inhibitor programs.
|
15
In the first quarter of 2008, we initiated TIME-1, a Phase 3 pivotal clinical trial of tanespimycin in
combination with Velcade in first-relapse patients with multiple myeloma, and plan to initiate a supporting clinical trial in multiple myeloma in early 2009. We also initiated our Phase 2 clinical program with KOS-1584 in non-small cell lung cancer.
We also announced our plans to withdraw our Hsp90 inhibitor alvespimycin from development in order to commit resources to the development of our lead Hsp90 inhibitor, tanespimycin. We expect that the overall cost of our clinical trials will result
in an increase in our clinical development expenses over the next several quarters. In March 2008, we announced a corporate restructuring and our plans to place most of our research programs on hold and, thus, we expect that our research and
preclinical costs will decrease over the next several quarters.
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
(In thousands, except for percentages)
|
|
2008
|
|
2007
|
|
% Change
|
|
General and administrative
|
|
$
|
2,922
|
|
$
|
2,151
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
Our general and administrative expenses were approximately $2.9 million and $2.2 million for the
three months ended March 31, 2008 and 2007, respectively. General and administrative expenses increased by 36%, or approximately $0.8 million compared to the same period in 2007, primarily due to one-time costs associated with our March 2008
corporate restructuring and the resignation of our former Chief Executive Officer in February 2008, all of which was recognized in the first quarter of 2008. We expect our general and administrative expenses to decrease in future quarters.
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
(In thousands, except for percentages)
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
Interest income
|
|
$
|
645
|
|
|
$
|
1,026
|
|
|
-37
|
%
|
Interest expense
|
|
|
(117
|
)
|
|
|
(59
|
)
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
$
|
528
|
|
|
$
|
967
|
|
|
-45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income decreased to approximately $0.6 million for the three months ended March 31,
2008, from approximately $1.0 million for the same period in 2007. The decrease resulted from lower average investment balances in the three months ended March 31, 2008 compared to same period in 2007, and lower returns in the current interest
rate environment. Interest expense for the three months ended March 31, 2008 and 2007 approximated $0.1 million for both periods.
16
Liquidity and Capital Resources
Since inception we have financed our operations primarily through sales of our equity securities, contract payments received under our collaboration and license agreements and government grant awards, interest income
and equipment financing arrangements. As of March 31, 2008, we had received approximately $221.6 million from the sales of equity securities, approximately $133.4 million from contract payments received under our corporate collaboration and
license agreements and government grant awards, approximately $23.3 million from interest income and approximately $14.9 million from equipment financing arrangements. As of March 31, 2008, we had approximately $59.0 million in cash, cash
equivalents, restricted cash and investments, compared to approximately $71.0 million as of December 31, 2007. Our funds are currently invested in government sponsored enterprise and corporate obligations.
Cash used in operating activities was approximately $10.9 million for the three months ended March 31, 2008, compared to approximately $8.3 million
for the same period in 2007. Net cash used in operating activities for the three months ended March 31, 2008 and 2007 primarily reflects the net (loss)/income for the period, net decreases in deferred revenue due to the amortization of our
up-front fees from Pfizer and Roche and non-cash stock-based compensation, depreciation and amortization of investment premiums and discounts. We do not anticipate generating cash from operating activities at least for the next several years.
Cash used in investing activities, excluding changes in our investments, was approximately $0.9 million for the three months ended
March 31, 2008, compared to approximately $45,000 for the same period in 2007, due to higher capital spending for the expansion of our facilities and network infrastructure during the three months ended March 31, 2008 as compared to the
same period in 2007.
Cash used in financing activities was approximately $0.2 million for the three months ended March 31, 2008,
compared to approximately $43.3 million provided by financing activities for the same period in 2007. Net cash used in financing activities for the three months ended March 31, 2008 was primarily used for payments on our debt arrangements,
offset by cash proceeds from stock purchases made under our 2000 Employee Stock Purchase Plan. Net cash provided by financing activities for the three months ended March 31, 2007 was primarily generated from our February 2007 registered direct
public offering, stock option exercises and stock purchases made under our 2000 Employee Stock Purchase Plan, offset by payments on our debt arrangements.
On July 19, 2006, we entered into a Committed Equity Financing Facility, or CEFF, with Kingsbridge, pursuant to which Kingsbridge committed to purchase up to $50.0 million of our common stock, subject to certain
conditions including a minimum price for our common stock (which condition will not be met unless the volume weighted average market price of our common stock is at least $2.00). The CEFF allows us to raise capital as required, at the time and in
the amounts deemed suitable to us, through September 25, 2009. We are not obligated to sell any of the $50.0 million of common stock available under the CEFF, and there are no minimum commitments or minimum use penalties. Under the terms of the
CEFF, the maximum number of shares that we may sell to Kingsbridge is 6,879,868 shares (exclusive of the shares underlying a warrant), which may limit the amount of proceeds that we are able to obtain from the CEFF. In connection with the CEFF, we
issued a warrant to Kingsbridge to purchase 285,000 shares of our common stock at an exercise price of $4.94 per share. The warrant is currently exercisable and expires in 2011. In October 2006, we received $3.0 million in gross proceeds for the
sale of 770,351 shares of our common stock to Kingsbridge.
We believe that our existing cash and investments as of March 31, 2008
will be sufficient to support our current operating plan for the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we expect that significant additional financing will be required in order to fund our
operations. Our future capital uses and requirements depend on numerous forward-looking factors, including those set forth in Part II, Item 1A Risk Factors.
17
In addition, we review from time to time potential opportunities to expand our technologies or add to our
portfolio of drug candidates. In the future, we may need further capital in order to acquire or invest in technologies, products or businesses.
We expect that significant additional financing will be required in order to fund our operations. We expect to finance future cash needs through public or private equity offerings, debt financings, additional partnering or licensing
arrangements or any combination of the foregoing or other arrangements. In August 2007, we filed a shelf registration statement on Form S-3 with the SEC pursuant to which we may offer and sell up to $75.0 million of our common stock and/or warrants
to purchase our common stock, either individually or in units. Pursuant to two prior shelf registration statements we filed on Form S-3, we may offer and sell approximately $26.0 million of our common stock (including $24.5 million of warrants to
purchase our common stock and/or units consisting of common stock and warrants to purchase common stock). In total, we may offer and sell up to $101.0 million of our equity securities under our three shelf registration statements, plus an additional
approximately $20.2 million that we could sell under immediately effective related registration statements, assuming that we continue to meet the SECs eligibility requirements for primary offerings on Form S-3. However, our current market
capitalization may result in our being unable to conduct such offerings absent prior stockholder approval under the rules of NASDAQ Stock Market. We filed a resale registration statement covering the resale of 6,879,868 shares issuable pursuant to
the committed equity financing facility, or CEFF, with Kingsbridge and 285,000 shares underlying the warrant at an exercise price of $4.94 issued to Kingsbridge in connection with our CEFF. We have the availability to sell under the CEFF up to $47.0
million of common stock in the future, subject to certain conditions, including a minimum price for our common stock (which condition will not be met unless the volume weighted average market price of our common stock is at least $2.00).
We have no current commitments to offer and sell any securities that may be offered or sold pursuant to the registration statements described above.
To the extent that we raise additional capital by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may subject us to restrictive covenants and significant interest costs. To the extent that we raise
additional funds through collaboration and licensing arrangements, we would be required to relinquish some rights to our technologies, product candidates or marketing territories. Additional financing or collaboration and licensing arrangements may
not be available when needed or, if available, may not be on terms favorable to us or our stockholders. Insufficient funds may require us to delay, scale back or eliminate some or all of our research or development programs, to lose rights under
existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. Insufficient funds may preclude us from meeting the conditions required for
the extension of credit and may adversely affect our ability to operate as a going concern. In addition, see Part II, Item 1A Risk Factors.
18
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
During the three months ended March 31, 2008, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market
Risk, of our Annual Report on Form 10-K for the year ended December 31, 2007.
Item 4.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures.
Based on their evaluation as of March 31, 2008, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective.
Changes in Internal Controls over Financial Reporting.
There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls.
Our management,
including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within our company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are
met and, as set forth above, our chief executive officer and chief financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently
effective to provide reasonable assurance that the objectives of our disclosure control system were met.
19
PART II. OTHER INFORMATION
You should
carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing us. Additional
risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. The occurrence of any of the following risks could harm our business, financial condition or results of operations.
We have marked with an asterisk (*) those risk factors below that reflect substantive changes from the risk factors included in
our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008.
