e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2008.
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number 000-21291
Introgen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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74-2704230 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
301 Congress Avenue, Suite 1850
Austin, Texas 78701
(Address of principal executive offices, including zip code)
(512) 708-9310
(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 such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a 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 o No þ
As of November 5, 2008, the registrant had 44,142,172 shares of its common stock, $0.001 par
value per share, issued and outstanding.
INTROGEN THERAPEUTICS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts)
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December 31, |
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September 30, |
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2007 |
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2008 |
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(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
11,320 |
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$ |
6,294 |
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Short-term investments |
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3,585 |
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Total cash, cash equivalents and short-term investments |
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14,905 |
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6,294 |
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Marketable securities |
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10,165 |
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Prepaid expense and other current assets |
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706 |
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388 |
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Total current assets |
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25,776 |
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6,682 |
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Property and equipment, net of accumulated depreciation of $14,994 and $15,740 |
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4,442 |
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3,858 |
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Other assets |
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265 |
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245 |
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Total assets |
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$ |
30,483 |
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$ |
10,785 |
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
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Current Liabilities: |
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Accounts payable |
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$ |
1,813 |
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$ |
2,582 |
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Accrued liabilities and other |
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4,225 |
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2,589 |
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Deferred revenue and other |
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616 |
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709 |
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Current portion of notes payable |
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586 |
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517 |
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Total current liabilities |
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7,240 |
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6,397 |
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Notes payable, net of current portion |
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7,155 |
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6,897 |
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Deferred revenue and other, long-term |
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79 |
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Total liabilities |
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14,474 |
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13,294 |
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Non-controlling and minority interests in consolidated subsidiaries |
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6 |
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2 |
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Commitments and Contingencies |
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Stockholders Equity (Deficit): |
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Preferred stock, $.001 par value per share; 5,000 shares authorized; 4,900
shares issuable; zero Series A shares issued and outstanding in 2007 and
2008, respectively |
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Common stock, $.001 par value per share; 100,000 shares authorized; shares
issued and outstanding of 44,004 in 2007 and 44,142 in 2008 |
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44 |
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44 |
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Additional paid-in capital |
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211,558 |
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214,946 |
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Accumulated deficit |
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(202,715 |
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(217,437 |
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Accumulated other comprehensive gain (loss) |
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7,116 |
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(64 |
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Total stockholders equity (deficit) |
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16,003 |
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(2,511 |
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Total liabilities and stockholders equity |
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$ |
30,483 |
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$ |
10,785 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(UNAUDITED)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2007 |
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2008 |
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2007 |
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2008 |
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Contract services, grant and other revenue |
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$ |
139 |
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$ |
331 |
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$ |
543 |
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$ |
638 |
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Operating costs and expense: |
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Research and development, including share-based compensation of
$180 and $136 for the three months ended September 30, 2007 and
2008 and $799 and $454 for the nine months ended September 30,
2007 and 2008 |
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5,074 |
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3,784 |
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13,012 |
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12,620 |
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General and administrative, including share-based compensation
of $946 and $983 for the three months ended September 30, 2007
and 2008 and $3,086 and $2,848 for the nine months ended
September 30, 2007 and 2008 |
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2,980 |
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2,699 |
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9,780 |
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7,720 |
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Total operating costs and expense |
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8,054 |
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6,483 |
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22,792 |
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20,340 |
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Loss from operations |
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(7,915 |
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(6,152 |
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(22,249 |
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(19,702 |
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Interest income |
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281 |
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26 |
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1,096 |
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186 |
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Interest expense |
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(169 |
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(155 |
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(514 |
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(480 |
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Realized gain on sale of marketable securities |
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4,388 |
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Other income |
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257 |
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306 |
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755 |
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882 |
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Loss before non-controlling and minority interests in
consolidated subsidiaries |
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(7,546 |