We have a history of net losses and may
never become profitable.*
We commenced operations in 1996 and are still developing our product candidates. We have not commercialized any products,
and we have incurred net losses since our inception. As of March 31, 2008, we had an accumulated deficit of approximately $197.5 million. To date, our revenues have been primarily from partnering arrangements and government grant awards. Our
expenses have consisted principally of costs incurred in research and development and from general and administrative costs associated with our operations. We expect our expenses to increase, perhaps substantially, and that we will continue to incur
operating losses for at least the next several years as we continue our research and development efforts for our product candidates and pursue selected research programs. The amount of time necessary to successfully commercialize any of our product
candidates is long and uncertain, and successful commercialization may not occur at all. As a result, we may never become profitable.
We expect that
significant additional financing will be required in order to fund our operations, and an inability to obtain the capital necessary to fund our operations on acceptable terms or at all would threaten the continued operation of our business.*
We expect that significant additional financing will be required in order to fund our operations. We do not know whether additional financing will be
available when needed, or that, if available, we will obtain financing on favorable terms. We have consumed substantial amounts of cash to date and expect to incur significant operating expenditures over the next several years as we continue to
advance our product candidates into and through clinical trials and pursue selected research programs. We currently have no commitments from third parties for external funding of our product development efforts (other than limited clinical trial
cost reimbursements from Roche) and absent any new partnering arrangements with third parties, we will be required to independently to fund any development and clinical trial activities that we may undertake.
If we are unable to raise sufficient funds when needed, we may be required to delay, scale back or eliminate some or all of our clinical trials and research or
development programs; lose rights under existing licenses; or relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. Insufficient funds may adversely
affect our ability to operate as a going concern, and an inability to obtain the capital necessary to fund our operations on acceptable terms or at all would threaten the continued operation of our business. See Part I, Item 2
Managements Discussion and Analysis of Financial Condition and Result of Operations.
We believe that our existing cash and investments
as of March 31, 2008 will be sufficient to support our current operating plan for the next 12 months. We have based this estimate on assumptions that may prove to be wrong. Our future capital uses and requirements depend on numerous
forward-looking factors, including the following:
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our ability to establish new partnering arrangements, our rights and obligations under any new partnering arrangements and our ability to generate revenues under
any new partnering arrangements;
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the extent to which clinical and other development activities are funded or conducted by potential future partners, if any;
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the costs of any drugs used in combination with our product candidates in our clinical trials, including the costs of
Velcade
®
(bortezomib) for our Phase 3 clinical trial of tanespimycin for the treatment of multiple myeloma, which may be substantial;
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the progress, success and costs of preclinical testing and clinical trials of our product candidates;
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any acceleration or expansion of our clinical development plans;
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our ability to maintain or extend our existing licensing arrangement with Pfizer;
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the progress, number and costs of our research programs;
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the costs and timing of obtaining, enforcing and defending patent and other intellectual property rights;
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any need to obtain licenses to additional patents or other intellectual property in order to use, import, manufacture, market or sell our product candidates;
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any need to expand our manufacturing capabilities; and
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expenses associated with any possible future litigation.
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We may raise additional financing through public or private equity offerings, debt financings, partnering or licensing arrangements, government grant awards or any combination of the foregoing or other arrangements. To the extent that we
raise additional capital by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may subject us to restrictive covenants and significant interest costs. To the extent that we raise additional funds
through collaboration and licensing arrangements, we would be required to relinquish some rights to our technologies, product candidates or marketing territories.
If we fail to enter into new partnering or licensing arrangements in the future, our business and operations would be negatively impacted.*
Our strategy depends upon the formation and sustainability of multiple partnering arrangements and license agreements with third parties, particularly with respect to our Hsp90 inhibitor and epothilone programs. We expect to rely on these
potential future arrangements for not only financial resources, but also for expertise that we expect to need in the future relating to clinical trials, manufacturing, sales and marketing, and for license and technology rights. Although we have in
the past established partnering arrangements and various license agreements, we do not know if we will be able to establish additional arrangements on favorable terms, or whether any such partnering arrangements will ultimately be successful. For
example, our collaboration arrangement with Roche for our epothilone program was terminated by Roche, effective in late February 2008, and our cooperative research and development agreements with the NCI with respect to the clinical development of
tanespimycin and alvespimycin have also expired. There have been, and may continue to be, a significant number of business combinations among pharmaceutical companies that have resulted, and may continue to result, in a reduced number of potential
future partners, which may limit our ability to find partners who will work with us in developing and commercializing our product candidates. If we do not enter into new partnering arrangements, in particular, partnering arrangements for the further
development of our Hsp90 inhibitor and epothilone programs, we will be required to undertake Hsp90 inhibitor and epothilone development and commercialization at our own expense, which would likely limit the scope of clinical trials that we conduct,
the number of product candidates that we will be able to develop and commercialize and
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significantly increase our capital requirements and may reduce the likelihood of successful product introduction. We may also be required to further curtail,
suspend, delay or terminate research and development programs, including planned clinical trials for our product candidates, and therefore our ability to generate revenues from our epothilone, Hsp90 inhibitor or other programs will be adversely
affected. Our ability to partner our Hsp90 inhibitor program may be difficult because the composition of matter of patent for 17-AAG is in the public domain and our novel formulation patent applications combined with method of treatment patent
applications may not be sufficient to attract partners. Our ability to start new research and development programs may also be materially harmed if we are unable to establish new partnering arrangements with third parties.
If our current licensing arrangements or potential future partnering or licensing arrangements are unsuccessful or are terminated, or if conflicts develop with our
current licensees or licensors, or our potential future partners, licensees or licensors, our research and development efforts could be delayed, curtailed or terminated, our revenues could significantly decrease and our operations may be adversely
affected.
We have obtained licenses to technology and compounds from several research groups, including Sloan-Kettering and the Oregon State
University in the field of epothilones, the NCI in the field of geldanamycin analogs and Stanford University in the field of polyketide technology. These agreements permit our licensors to terminate the agreements under certain circumstances. We
also have a license agreement with Pfizer pursuant to which Pfizer is responsible for development, regulatory and commercial activities related to our motilin agonist program, which may be terminated by Pfizer at any time for its convenience. If we
do not maintain, extend or replace our license agreement with Pfizer, we may be required to seek new third parties to undertake motilin agonist development and commercialization or to undertake such efforts at our own expense, the research and
development efforts for our motilin agonist program could be delayed, our revenues could significantly decrease and our operations would be adversely affected. Furthermore, if our in-license agreements are terminated, or disputes arise that we are
not able to resolve in our favor concerning our rights to particular compounds or technologies, our research and development efforts could be delayed, curtailed or terminated, or we could lose our rights to use the licensed compounds or
technologies.
We control neither the amount nor timing of resources that Pfizer devotes to our motilin agonist program, nor the scope, content and timing
of the preclinical studies, clinical trials and other development efforts that Pfizer conducts or permits, including for KOS-2187. Even if we are successful in establishing new partnering arrangements with respect to our epothilone program, our
Hsp90 inhibitor program or our other programs, we may not be able to control the amount nor timing of resources that potential future partners devote to our programs. As a result, we do not know if Pfizer or any potential future partners will
dedicate sufficient resources, or if the development or commercialization efforts by Pfizer or any potential future partners will be successful. We also do not know if the development or commercialization efforts by Pfizer or any potential future
partners will be the same as those we would choose to devote if we solely controlled the development and commercialization of our programs and product candidates. In addition, we do not know whether Pfizer or potential future partners, if any, might
pursue alternative technologies or develop alternative products either on their own or in collaboration with others, including our competitors, as a means for developing treatments for the diseases targeted by the partnering or licensing
arrangements with us. In addition, business combinations or significant changes in a partners business strategy may adversely affect its willingness or ability to continue the partnering or licensing arrangement with us. If Pfizer or any
potential future partners fail to conduct research, development or commercialization activities with respect to compounds or products for which they have rights from us successfully and in a timely manner, or if they or our licensors breach or
terminate their agreements with us, the development or commercialization of the affected product candidates, technology or research program could be delayed or terminated. For example, if Pfizer does not successfully develop and commercialize a
product from our motilin agonist program, we may not receive any future milestone payments and will not receive any royalties under our license agreement with Pfizer.
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Our committed equity financing facility with Kingsbridge may not be available to us if we elect to make a draw down,
may require us to make additional blackout or other payments to Kingsbridge and may result in dilution to our stockholders.*
In July 2006,
we entered into a CEFF with Kingsbridge. The CEFF entitles us to sell and obligates Kingsbridge to purchase, from time to time through September 25, 2009, shares of our common stock for cash consideration up to an aggregate of $47.0 million as
of December 31, 2007, subject to certain conditions and restrictions. Kingsbridge will not be obligated to purchase shares under the CEFF unless certain conditions are met, which include a minimum price for our common stock during a draw down
period (which condition, for example, would not have been met as of April 30, 2008 and will not be met unless the volume weighted average market price of our common stock during a draw down period is at least $2.00), the accuracy of
representations and warranties made to Kingsbridge; compliance with laws; and the effectiveness of a registration statement registering for resale the shares of common stock to be issued in connection with the CEFF. In addition, among other
termination rights, Kingsbridge is permitted to terminate the CEFF by providing written notice to us within 10 trading days after it obtains actual knowledge that an event has occurred resulting in a material and adverse effect on our business,
operations, properties or financial condition. If we are unable to access funds through the CEFF, or if Kingsbridge terminates the CEFF, we may be unable to access capital on favorable terms, or at all.
We are entitled, in certain circumstances, to deliver a blackout notice to Kingsbridge to suspend the use of the resale registration statement and prohibit Kingsbridge
from selling shares under the resale registration statement for a certain period of time. If we deliver a blackout notice in certain circumstances, or if the resale registration statement is not effective in circumstances not permitted by the
agreement, then we must make a payment to Kingsbridge, or issue Kingsbridge additional shares in lieu of this payment, calculated on the basis of the number of shares purchased by Kingsbridge in the most recent draw down and held by Kingsbridge
immediately prior to the blackout period and the change in the market price of our common stock during the period in which the use of the registration statement is suspended. If the trading price of our common stock declines during a suspension of
the resale registration statement, the blackout or other payment could be significant.
Should we sell shares to Kingsbridge under the CEFF, or issue
shares in lieu of a blackout payment, it will have a dilutive effect on the holdings of our current stockholders and may result in downward pressure on the price of our common stock. If we draw down under the CEFF, we will issue shares to
Kingsbridge at a discount of up to 10% from the volume weighted average price of our common stock. If we draw down amounts under the CEFF when our share price is decreasing, we will need to issue more shares to raise the same amount than if our
stock price was higher. Issuances in the face of a declining share price will have an even greater dilutive effect than if our share price were stable or increasing and may further decrease our share price.
Our only product candidates currently in clinical development are tanespimycin, our first-generation Hsp90 inhibitor product candidate, and KOS-1584, our epothilone
anticancer product candidate. Substantial additional effort and expense will be necessary for further clinical development of tanespimycin and KOS-1584 and there can be no assurance that our clinical trials will show that tanespimycin, KOS-1584 or
our potential future product candidates are safe and effective treatments.*
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Our only product candidates currently in clinical development are tanespimycin and KOS-1584. Our motilin agonist program
has been exclusively licensed to Pfizer, and our remaining potential product candidates are in preclinical development. We may not be able to develop product candidates, including tanespimycin and KOS-1584, that prove to be safe and effective, meet
applicable regulatory standards, are capable of being manufactured at reasonable costs or can be marketed successfully. Tanespimycin, KOS-1584 and our potential future product candidates will require significant development and investment, including
extensive clinical testing, before we can submit any application for regulatory approval. For example, we expect to incur significant expenses in connection with the tanespimycin in myeloma evaluation, or TIME program, for tanespimycin in
combination with Velcade for the treatment of multiple myeloma. These expenses will be even higher to the extent we are required to pay for patients medical or other expenses, including, for example, the cost of Velcade or any other drugs used
in combination with our product candidates for these studies. In addition, Velcade or any other drugs used in combination with our product candidates for these studies may not be available to us at an acceptable cost, or at all. For example, we are
seeking to obtain large quantities of Velcade for our TIME program at prices below retail and have been negotiating with third parties for reduced prices in connection with bulk purchases of Velcade, but there can be no assurance that we will be
successful in these efforts. If Velcade is not available to us at an acceptable cost, or at all, the continued clinical development of tanespimycin for the treatment of multiple myeloma could be limited, delayed or precluded.
Our product candidates must satisfy rigorous standards of safety and efficacy before they can be approved by the FDA and international regulatory authorities for
commercial use. We will need to conduct significant additional research and clinical trials before we can determine if our product candidates are sufficiently safe and effective to file with the FDA and other regulatory agencies for product
approval. Clinical trials are expensive and time-consuming, and therefore, significant amounts of money will need to be spent testing our product candidates. Further, we may incur significant development costs for one or more of our product
candidates and subsequently discontinue the development of any of these product candidates as a result of clinical trial failures or other factors. For example, we recently ceased the development of alvespimycin, our former second-generation Hsp90
inhibitor product candidate, as a result of a reprioritization of our development portfolio and we do not expect to receive any return on our investment in that product candidate.
In addition, significant time and investment will be required to try to develop manufacturing processes for our products so that they are economical to manufacture on a commercial scale and satisfactory to the FDA and
other governmental authorities.
The progress and results of our preclinical and clinical testing are highly uncertain.*
We must provide the FDA and foreign regulatory authorities with clinical data that demonstrate the safety and efficacy of our product candidates before they can be
approved for commercial sale. As a result, commercialization of our product candidates depends upon successful completion of preclinical and clinical trials. Preclinical testing and clinical development are long, expensive and uncertain processes.
It may take us a number of years to complete our testing, and failure can occur at any stage of testing. We could experience failures in current or future clinical testing of our product candidates or determine to discontinue the development of any
of our product candidates as a result of clinical trial failures or other factors.
Success in preclinical testing and early clinical trials does not
ensure that later clinical trials will be successful, and interim results of trials do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industry, including Kosan, have suffered significant setbacks
in advanced clinical trials, even after reporting promising results in earlier trials. Also, preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent further testing or regulatory approval.
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We do not know whether clinical trials of our product candidates will begin on time or whether any of our clinical trials
will be completed on schedule, or at all. We may plan and initiate clinical trials before final data from earlier studies have been collected and analyzed because it takes a significant amount of time and effort to plan and initiate clinical trials
and because of the length of time it takes to successfully develop a product candidate. Consequently, we may need to modify, suspend, cancel or terminate clinical trials based on results from earlier studies. We also do not know whether clinical
trials will indicate that an earlier-stage compound or formulation will be more appropriate for clinical and commercial development than a compound or formulation that is at a later stage of clinical development, and therefore result in extended
timelines as well as increased development costs. For example, Roche and we decided in February 2007 to cease development of KOS-862 in favor of further development of our second-generation epothilone product candidate, KOS-1584, and in May 2007, we
decided to change the formulation for tanespimycin to our injectable suspension formulation, which delayed the commencement of clinical trials. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical
trial to be suspended, terminated or repeated. Certain of the clinical trials of our product candidates are or may in the future be designed to include two stages, with the decision whether to proceed to the second stage dependent on results
obtained in the first stage. Failure to achieve predetermined response rates as defined in the protocol may result in the decision not to proceed into the second stage of the clinical trial.
We have initiated a broad, multinational registration program for the treatment of multiple myeloma. The TIME program includes a Phase 3 clinical trial that we initiated
in the first quarter of 2008 and an additional supportive clinical trial that we plan to commence in 2009. Multiple myeloma is a high risk cancer indication because many organs can be affected by the disease, the symptoms and signs of the disease
vary, and there is currently no cure for the disease. The clinical trial endpoints in the TIME program may be difficult to achieve. Moreover, the TIME program was based on the results of a Phase 1/2 trial that included a limited number of patients
and a change in our product candidates formulation which may decrease the likelihood of a successful clinical trial outcome. In addition, anticancer drugs frequently have a narrow therapeutic window between efficacy and toxicity. If
unacceptable toxicity is observed in a clinical trial, the trial may be terminated at an early stage. We cannot predict whether any clinical trials of our product candidates, including KOS-1584 which is also in human clinical trials for the
treatment of cancer, will demonstrate toxicity issues or adverse events resulting in significant patient withdrawals. For example, we may select a dose for use in our clinical trials that may prove to be ineffective in treating cancer. If our
clinical trials of tanespimycin and KOS-1584 result in unacceptable toxicity or lack of efficacy, we may have to terminate our clinical trials. Even if we are able to find a proper dose that balances the toxicity and efficacy of one or more of our
product candidates, we may be required to conduct extensive additional clinical trials or provide additional data to the FDA or other health authorities before we are able to market them. If clinical trials of tanespimycin and KOS-1584 are halted,
or if they do not show that these product candidates are safe and effective in the indications for which we are seeking regulatory approval, our future growth would be limited and we may not have any other product candidates to develop.