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(5,975 |
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(20,912 |
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(14,726 |
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Non-controlling and minority interests in consolidated subsidiaries |
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4 |
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Net loss |
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$ |
(7,546 |
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$ |
(5,975 |
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$ |
(20,912 |
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$ |
(14,722 |
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Net loss per share, basic and diluted |
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$ |
(0.17 |
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$ |
(0.14 |
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$ |
(0.48 |
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$ |
(0.33 |
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Shares used in computing basic and diluted net loss per share |
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43,845 |
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44,089 |
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43,768 |
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44,037 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(UNAUDITED)
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Nine Months Ended September 30, |
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2007 |
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2008 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(20,912 |
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$ |
(14,722 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Non-controlling interests in consolidated subsidiaries |
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(4 |
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Depreciation |
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788 |
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746 |
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Share-based compensation |
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3,885 |
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3,302 |
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Gain on sale of marketable securities |
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(4,388 |
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Changes in operating assets and liabilities: |
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(Increase) decrease in other assets |
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172 |
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338 |
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Increase (decrease) in accounts payable |
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(821 |
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769 |
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Increase (decrease) in accrued liabilities and other |
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117 |
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(1,437 |
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Increase (decrease) in deferred revenue and other |
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(633 |
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14 |
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Net cash used in operating activities |
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(17,404 |
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(15,382 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(52 |
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(167 |
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Purchases of short-term investments |
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(29,589 |
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Maturities of short-term investments |
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32,852 |
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3,585 |
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Proceeds from sale of marketable securities |
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7,429 |
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Net cash provided by investing activities |
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3,211 |
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10,847 |
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Cash flows from financing activities: |
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Payment of offering costs related to sale of common stock |
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(1,571 |
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(200 |
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Proceeds from exercise of options for common stock |
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145 |
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86 |
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Proceeds from notes payable |
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157 |
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158 |
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Principal payments under notes payable |
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(704 |
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(484 |
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Net cash used in financing activities |
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(1,973 |
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(440 |
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Effect of exchange rate changes on cash |
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(8 |
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(51 |
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Net decrease in cash |
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(16,174 |
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(5,026 |
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Cash and cash equivalents, beginning of period |
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25,578 |
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11,320 |
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Cash and cash equivalents, end of period |
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$ |
9,404 |
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$ |
6,294 |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
491 |
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$ |
461 |
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Supplemental disclosure of non-cash investing and financing activities: |
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Non-cash unrealized gain (loss) on marketable securities |
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$ |
9,205 |
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$ |
(2,736 |
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Issuance of common stock in connection with the grant of stock |
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$ |
210 |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business of the Company and Liquidity
We are a biopharmaceutical company focused on the discovery, development and commercialization
of targeted molecular therapies for the treatment of cancer and other diseases. We are developing
product candidates to treat a wide range of cancers using tumor suppressors, cytokines and other
targeted molecular therapies. These agents are designed to increase production of normal
cancer-fighting proteins that act to overpower cancerous cells, stimulate immune activity and
enhance conventional cancer therapies.
In June 2008, Gendux Molecular Limited, our wholly-owned subsidiary based in Ireland,
submitted a Marketing Authorization Application (MAA) to the European Medicines Evaluation Agency
(EMEA) requesting marketing approval for ADVEXIN therapy to treat recurrent, refractory head and
neck cancer. EMEA has accepted this MAA for review.
In June 2008, we submitted a Biologics License Application (BLA) to the U.S. Food and Drug
Administration (FDA) requesting marketing approval for ADVEXIN therapy to treat recurrent,
refractory head and neck cancer. In September 2008, the FDA notified us that this BLA was not
sufficiently complete and would not be filed at that time. We are in the process of appealing the
FDAs refusal to file decision and anticipate a response to our appeal from the FDA sometime before
the end of 2008.
We have not yet generated any significant revenue from unaffiliated third parties nor is there
any assurance of future product revenue. We earn minimal revenue from contract services activities,
grants and interest income, as well as rent from the lease of a portion of our facilities to The
University of Texas M. D. Anderson Cancer Center. Our ability to generate revenue from the
commercial sale of our products in the near future is uncertain. We may never generate revenue from
the commercial sale of our products.
Our research and development activities and pursuit of marketing approval by regulatory
agencies for our product candidates involve a high degree of risk and uncertainty. Our ability to
successfully develop, manufacture and market our proprietary products is dependent upon many
factors. These factors include, but are not limited to, the need for and the ability to obtain
additional financing, the reliance on collaborative research and development arrangements with
corporate and academic affiliates and the ability to develop manufacturing, sales and marketing
experience. Additional factors include uncertainties as to patents and proprietary technologies,
competitive technologies, technological change and risk of obsolescence, development of products,
competition, government regulations and regulatory approval, and product liability exposure. As a
result of these factors and the related uncertainties, there can be no assurance of our future
success.
2. Going Concern
We need to obtain additional cash to continue our operations. If we are unable to raise
additional funds for working capital, we will substantially consume all of our cash and cash
equivalents on hand at September 30, 2008, plus the amounts we may earn subsequently from contract
services, grants and/or interest income in the future, sometime during the quarter ending March 31,
2009 and will likely be unable to continue as a going concern at that time. Unforeseen
circumstances could cause us to consume cash more rapidly than expected and shorten the period
during which the resources currently available to us can fund our operations.
We may be able to obtain additional cash through public or private equity offerings, debt
financings, corporate collaborations, licensing arrangements, sales of certain of our assets (such
as real estate) or other means. However, there can be no assurances that additional financing will
be available when needed or on terms favorable to us or our stockholders. If we raise additional
capital by issuing equity securities, our stockholders will experience dilution. If we raise funds
through debt financings, we may become subject to restrictive covenants. If we raise additional
funds through collaboration and licensing arrangements, we may be required to transfer to other
parties rights to our technologies or product candidates, or grant licenses on terms not favorable
to us.
6
In July 2008, we reduced our staff by approximately 20 positions primarily associated with
ADVEXIN therapy development and regulatory submission programs that have achieved the milestones
discussed in various sections of this document. In the event we cannot obtain additional cash, we
may have to further reduce the scope of our operations and related cash needs to a level that may
extend the period of time during which we can rely on existing resources to conduct our business
activities. Such adjustments in the scope of our operations could include further reduction in the
number of our personnel and perhaps delaying or discontinuing certain product and service
development activities critical to achieving our business objectives. In particular, such actions
could adversely affect our ability to continue pursuing regulatory approval to market ADVEXIN
therapy at our desired pace, to continue development of other new product candidates and to pursue
the ITS business plan.
The efforts described above could be unsuccessful. In that event, we would likely be unable to
continue as a going concern.
3. Basis of Presentation and Significant Accounting Policies
The accompanying condensed consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles (GAAP) for interim financial
information and pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). The condensed consolidated balance sheet at December 31, 2007 has been derived from the
audited consolidated financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete financial
statements.
These unaudited, interim financial statements do not include all of the information and
footnotes required under GAAP for complete financial statements. In managements opinion, all
accounting entries considered necessary for a fair presentation have been made in preparing these
financial statements, and such entries are normal in nature. Operating results for the three and
nine month periods ended September 30, 2008 are not necessarily indicative of the results that may
be expected for the entire fiscal year.
Our critical accounting policies and recently issued accounting pronouncements of significance
to us are described in our most recent annual report on Form 10-K for the year ended December 31,
2007, filed with the Securities and Exchange Commission on March 17, 2008. There have been no
changes in those items since that time that would have a material effect on our financial
statements. As noted in that annual report, Statement of Financial Accounting Standards No. 157,
Fair Value Measurements, and Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, were
effective for us on
January 1, 2008. Our adoption of those standards had no material effect on our financial
statements.
These financial statements include the accounts of Introgen Therapeutics, Inc. and its
consolidated subsidiaries (collectively referred to as Introgen). We account for Introgen
Therapeutic, Inc.s investment in subsidiaries in accordance with the relevant provisions of GAAP.
Accordingly, the subsidiaries accounts are included in these consolidated financial statements. We
record a non-controlling interest for the portion of those subsidiaries we do not own to the extent
such non-controlling interest constitutes a liability in our financial statements. If those
subsidiaries have an accumulated net loss, the minority interest is zero.
4. Consolidated Subsidiaries
Introgen Technical Services, Inc.
In June 2008, we formed Introgen Technical Services, Inc. (ITS) as a wholly-owned subsidiary.
We anticipate ITS will pursue the following objectives:
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Assume responsibility for producing investigative materials for our clinical trials; |
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Produce and provide us commercial supplies of products for which we may receive
marketing approval from the appropriate regulatory agencies; and |
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Pursue contract production, process development and manufacturing services for third
parties. |
7
The development of the ITS business is based upon the expertise we have developed in the areas
of manufacturing and process development and the availability of our manufacturing facilities,
practices and processes that can accommodate and support our providing services to third parties in
compliance with the U.S. Food and Drug Administrations Current Good Manufacturing Practice
requirements. The operations of ITS to date are not material to our financial statements.
Introgen Research Institute, Inc.
During the nine months ended September 30, 2007, we purchased 49% of the outstanding stock of
Introgen Research Institute, Inc. for $10,000. The other 51% of IRI is owned by our corporate
Secretary, who is also an Introgen stockholder.