Completion of clinical trials may take several years or more. The length of time generally varies substantially according to the type, complexity, novelty and
intended use of the product candidate. Our clinical trials may be suspended at any time if we, the FDA, or other regulatory authorities believe the patients participating in our studies are exposed to unacceptable health risks or that study
protocols or patient informed consents should be amended to reflect additional health risks, additional testing procedures or other changes.
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Our ability to commence or timely complete clinical trials may be adversely affected by many factors, including:
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ineffectiveness of the study compound, or perceptions by physicians that the compound is not effective for a particular indication;
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inability to manufacture sufficient quantities of compound for use in clinical trials;
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a failure to obtain approval from the FDA, other regulatory authorities or an investigational sites institutional review board to conduct a clinical trial;
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inability to reach agreement with a sufficient number of investigational sites to conduct a study;
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inability to obtain product liability insurance, including clinical trial insurance, that meets the requirements of a location outside the U.S.;
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the number of patients required, slower than expected rate of patient recruitment or inability to recruit a sufficient number of patients;
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the occurrence of adverse medical events, including death, during a clinical trial, even if caused by the advanced status of patients disease or medical
problems that are not related to our product candidates;
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inconclusive or negative results from a clinical trial;
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competing clinical trials in the same or similar indication;
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third-party clinical investigators failing to perform our clinical trials on our anticipated schedule or consistent with a clinical trial protocol, and other
third-party organizations not performing data collection and analysis in a timely or accurate manner; and
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a decision by the FDA or other governmental authorities to require suspension or modification of a clinical trial.
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Our product development costs will increase if we have delays in testing or approvals, if we need to perform more or larger clinical trials than planned, if our clinical
trials include more expensive testing or other procedures than planned, or if we are unable to obtain supplies of Velcade or any other drugs used in combination with our product candidates at acceptable costs. If the delays are significant, our
financial results and the commercial prospects for our products will be harmed, and our ability to become profitable will be adversely affected. If any clinical trials of our product candidates are not successful, our business, financial condition
and results of operations will be harmed.
If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product
candidates, and our ability to generate revenue will be materially impaired.
Our product candidates and the activities associated with their
development, manufacture and commercialization are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States, and by comparable authorities in other countries. Our products may not be commercialized unless and
until we or our partners, if any, obtain regulatory approval from the FDA or foreign governmental authorities to do so. The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary
substantially based upon the type, complexity, novelty, safety and efficacy of the product candidates involved. We have not received regulatory approval to market any of our product candidates in any jurisdiction and, although our personnel have
experience from working at other companies, we as a company have no experience in preparing and filing the applications necessary to gain regulatory approvals to commercialize our products. This lack of experience may impede our ability to obtain
FDA or other foreign regulatory approvals to commercialize our products in a timely manner, if at all.
Changes in the regulatory approval policy during
the development period, changes in or the enactment of additional regulations or statutes, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application for regulatory
approval. For example, new federal legislation known as the FDA Amendments Act of 2007 was recently enacted. This legislation
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grants the FDA extensive new authority to impose post-approval clinical study and clinical trial requirements, require safety-related changes to product
labeling, review advertising aimed at consumers, and require the adoption of risk management plans. Other proposals have been made to impose additional requirements on drug approvals, further expand post-approval requirements and restrict sales and
promotional activities. The new legislation, and the additional proposals if enacted, may make it more difficult or burdensome for us to obtain approval of our product candidates, any approvals we receive may be more restrictive or be subject to
onerous post-approval requirements, Pfizers or our potential future partners ability to commercialize approved products successfully may be hindered and our business may be harmed as a result. Furthermore, the approval procedure and the
time required to obtain approval varies among countries and can involve additional testing beyond that required by the FDA. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions.
The FDA and other regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is
insufficient for approval and require additional preclinical, clinical or other studies or modifications to the manufacturing processes or facilities or quality control procedures for our product candidates. For example, we commenced the TIME
program Phase 3 clinical trial of tanespimycin in combination with Velcade in first-relapse patients with multiple myeloma, and we plan to commence an additional supportive clinical trial in multiple myeloma in 2009. If the results are favorable, we
believe that these clinical trials will support the filing of an NDA with the FDA for the treatment of multiple myeloma. However, the FDA or other regulatory authorities may require additional data prior to accepting or approving an application
for marketing approval for tanespimycin or other product candidates, which would result in delays in potential FDA or other regulatory authority approval and additional costs, either of which may be too significant to continue development of
tanespimycin or other product candidates. This risk is further compounded by any changes during development of a product candidate, such as changes in manufacturing processes, formulations (as is the case with respect to the TIME program) or
dosing regimens.
Any clinical trial may fail to produce results satisfactory to the FDA or other regulatory authorities. For example, we currently
conduct, and expect to conduct in the future, clinical trials for our product candidates in countries outside of the United States. The FDA or other regulatory authorities may reject data from clinical trials conducted in other countries if they are
not conducted in accordance with applicable regulatory standards and procedures.
We do not know whether clinical trials for our product candidates will
demonstrate safety and efficacy sufficient to obtain the requisite regulatory approvals or will result in marketable products. The failure to adequately demonstrate the safety and efficacy of our products under development will prevent receipt of
FDA and foreign approvals and, ultimately, commercialization of our products.
We rely on third parties to conduct our clinical trials, and those third
parties may not perform satisfactorily.*
We do not have the ability to independently conduct all clinical trials for our product candidates, and we
rely on third parties such as Pfizer with respect to KOS-2187, contract research organizations, laboratory testing companies, medical institutions and clinical investigators to conduct, supervise or monitor our clinical trials. We have less control
over the timing and other aspects of these clinical trials than if we conducted them entirely on our own.
We are supervising our Phase 3 clinical trial
for tanespimycin but rely on contract research organizations and testing laboratories to assist in the conduct of the trial. To date, we have not successfully conducted a clinical trial intended to form the basis of an NDA (or foreign equivalent
thereto) filing. Additionally, the TIME program includes a multinational clinical trial. We have not conducted large clinical trials outside
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of North America. Consequently, we may not have the necessary capabilities to successfully execute and complete our current and planned clinical trials in a
manner that supports approval of our product candidates for their target indications in a timely manner, or at all. Failure to commence or complete, or delays in our planned or current clinical trials, would prevent us from commercializing products,
and thus seriously harm our business.
We also rely on Pfizer to conduct all clinical trials for our motilin agonist program, including KOS-2187. We may
rely on potential future partners, if any, to conduct clinical trials for our product candidates. If any of these third parties do not successfully carry out their obligations or meet expected deadlines, clinical trials may be extended, delayed,
suspended or terminated, data generated from clinical trials may not be acceptable to the FDA or other regulatory authorities and our product candidates may not receive regulatory approval or be successfully commercialized.
We may not be able to obtain or maintain orphan drug exclusivity for our product candidates.
Some jurisdictions, including Europe and the United States, may designate drugs for relatively small patient populations as orphan drugs. The FDA and the European Medicines Agency have granted orphan drug status to
tanespimycin for the treatment of multiple myeloma and chronic myelogenous leukemia. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process, but does make the product eligible
for orphan drug exclusivity and, in the United States, specific tax credits. Generally, if a company receives the first marketing approval for a product with an orphan drug designation in the clinical indication for which it has such designation,
the product is entitled to orphan drug exclusivity. Orphan drug exclusivity means that another application to market the same drug for the same indication may not be approved, except in limited circumstances, for a period of up to ten years in
Europe (reviewable after six years), and for a period of seven years in the United States. This exclusivity, however, could block the approval of tanespimycin for the treatment of multiple myeloma or chronic myelogenous leukemia in the United States
or Europe if a competitor obtains approval before us of a product containing tanespimycin for these specific indications. Even if we obtain orphan drug exclusivity for any of our product candidates, we may not be able to maintain it. For example, if
a competitive product is shown to be clinically superior to our product, any orphan drug exclusivity we have obtained will not block the approval of such competitive product.
Even if any of our product candidates receives regulatory approval, we may still face significant development and regulatory difficulties.
Even if the FDA or other regulatory authorities approves a product candidate, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing
and/or production of such product, and may impose ongoing requirements for post-approval studies, including additional research and development and clinical trials. In addition, regulatory agencies subject a product, its manufacturer and the
manufacturers facilities to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or problems with the facility
where the product is manufactured, a regulatory agency may impose restrictions on that product, our partners, if any, or us, including requiring withdrawal of the product from the market.
If we, Pfizer, potential future partners or any of our product candidates that become approved for marketing by a regulatory authority fail to comply with applicable
regulatory requirements, a regulatory authority may take various actions, including:
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issuing warning letters;
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imposing civil or criminal penalties;
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suspending regulatory approval;
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refusing to approve pending applications or supplements to approved applications filed by us or our partners, if any;
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imposing restrictions on operations, including costly new manufacturing requirements; or
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seizing or detaining products or requiring a product recall.
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If we are unable to recruit and retain skilled employees and consultants, we may not be able to successfully operate our business.
Retaining our current management and other employees and recruiting qualified personnel to perform future research, manufacturing, development and other work will be critical to our success. None of our employees has employment commitments
for any fixed period of time and could leave our employment at will. In the past, we have experienced turnover among our management, including the resignations in 2007 of our former General Counsel and former Chief Medical Officer, and the
resignation of our former President and Chief Executive Officer in early 2008. We may have difficulty attracting and retaining required personnel as a result of our management turnover, our need for additional financing and the associated perceived
risk of expense reductions, or for other reasons. Competition is intense among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions for experienced scientists and other personnel, and we may not
be able to retain or recruit sufficient skilled personnel on acceptable terms to allow us to pursue potential partnering arrangements and develop our product candidates and research programs, which would likely have an adverse effect on our
business.
Any inability to protect our proprietary technologies could significantly harm our business and ability to successfully commercialize product
candidates.
Our commercial success will depend in part on our ability to obtain patents and maintain adequate protection of other intellectual
property for our technologies and product candidates in the United States and other countries and prevent others from infringing our proprietary rights. If we are unable to adequately protect our intellectual property, competitors may be able to use
our technologies and erode or negate any competitive advantage we may have. Intellectual property laws vary from country to country, and the laws of a particular country may afford less intellectual property protection than another country.
Any patents that we or our potential future partners own or license from third parties may not provide protection against competitors. We will be able to
protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies and products are covered by valid and enforceable patents or are effectively maintained as trade secrets. However, our patent
positions, as well as the patent positions of biotechnology companies and other third parties, involve complex legal and factual questions, and, therefore, we cannot predict with certainty whether our patent applications will be allowed or any
resulting patents will be valid and enforceable. Further, our patents or patent applications or those of our licensors could be placed into interference, and we may lose our rights in such patents or applications. Patents may be challenged, held
unenforceable, invalidated or circumvented. Certain of our current exclusive license agreements restrict, and any future exclusive license agreements may restrict, our rights under patents and patent applications to certain fields of use, and
therefore, we may not have the ability to prevent competitors from developing and commercializing our product candidates or technologies in fields of use not covered by our exclusive license agreements.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
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we or our licensors were the first to make the inventions covered by each of our patents or pending patent applications;
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we or our licensors were the first to file patent applications for these inventions;
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others will not independently develop similar or alternative technologies or duplicate any of our technologies;
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any of our or our licensors pending patent applications will result in issued patents;
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any of our or our licensors patents will be valid or enforceable;
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any patents issued to us or our licensors or collaborators will provide a basis for commercially viable products, will provide us with any competitive advantages or
will not be challenged by third parties;
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we will develop additional proprietary technologies that are patentable; or
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the patents of others will not have an adverse effect on our business.
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We apply for patents covering our technologies, product candidates, formulations and uses thereof, as we deem appropriate. However, we may fail to apply for patents on important technologies or products in a timely
fashion or at all. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products and technologies. For example, tanespimycin was
originally disclosed in a now-expired third party patent. Consequently, others can develop products containing tanespimycin. We are aware of at least three other companies that have been developing product candidates containing or based on
tanespimycin, and these companies have filed patent applications relating to their products in development. Other competitors may currently be developing, or may in the future develop, products containing or based on tanespimycin. In addition, we
generally are unable to control the patent prosecution of technology that we license from others to the same degree as we would for our own technology. Further, some of our patents and patent applications for our motilide program have been assigned
to Pfizer, and additional patents and patent applications may in the future be assigned to Pfizer or potential future partners. We generally are unable to control the filing, prosecution and maintenance of patent rights that we assign to partners to
the same degree as we would if we maintained ownership of them.
In addition to patents, we rely on trade secrets and proprietary know-how. We have taken
measures to protect our confidential information and trade secrets. However, these measures may not provide adequate protection. We seek to protect our confidential information and trade secrets by entering into confidentiality agreements with
employees, collaborators, consultants and others. Nevertheless, parties may breach these agreements or competitors may otherwise obtain or independently develop our trade secrets.
Interference, opposition or similar proceedings relating to our patents and patent applications are costly, and an unfavorable outcome could prevent us from commercializing our product candidates.
We are aware of a significant number of patents and patent applications relating to aspects of our technologies and compounds filed by, and issued to, other parties.
Others have filed patent applications or have been granted patents claiming inventions also claimed or licensed by us, and we may have to participate in an interference or other proceeding before a patent agency or court to determine priority of
invention or which party was first to invent and, thus, has the right to a patent for these inventions.
We are the exclusive licensee to two patent rights
claiming our epothilone product candidate KOS-1584. One is a granted patent and one is a patent application, owned by the Oregon State University and Sloan-Kettering, respectively. In June 2007, the US Patent and Trademark Office declared an
interference between the patent and patent application. In October 2007, we entered into a settlement agreement with the Oregon State University and Sloan-Kettering setting forth the agreed upon procedure to conduct the interference. In addition, we
entered into amendments to our agreements with the Oregon State University and Sloan-Kettering in connection with the settlement agreement. These amendments confirm, as well as make certain adjustments to, our financial obligations to each of the
Oregon State University and Sloan-Kettering under our agreements with them, regardless of which party ultimately prevails in the interference.
30
A proceeding or a lawsuit involving an interference or opposition could result in substantial cost to us even if the
outcome is favorable, and if the outcome is unfavorable, we could be required to license the other partys rights, on terms that may be unfavorable to us, or cease using the technology. We could incur additional cost because we are licensed
under both partys patent rights. An interference or opposition may also result in loss of claims based on patentability grounds raised in the interference or opposition. Although patent and intellectual property disputes in the biotechnology
area are often settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, we cannot be certain that a license would be available to us on
satisfactory terms, if at all. Companies and others developing products that could compete with our product candidates, such as Novartis AG in the area of potential epothilone products, may be particularly unwilling to grant us a license at any
price. If we are not able to obtain necessary licenses, we may not be able to manufacture or commercialize our product candidates, which would materially harm our business, financial condition and results of operations.
Claims by third parties of intellectual property infringement would require us to spend time and money and could deprive us of valuable rights needed to develop or
commercialize our products.
Our commercial success depends significantly on not infringing the patents and proprietary rights of other parties and not
breaching any licenses that we have entered into with regard to our technologies and products. Other parties may currently or in the future possess intellectual property rights covering product candidates that we, Pfizer or potential future partners
are developing or desire to develop; methods of treatment or administration involving our product candidates; formulations of our product candidates; and genes, gene fragments, cell lines, compounds and other technologies we use or may wish to use.
Any infringement of patent rights or violation of other proprietary rights may require us to obtain a license from another party, forego product development or commercialization or face lawsuits or other claims.
The biotechnology industry is characterized by extensive litigation regarding patents and other intellectual property rights. We are aware of patents and published
patent applications that, if valid, and if we are unsuccessful in circumventing or acquiring the rights to these patents, may block our ability to commercialize products based on the product candidates that we are developing or pursue our polyketide
gene manipulation and production technologies. We cannot be sure that other parties have not filed for or obtained relevant patents that could affect our ability to obtain patents or operate our business. Others, including Pfizer or potential future
partners, may challenge our patent or other intellectual property rights or sue us for patent infringement, misappropriation of their intellectual property rights or breach of license agreements. We may be required to commence legal proceedings to
resolve our patent or other intellectual property rights. An adverse determination in any litigation or administrative proceeding to which we may become a party could subject us to significant liabilities, result in our patents being deemed invalid,
unenforceable or revoked, require us to license disputed rights from others or to cease using the disputed technology. In addition, our involvement in any of these proceedings may cause us to incur substantial costs and result in diversion of
management and technical personnel.
Other parties may obtain patents in the future and claim that our products or the use of our technologies infringes
these patents or that we are employing their proprietary technology without authorization. We could incur substantial costs and diversion of management and technical personnel in defending ourselves against any claims that the use of our
technologies infringes any patents, defending ourselves against any claim that we are employing any proprietary technology without authorization or enforcing our patents against others. Furthermore, parties making claims against us may be able to
obtain injunctive or other equitable relief that could effectively block our ability to develop, commercialize and sell products, and could result in the award of substantial damages against us. In the event of a successful claim of infringement
against us, we may be required to:
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pay substantial damages;
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31
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stop producing certain products and using certain methods;
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develop non-infringing products and methods; and
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obtain one or more licenses from other parties.