We have contractual relationships with IRI under which we may perform research and development
services for them in the future. For the three and nine months ended September 30, 2008, we
recorded grant income of zero and $56,000, respectively, related to grants held by IRI. For the
three and nine months ended September 30, 2007, we recorded grant income of zero and $213,000,
respectively, related to grants held by IRI.
The amount of grant funding, if any, available to IRI and us to perform research and
development is dependent upon many factors, including the availability of grants from government
agencies, performance of the work and incurring the costs contemplated by the grants, our success
in obtaining additional grants in the future and our compliance with statutes and regulations
governing such grants.
5. Other Comprehensive Income or Loss
Other comprehensive income or loss is included as a component of stockholders equity and is
composed of (1) foreign currency translation adjustments and (2) unrealized gains and losses on
investments designated as available-for-sale securities. Other comprehensive income (loss) is
calculated as follows (in thousands):
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Three Months Ended |
|
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Nine Months Ended |
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|
September 30, |
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September 30, |
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|
2007 |
|
|
2008 |
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|
2007 |
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|
2008 |
|
Net loss |
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$ |
(7,546 |
) |
|
$ |
(5,975 |
) |
|
$ |
(20,912 |
) |
|
$ |
(14,722 |
) |
Foreign currency translation adjustments |
|
|
6 |
|
|
|
(75 |
) |
|
|
(8 |
) |
|
|
(51 |
) |
Unrealized gain (loss) on marketable securities |
|
|
(3,530 |
) |
|
|
|
|
|
|
9,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
(11,070 |
) |
|
$ |
(6,050 |
) |
|
$ |
(11,715 |
) |
|
$ |
(14,773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2008, we sold all the shares of Silence
Therapeutics plc we owned for their quoted market value on the Alternative Investment Market of the
London Stock Exchange on the date of the sale. We received net proceeds of approximately $7.4
million from this sale. We purchased these shares for approximately $3.0 million in July 2005.
These shares were presented as marketable securities in our financial statements in previous
periods. This sale resulted in the recognition of a gain of $4.4 million, which is recorded as a
realized gain on sale of marketable securities. As a result of this sale, the unrealized gain on
marketable securities has been realized and is no longer a component of other comprehensive income
(loss).
6. Share-Based Compensation
We issued the following number of shares of common stock as a result of exercises of stock
options granted from our stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
118,000 |
|
|
|
206,723 |
|
|
|
138,073 |
|
8
7. Business Development Services Agreement with a Related Party
We have an agreement with a member of our Board of Directors under which he will provide
certain business development services to us in connection with potential co-development,
collaborative, marketing partnership or certain other potential strategic transactions. In
consideration for his services, upon the consummation of such a transaction, we will pay him a fee
equal to one-half of one percent (0.5%) of certain monetary benefits received by our stockholders
or us. The maximum fee he can receive is $3,000,000. The fee we pay him will be reduced by expenses
or other expenditures made or contemplated under such a transaction.
This fee is not payable for funding we receive that we are expected to expend for research and
development programs, full-time equivalent payments to employees, loans, collaborative programs,
business partnerships or strategic transactions, or otherwise. Transactions between our affiliates
and us, whether now existing or created in the future, are excluded from this agreement. This
agreement may be terminated at any time by written notice from us or this board member. In the
event of such termination, the fee shall be paid with respect to a transaction produced through
services performed by this board member before termination if the transaction is closed within two
years after the date of termination of the agreement
8. Mortgage Note Payable
We have a mortgage note payable to a bank related to our facilities. The principal balance
outstanding under this note at September 30, 2008, is $6.9 million, of which $225,000 is in current
portion of notes payable and $6.7 million is in non-current notes payable.
This note originated in November 1998. We make monthly principal and interest payments on this
note based on a 25 year amortization schedule, which is the basis upon which current and
non-current balance portions of this note are determined. This note has an eleven year term such
that it matures in November 2009 at which time the then outstanding principal balance of
approximately $6.6 million is due. If we are unable enter into a transaction to refinance that
balance to extend the period of time over which it can be paid or relieve ourselves of that note
obligation (such as through a sale of our real estate), we could be in default on the note when it
matures and the lender could then exercise its rights with regard to our primary facility that is
collateral for this note, which could include us losing the right to use that facility through
foreclosure or other actions by the lender.