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We
may not be able to obtain licenses from other parties at a reasonable cost, or at all. If we are not able to obtain necessary licenses at a reasonable cost or at all, we could encounter substantial delays in product introductions while we attempt to
develop alternative methods and products, which we may not be able to accomplish. Litigation or the failure to obtain licenses could prevent us from manufacturing or commercializing products and could materially harm our business, financial
condition and results of operation.
Manufacturing and supply difficulties could delay or preclude commercialization of our products and substantially
increase our expenses.*
We currently use contract manufacturers to make and supply us with the tanespimycin active pharmaceutical ingredient. We
currently formulate the final drug product for tanespimycin injectable suspension formulation at our facilities and use a contract manufacturer to fill the final drug product vials. In the future, we expect to use a contract manufacturer to conduct
the entire tanespimycin injectable suspension formulation and filling process. We maintain a limited inventory of tanespimycin drug product at our facilities in Hayward, California, and we also maintain a limited inventory at the facilities of an
outside contractor. In our epothilone program, we rely on contract manufacturers for the active pharmaceutical ingredient for KOS-1584. Drug product for KOS-1584 is formulated by an outside contractor. We maintain limited inventories of formulated
drug product for KOS-1584 at our facilities in Hayward, California and at the facilities of outside contractors. For all of our projects, drug product is distributed to clinical sites primarily through outside contractors. Our manufacturing process
for our product candidates is complex and contains numerous sequential steps; a failure at any point in the manufacturing process may delay the supply of the drug product. Moreover, it takes multiple parties and a significant amount of time to
manufacture sufficient quantities of tanespimycin and KOS-1584 drug product for use in our clinical trials, which may limit our ability to commence or complete clinical trials in a timely manner, or at all.
If any of our or our contract manufacturers manufacturing or inventory facilities encounter delays, are destroyed or otherwise become unavailable to us, then the
clinical development of our product candidates or submissions for their regulatory approval, and therefore commercialization, could be delayed or precluded. In addition, in our clinical trials for tanespimycin, tanespimycin is being evaluated in
combination with another pharmaceutical drug. If any of the manufacturers of the drug products used in these combination therapy clinical trials are unable to continue to manufacture these drug products, or those manufacturers manufacturing or
inventory facilities encounter delays, are destroyed or otherwise become unavailable, then the clinical development of tanespimycin, or submissions for its regulatory approval, and therefore commercialization, could be delayed or precluded. Adverse
effects would be particularly acute if problems arise with our sole sourcing or inventory relationships. Alternative qualified production capacity may not be available on a timely basis or at all because manufacturing processes for our product
candidates are complex and may be subject to a lengthy regulatory approval process.
A number of factors could cause prolonged interruptions in the
manufacturing and supply of our product candidates, including:
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the failure of a supplier to provide raw materials or intermediates used for manufacture of our product candidates;
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32
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equipment malfunctions or failures;
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the failure to manufacture in accordance with current good manufacturing practices, FDA or other regulatory requirements;
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the delay of product shipments due to U.S. custom regulations or third-party carriers used to transport our product candidates, and damage to our product candidates
while they are in transit;
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changes in FDA or other regulatory authority requirements or standards that require modifications to the manufacturing processes or facilities used in the
production of our product candidates;
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action by the FDA or other regulatory authorities to suspend production of one or more of our product candidates; or
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difficulties in scaling-up production of our product candidates for large clinical trials or commercial supply.
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While our manufacturing personnel have extensive experience from working at other companies, we as a company have no experience manufacturing products for commercial
sale. We may encounter difficulties in scaling-up our manufacturing processes and equipment. We may not be able to achieve such scale-up in a timely manner or at a commercially reasonable cost, if at all. In addition, our facilities in Hayward,
California are located within the San Francisco Bay Area, an area where earthquakes periodically occur. They are also located in a designated flood zone. Our access to any raw materials, intermediates, active pharmaceutical ingredients or formulated
drug product for our product candidates sourced or inventoried through our facilities in Hayward, California may be subject to interruption, damage or loss in the event of an earthquake or flood.
As discussed above, we rely upon outside contractors to manufacture and supply to us raw materials, intermediates, active pharmaceutical ingredients and formulated drug
product for our product candidates. Our dependence upon others for the manufacture of our product candidates and their components may adversely affect our ability to continue clinical development of our product candidates in a timely manner and may
adversely affect any future profit margins and our ability to commercialize any products that we may develop on a timely and competitive basis. Dependence on contract manufacturers involves a number of additional risks, many of which are outside of
our control, including:
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failure of a contract manufacturer to manufacture products to our specifications or to deliver products in the quantities, timeframe or manner that we require;
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a decision by the FDA or other regulatory authorities not to approve our use of a particular contract manufacturer to supply our products;
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intellectual property rights to any improvements in a manufacturing process or new manufacturing processes being owned by or shared with a contract manufacturer;
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termination of an agreement with a contract manufacturer or increased prices charged by a contract manufacturer; or
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a contract manufacturer declaring bankruptcy or otherwise going out of business.
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Any of these factors could cause us to delay or suspend clinical trials, regulatory submissions or commercialization of our products and could result in significantly increased costs.
In addition, our future contract manufacturers may not be in the United States, and we currently utilize contract manufacturers located outside the United States.
Consequently, we may face additional manufacturing difficulties due to a number of potential factors, including importation and customs issues, political uncertainties and a potentially limited ability to enforce our contractual rights against
parties not located within the United States.
33
We face intense competition from pharmaceutical companies, biotechnology companies and academic groups.*
We face, and will continue to face, intense competition from organizations such as biotechnology and pharmaceutical companies, as well as academic and
research institutions and government agencies, that are pursuing competing technologies and products. These organizations may develop or currently possess technologies or products that are superior alternatives to ours. For example, companies with
competing Hsp90 inhibitors include Biogen Idec Inc., which has initiated Phase 1 and 2 clinical trials in solid tumors with its oral synthetic Hsp90 inhibitor; Infinity Pharmaceuticals, which has initiated a Phase 1 clinical trial of its intravenous
Hsp90 inhibitor in gastrointestinal stromal tumors, a Phase 2 trial in non-small cell lung cancer, a Phase 2 trial in hormone refractory prostate cancer, a Phase Ib trial in solid tumors, and has an oral formulation in preclinical development in
collaboration with MedImmune, Inc. (now a part of the AstraZeneca group of companies); Abraxis BioScience, Inc., which has an albumin-bound particle suspension formulation of 17-AAG in preclinical development; Vernalis plc, which has announced that
it has selected an intravenous and an oral Hsp90 inhibitor preclinical development candidate in collaboration with Novartis AG and initiated a Phase 1 clinical trial in late 2007; Serenex, Inc., which has initiated Phase 1 clinical trials for its
oral Hsp90 inhibitor in solid and hematological tumors and has agreed to be acquired by Pfizer; and Synta Pharmaceuticals Corp., which initiated Phase 1 clinical trials for its Hsp90 inhibitor in melanoma, as well as other companies reported to be
pursuing Hsp90 inhibitors. Competing epothilones in clinical development include those being developed by Novartis AG, which is reported to be in Phase 3 clinical trials; and Bayer Schering Pharma AG, which is reported to be in Phase 2 clinical
trials. In addition, IXEMPRA(TM) (ixabepilone), an epothilone developed by Bristol-Myers Squibb Company, was approved by the FDA in October 2007 for use in breast cancer and Bristol-Myers Squibb Company is reported to be in numerous post-marketing
clinical trials of ixabepilone. Bristol-Myers Squibb also has an epothilone-folate conjugate in Phase 1. Gastrointestinal motility competitors include Chugai Pharmaceuticals, whose motilide agonist is reported to be in Phase 2 clinical trials. Thus,
it is possible that, even if we are successful in developing any of our product candidates, one or more compounds of our competitors will be approved and marketed before our own. This could place us and our current or potential future partners at a
significant disadvantage and could prevent us from realizing significant commercial benefit from such compounds. Further, our competitors in the polyketide gene-engineering field may be more effective at implementing their technologies to develop
commercial products or may hold or develop patents or other proprietary rights that may prevent us from practicing our technologies and pursuing our programs.
We also face and will continue to face intense competition from other companies for partnering arrangements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions and for
licenses to additional technologies. These competitors, either alone or with their collaborative partners, may succeed in developing technologies or products that are superior to ours.
Any products that we develop through our technologies will compete in multiple, highly competitive markets. Development of pharmaceutical products requires significant investment and resources. Many of the
organizations competing with us in the markets for such products have greater capital resources, research and development and marketing staffs, facilities and capabilities, and greater experience in discovery and developing drugs, obtaining
regulatory approvals and product manufacturing and marketing. Accordingly, our competitors may succeed in more rapidly developing and marketing technologies and products that are more effective than our technologies and products or that would render
our products or technologies obsolete or noncompetitive.