9. Offering of Our Common Stock
In August 2008, we entered into a sales agreement with a placement agent to sell up to 6
million shares of our common stock in one or more, at-the-market offerings from time to time. Even
though this agreement remains in place, if our common stock is delisted from NASDAQ as discussed
below, the terms of the agreement preclude us from selling shares of our common stock under the
agreement until such time as our listing on NASDAQ is restored. We may apply to transfer the
listing of our common stock from the NASDAQ Global Market to the NASDAQ Capital Market if we are
able to satisfy the listing qualifications of the NASDAQ Capital Market and our application is
accepted by NASDAQ. However, the sales agreement includes various conditions to the placement
agents obligations, which if not satisfied, may prevent us from selling shares of our common stock
under the agreement notwithstanding any such transfer. For example, one of the closing conditions
is that we shall have not experienced a material adverse change. The impact of a transfer to the
NASDAQ Capital Market is unknown and we may experience difficulty or be unable to sell our common
stock under the sales agreement.
Each time we desire to sell shares under this agreement, we will notify the placement agent of
the parameters under which we desire the shares be sold, including:
The number of shares we want to sell;
The time period during which we want the sales to occur;
Any limitation we want on the number of shares that may be sold in any one day; and
Any minimum price below which sales may not be made.
The placement agent is required to use its commercially reasonable efforts consistent with its
customary trading and sales practices to sell these shares, but is under no obligation to us if it
is unable to sell the shares. We are
9
obligated to pay the placement agent a commission of 7% of the
gross proceeds from any sales of the shares under the sales agreement. We or the placement agent
may terminate this agreement at any time.
We will sell these shares under our previously filed registration statement on Form S-3 (File
No. 333-140424) and related prospectus and prospectus supplement.
10. Listing on The NASDAQ Stock Market
In July 2008, The NASDAQ Stock Market (NASDAQ) notified us that we do not comply with the
minimum $50,000,000 market value of listed securities nor the alternative requirement of a minimum
$50,000,000 in total assets and total revenue required for continued listing on The NASDAQ Global
Market set forth in the NASDAQ Marketplace Rules 4450(b)(1)(A) and 4450(b)(1)(B), respectively, and
we may be subject to delisting from the Nasdaq Global Market if we failed to demonstrate compliance
with the NASDAQ Marketplace Rules by August 29, 2008. We received a Staff Determination Letter
from NASDAQ on September 4, 2008 informing us that we had not regained compliance by August 29,
2008. We appealed this initial delisting determination to a hearing conducted by a NASDAQ Listing
Qualifications Panel, or the Panel, on October 16, 2008. The Panel has not yet rendered a
decision regarding our appeal, and our common stock remains listed on the NASDAQ Global Market
pending the decision of the Panel and any exception it may grant us. In the event of an
unfavorable determination by the Panel, we would alternatively apply to have our common stock
transferred to the NASDAQ Capital Market, as long as we satisfy the requirements for continued
inclusion on the NASDAQ Capital Market set forth in the NASDAQ Marketplace Rules. There can be no
assurance that the Panel will grant our request for continued listing on The NASDAQ Global Market,
nor can there be assurance that our shares will alternatively be approved for listing on the NASDAQ
Capital Market. We believe that we do not currently comply with the minimum listing requirements
for The NASDAQ Capital Market. On September 29, 2008, NASDAQ notified us that for the last 30
consecutive business days, our bid price for our common stock had closed below the minimum $1.00
required for continued listing on The NASDAQ Global Market as set forth in Marketplace
Rule 4450(a)(5). In accordance with NASDAQ Marketplace Rules, we will have one hundred eighty
(180) days, to regain compliance with the minimum bid price requirement by maintaining a closing
bid price of $1.00 per share or higher for a minimum of 10 consecutive business days. On
October 16, 2008, NASDAQ announced that they had suspended the enforcement of
Marketplace Rule 4450(a)(5) until January 19, 2009, and as a result, the period during which we
have to regain compliance has been extended to July 1, 2009. If we are unsuccessful in meeting the
minimum bid requirement on or before July 1, 2009, NASDAQ will notify us that our common stock will
be delisted from the NASDAQ Global Market. If we receive such a notice, we may appeal NASDAQs
determination to delist our common stock or, alternatively, we may apply to transfer our common
stock to the NASDAQ Capital Market, provided that we satisfy all criteria for initial listing on
the NASDAQ Capital Market, other than compliance with the minimum bid price requirement. If such
application to the NASDAQ Capital Market is approved, then we will have an additional 180-day
compliance period in order to regain compliance with the minimum bid price requirement while listed
on the NASDAQ Capital Market.