34
We believe that our ability to successfully compete will depend on, among other things:
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our ability to develop novel product candidates with attractive pharmaceutical properties and to secure and protect intellectual property rights based on our
innovations;
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the efficacy and safety of our product candidates;
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the speed at which we, Pfizer and potential future partners develop our product candidates;
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our, Pfizers and potential future partners ability to design and successfully execute appropriate clinical trials;
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our, Pfizers and potential future partners ability to obtain regulatory approvals to market our product candidates and the timing and scope of any
regulatory approvals;
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our, Pfizers and potential future partners ability to manufacture commercial quantities and sell any product candidates that are approved for marketing;
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acceptance of future products by physicians and other healthcare providers; and
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the development of effective pricing and reimbursement strategies.
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If we face product liability claims, these claims will divert our managements time and we will incur litigation costs, and if we are held liable, our business, financial condition and results of operation may
be materially harmed.
We face an inherent business risk of liability claims in the event that the use of our potential products in clinical trials or
otherwise, or any other products manufactured in our facility, results in personal injury or death. Even though we have obtained product liability insurance, it may not be sufficient to cover claims that may be made against us. Product liability
insurance is expensive, difficult to obtain and may not be available on acceptable terms, if at all. Any claims against us, regardless of their merit, could materially and adversely affect our business, financial condition and results of operation,
because litigation related to these claims would strain our financial resources in addition to consuming the time and attention of our management. If we are sued for any injuries caused by our products or products manufactured at our facility, our
liability could exceed our total assets.
We use hazardous chemicals and radioactive and biological materials in our business. Any claims relating to
improper handling, storage or disposal of these materials could be time consuming and costly.
Our research and development processes involve the
controlled use of hazardous materials, including hazardous chemicals and radioactive and biological materials. Some of these materials may be novel, including bacteria with novel properties and bacteria that produce biologically active compounds.
Our operations also produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture,
storage, handling, shipment and disposal of these materials. We could be subject to civil damages in the event of an improper or unauthorized release of, or exposure of individuals to, hazardous materials. In addition, we could be sued for injury or
contamination that results from our use or the use by third parties or our current or potential future partners of these materials, and our liability may exceed our insurance coverage and total assets. Compliance with environmental laws and
regulations may be expensive, and current or future environmental regulations may impair our research, development or commercialization efforts. In the event we do not comply with any of these laws or regulations, we may incur significant fines, our
governmental licenses or permits may be revoked or we may face additional penalties, any of which could harm our business.
35
We have a stockholders rights plan and anti-takeover provisions in our corporate charter documents that may result in
outcomes with which you do not agree.
Our board of directors has the authority to issue up to 10,000,000 shares of preferred stock and to determine
the rights, preferences, privileges and restrictions of those shares without further vote or action by our stockholders. The rights of the holders of any preferred stock that may be issued in the future may adversely affect the rights of the holders
of common stock. The issuance of preferred stock could make it more difficult for third parties to acquire a majority of our outstanding voting stock.
Our
certificate of incorporation provides for staggered terms for the members of the board of directors and prevents our stockholders from acting by written consent. These provisions and other provisions of our bylaws and of Delaware law applicable to
us could delay or make more difficult a merger, tender offer or proxy contest involving us. This could reduce the price that investors might be willing to pay for shares of our common stock and result in the market price being lower than it would be
without these provisions. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.
This is because our board of directors is responsible for appointing the members of our management team.
We have adopted a rights agreement under which
all stockholders have the right to purchase shares of a new series of preferred stock at an exercise price of $70.00 per one one-hundredth of a share (subject to adjustment), if a person acquires more than 20% of our common stock. The rights plan
could make it more difficult for a person to acquire a majority of our outstanding voting stock. The rights plan could also reduce the price that investors might be willing to pay for shares of our common stock and result in the market price being
lower than it would be without the rights plan. In addition, the existence of the rights plan itself may deter a potential acquirer from acquiring us. As a result, either by operation of the rights plan or by its potential deterrent effect, mergers
and acquisitions of us that our stockholders may consider in their best interests may not occur.
Our stock price has been, and may continue to be,
extremely volatile.*
The trading price of our common stock has been, and is likely to continue to be, highly volatile. During the period from
April 1, 2007 through March 31, 2008, our common stock traded between $1.28 and $6.58 on the NASDAQ Global Market. The trading price of our common stock could be subject to wide fluctuations in price in response to various factors, many of
which are beyond our control, including:
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delay or failure in initiating, conducting, completing or analyzing clinical trials or unsatisfactory design of or data from these trials;
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our ability to enter into new partnering arrangements on favorable terms, or at all;
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announcements of data from clinical trials or other developments that do not meet the expectations of analysts, investors or other third parties;
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developments in clinical trials for potentially competitive product candidates;
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changes in the United States or foreign health care systems or regulations;
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regulatory approvals for competitive product candidates or delays or failures in obtaining regulatory approvals for our product candidates;
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new products or services introduced or announced by us or our competitors;
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announcements of technological developments in research by us or our competitors;
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published reports by securities analysts;
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announcements of expirations, terminations or amendments of our current license agreements, or announcements that we have entered into new partnering, licensing or
similar arrangements;
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36
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departures of key personnel;
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developments or disputes as to patent or other proprietary rights;
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litigation or an unfavorable outcome in litigation;
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sales of our common stock;
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announcements of, and actual or anticipated fluctuations in, our financial results; and
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economic and other external factors, disasters or crises.
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In addition, the stock market in general, and the NASDAQ Global Market and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price
of a companys securities, securities class-action litigation has often been instituted against that company. If this type of litigation were instituted against us, we would be faced with substantial costs and managements attention and
resources would be diverted, which could in turn seriously harm our business, financial condition and results of operations.
We expect that our
quarterly and annual results of operations will fluctuate, and this fluctuation could cause our stock price to decline, creating investor losses.
Our
quarterly and annual operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to fluctuate significantly or decline. Some of the factors that could cause our operating
results to fluctuate include:
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expiration or termination of licensing arrangements, which may not be renewed or replaced;
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the success rate of our, Pfizers or potential future partners efforts leading to milestone payments and royalties under our licensing arrangements with
Pfizer, or any future partnering arrangements that we may establish;
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the progress of our product candidates in clinical trials, and therefore, the timing of expenses for those clinical trials;
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the timing and willingness of Pfizer and potential future partners to develop and commercialize our products;
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general and industry specific economic conditions, which may affect Pfizers and potential future partners research and development expenditures; and
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costs and expenses related to any litigation or administrative proceedings in which we may be involved.
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If our revenues decline or do not grow due to the failure to enter into new partnering arrangements or as a result of the expiration, termination or amendment of our
current licensing agreements or other factors, we may not be able to reduce our operating expenses correspondingly. In addition, we expect operating expenses to continue to increase since, absent any new partnering arrangements with third parties,
we will be required to independently to fund any development and clinical trial activities that we may undertake. Failure to achieve anticipated levels of revenues could therefore significantly harm our operating results for a particular fiscal
period.
Due to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter or year-to-year comparisons of our
operating results are not a good indication of our future performance. Our operating results in some quarters or years may not meet the expectations of stock market analysts and investors. In that case, our stock price may decline.
37
If we are unable to favorably assess the effectiveness of our internal control over financial reporting, or if our
independent auditors are unable to provide an unqualified attestation report on our internal control over financial reporting, our stock price could be adversely affected.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC, on an annual basis, our management is required to report on, and our independent auditors to attest to, the
effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to make its annual assessment are complex and require significant documentation and testing. While our internal
controls over financial reporting were deemed effective by both our management and our independent auditors as of December 31, 2007, there may be changes in our systems, processes or operations that will affect the effectiveness of internal
controls in the future. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our future assessments of internal control over financial reporting may continue to result in increased
expenses and the devotion of significant management resources. If we cannot favorably assess the effectiveness of our internal controls over financial reporting in the future, or if our independent auditors are unable to provide an unqualified
attestation report on our internal control over financial reporting, investor confidence and our stock price could be adversely affected.
Item 5.
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Other Information
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On
August 8, 2007, we exercised our option to extend, for a term of five years, the term of that certain lease agreement, dated December 1, 1997 (the Lease), with Northern California Industrial Portfolio, Inc.
(Landlord) for the lease of premises containing approximately 69,512 square feet of office space located at 3825 Bay Center Place, Hayward, California (the Premises), which Premises consist of approximately 43,239 rentable
square feet (the Improved Premises) and approximately 26,273 rentable square feet (the Unimproved Premises). In connection with the exercise of our option to extend the Lease, we entered into a First Amendment to the Lease (the
Lease Amendment), effective February 8, 2008, with Landlord. Under the terms of the Lease Amendment, the term of the Lease was extended for a period of 60 months expiring on February 28, 2013, unless sooner terminated in
accordance with the terms of the Lease (such term, the Extended Term). The monthly base rent for the Improved Premises during the Extended Term under the Lease Amendment is as follows:
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Period
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Monthly Base Rent
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3/1/08-2/28/09
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$
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69,182.40
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3/1/09-2/28/10
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$
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71,956.90
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3/1/10-2/28/11
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$
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74,839.50
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3/1/11-2/29/12
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$
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77,830.20
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3/1/12-2/28/13
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$
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80,929.00
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The monthly base rent for the Unimproved Premises during the Extended Term under the Lease Amendment is as
follows:
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Period
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Monthly Base Rent
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3/1/08-2/28/09
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$
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13,136.50
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3/1/09-2/28/10
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$
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13,661.96
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3/1/10-2/28/11
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$
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14,209.31
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3/1/11-2/29/12
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$
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14,778.56
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3/1/12-2/28/13
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$
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15,369.71
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Under the terms of the Lease and Lease Amendment, we are also responsible for our proportionate share of
certain operating expenses, including taxes, insurance, common area management and management fees. We are also responsible for maintaining certain insurance policies during the Extended Term. In the event of a default of certain of our obligations
under the Lease, the Landlord would have right to terminate the Lease. The foregoing is only a brief description of the material terms of the Lease Amendment, does not purport to be a complete statement of the rights and obligations of the parties
under the Lease Amendment or the Lease, and is qualified in its entirety by reference to the Lease Amendment that is filed as Exhibit 10.53 to this quarterly report on Form 10-Q and the Lease that was filed as Exhibit 10.42 to our quarterly report
on Form 10-Q for the quarterly period ended June 30, 2002.
|
|
|
Exhibit
Number
|
|
Description of Document
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Registrant. (1)
|
|
|
3.2
|
|
Amended and Restated Bylaws of Registrant. (2)
|
|
|
4.1
|
|
Specimen Registrants Common Stock Certificate. (3)
|
|
|
4.2
|
|
Third Amended and Restated Registration Rights Agreement, dated March 30, 2000, between Registrant and certain stockholders. (3)
|
|
|
4.3
|
|
Registrants Certificate of Designation of Series A Junior Preferred Stock. (4)
|
|
|
4.4
|
|
Warrant for the purchase of shares of common stock, dated July 19, 2006, issued by the Registrant to Kingsbridge Capital Limited. (5)
|
|
|
4.5
|
|
Registration Rights Agreement, dated July 19, 2006, by and between the Registrant and Kingsbridge Capital Limited. (5)
|
|
|
10.43
|
|
2008 Compensation Information for Executive Officers. (6)
|
|
|
10.44
|
|
Summary of 2008 Executive Officer Cash Bonus Plan. (7)
|
|
|
10.47
|
|
Form of Executive Employee Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the 2006 Equity Incentive Plan. (6)
|
|
|
10.48
|
|
Form of Non-Executive Employee Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the 2006 Equity Incentive Plan. (6)
|
|
|
10.50
|
|
Non-Employee Director Compensation Arrangements, effective as of January 1, 2008. (6)
|
|
|
10.52
|
|
Resignation and Consulting Agreement, dated as of March 18, 2008, between Registrant and Robert G. Johnson, Jr., M.D., Ph.D.
|
|
|
10.53
|
|
First Amendment to Lease, effective as of February 8, 2008, between Registrant and Northern California Industrial Portfolio, Inc.
|
|
|
31.1
|
|
Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
|
31.2
|
|
Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
|
32.1
|
|
Certification by the Chief Executive Officer and the Chief Financial Officer of Kosan Biosciences Incorporated, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of
Title 18 of the United Stated Code (18 U.S.C. 1350). (8)
|
(1)
|
Incorporated herein by reference to an exhibit of our quarterly report on Form 10-Q (File No. 000-31633) for the period ended June 30, 2001.
|
39
(2)
|
Incorporated herein by reference to an exhibit of our quarterly report on Form 10-Q (File No. 000-31633) for the period ended June 30, 2003.
|
(3)
|
Incorporated herein by reference to an exhibit of our Registration Statement on Form S-1 and amendments thereto (File No. 333-33732).
|
(4)
|
Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on October 15, 2001.
|
(5)
|
Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on July 25, 2006.
|
(6)
|
Incorporated herein by reference to an exhibit of our annual report on Form 10-K (File No. 000-31633) for the period ended December 31, 2007.
|
(7)
|
Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on January 29, 2008.
|
(8)
|
This certification accompanies the Quarterly Report on Form 10-Q to which it relates, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not deemed
filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Kosan Biosciences Incorporated under the Securities Act or the Exchange Act (whether made before or after the date of the Quarterly
Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.
|
|
Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
|
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
|
|
Kosan Biosciences Incorporated
|
|
|
|
|
May 9, 2008
|
|
|
|
By:
|
|
/s/ Helen S. Kim
|
|
|
|
|
|
|
|
|
Helen S. Kim
|
|
|
|
|
|
|
|
|
President and Chief Executive Officer and
Duly
Authorized Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 9, 2008
|
|
|
|
By:
|
|
/s/ Gary S. Titus
|
|
|
|
|
|
|
|
|
Gary S. Titus
|
|
|
|
|
|
|
|
|
Senior Vice President and Chief Financial Officer
and
Duly Authorized Officer
|
41
EXHIBIT INDEX
|
|
|
Exhibit
Number
|
|
Description of Document
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Registrant. (1)
|
|
|
3.2
|
|
Amended and Restated Bylaws of Registrant. (2)
|
|
|
4.1
|
|
Specimen Registrants Common Stock Certificate. (3)
|
|
|
4.2
|
|
Third Amended and Restated Registration Rights Agreement, dated March 30, 2000, between Registrant and certain stockholders. (3)
|
|
|
4.3
|
|
Registrants Certificate of Designation of Series A Junior Preferred Stock. (4)
|
|
|
4.4
|
|
Warrant for the purchase of shares of common stock, dated July 19, 2006, issued by the Registrant to Kingsbridge Capital Limited. (5)
|
|
|
4.5
|
|
Registration Rights Agreement, dated July 19, 2006, by and between the Registrant and Kingsbridge Capital Limited. (5)
|
|
|
10.43
|
|
2008 Compensation Information for Executive Officers. (6)
|
|
|
10.44
|
|
Summary of 2008 Executive Officer Cash Bonus Plan. (7)
|
|
|
10.47
|
|
Form of Executive Employee Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the 2006 Equity Incentive Plan. (6)
|
|
|
10.48
|
|
Form of Non-Executive Employee Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the 2006 Equity Incentive Plan. (6)
|
|
|
10.50
|
|
Non-Employee Director Compensation Arrangements, effective as of January 1, 2008. (6)
|
|
|
10.52
|
|
Resignation and Consulting Agreement, dated as of March 18, 2008, between Registrant and Robert G. Johnson, Jr., M.D., Ph.D.
|
|
|
10.53
|
|
First Amendment to Lease, effective as of February 8, 2008, between Registrant and Northern California Industrial Portfolio, Inc.
|
|
|
31.1
|
|
Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
|
31.2
|
|
Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
|
32.1
|
|
Certification by the Chief Executive Officer and the Chief Financial Officer of Kosan Biosciences Incorporated, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of
Title 18 of the United Stated Code (18 U.S.C. 1350). (8)
|
(1)
|
Incorporated herein by reference to an exhibit of our quarterly report on Form 10-Q (File No. 000-31633) for the period ended June 30, 2001.
|
(2)
|
Incorporated herein by reference to an exhibit of our quarterly report on Form 10-Q (File No. 000-31633) for the period ended June 30, 2003.
|
(3)
|
Incorporated herein by reference to an exhibit of our Registration Statement on Form S-1 and amendments thereto (File No. 333-33732).
|
(4)
|
Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on October 15, 2001.
|
(5)
|
Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on July 25, 2006.
|
(6)
|
Incorporated herein by reference to an exhibit of our annual report on Form 10-K (File No. 000-31633) for the period ended December 31, 2007.
|
(7)
|
Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on January 29, 2008.
|
(8)
|
This certification accompanies the Quarterly Report on Form 10-Q to which it relates, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not deemed
filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Kosan Biosciences Incorporated under the Securities Act or the Exchange Act (whether made before or after the date of the Quarterly
Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.
|
|
Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
|
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