11. Agreement With a Third-Party Advisor
In November 2008, we entered into an agreement with a third-party to assist us in exploring
strategic alternatives for the Company. For those services, we will pay that advisor:
A retainer fee of $150,000, and
A success fee, net of the retainer fee and subject to a maximum of $5 million, of:
o 3% of the transaction value in the case of a sale of the Company, or
o 6% of the transaction value in the case of a sale of the assets of the Company.
No success fee is payable in the event of a transaction between the Company and:
Governmental entities in the State of Texas, including, without limitation, a State university; or
Any entity owned in whole or in part by an affiliate of the Company, as defined.
10
In a situation where the company receives payments over time, the success fee shall be payable
at the time that each such payment is actually received by the Company or its stockholders. No
success fee is due if the cash consideration from a transaction is insufficient to pay that fee.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our Condensed
Consolidated Financial Statements and the related notes thereto included in this Quarterly Report
on Form 10-Q and the other documents we have filed with the Securities and Exchange Commission. In
addition to historical information, this report and the following discussion and analysis contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements address our future operations,
financial condition, business strategies and other prospective items and include, among other
subjects, matters concerning our expectations regarding:
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|
|
The sufficiency of our existing cash and cash equivalents and cash generated from
operations and access to additional cash and working capital through sales of common or
preferred stock or the issuance of debt; |
|
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|
|
Our ability to continue pursuing our business objectives and corporate mission
considering the cash and other resources available to us; |
|
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|
Various regulatory applications, procedures and approvals relating to our product
candidates, including but not limited to our expectations regarding the timing of such
applications, procedures and approvals; |
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|
The growth of our operations, business and revenues and the growth rate of our costs
and expenses; |
|
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|
Future increases in our research and development, sales and marketing and general and
administrative expenses; |
|
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|
Better efficacy of our product candidates through the use of biomarkers; |
|
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|
Application of our research and development expertise to other diseases that result
from cellular dysfunction and uncontrolled cell growth; and |
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|
The development and conduct of the business of our subsidiaries. |
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|
The uncertainty of domestic and international economies and specifically, the effect of
those conditions on the worldwide capital markets. |
The words believe, expect, anticipate and other similar expressions generally identify
forward-looking statements. These forward-looking statements are based on our current expectations
and entail various risks and uncertainties. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements. We undertake no
obligation to revise or publicly release the results of any revision to these forward-looking
statements. These forward-looking statements are subject to certain risks and uncertainties that
could cause our actual results to differ materially from those reflected in the forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited
to, those discussed in this report, and in particular, the risks discussed under the heading Risk
Factors in Part II, Item 1A of this report and those discussed in other documents we file with the
Securities and Exchange Commission.
Overview
Introgen Therapeutics, Inc. was incorporated in Delaware in 1993. We are a biopharmaceutical
company focused on the discovery, development and commercialization of targeted molecular therapies
for the treatment of cancer and other diseases. We are developing product candidates to treat a
wide range of cancers using tumor suppressors, cytokines and other targeted molecular therapies.
These agents are designed to increase production of normal cancer-fighting proteins that act to
overpower cancerous cells, stimulate immune activity and enhance conventional cancer therapies.
Our primary approach to the treatment of cancers is to deliver targeted molecular therapies
that increase production of normal cancer-fighting proteins to induce apoptosis, restore cell cycle
or cell growth control and alter
11
gene regulation, including the regulation of angiogenic and immune
factors to reduce cancer growth. Our products work by acting as templates for the transient in vivo
production of proteins that have pharmacological properties. The resultant proteins engage
disease-related molecular targets or receptors to produce specific therapeutic effects.
We believe the use of targeted molecular therapies to induce the production of
biopharmaceutical proteins represents a new approach for treating many cancers while avoiding the
toxic side effects common to traditional therapies. We have developed significant expertise in
developing targeted therapies that may be used to treat disease and in using what we believe are
safe and effective delivery systems to transport these agents to the cancer cells. We believe we
will be able to treat a number of cancers in a way that kills cancer cells without harming normal
cells.
Our lead product candidate, ADVEXIN® therapy, combines the p53 tumor suppressor with a
non-replicating, non-integrating, adenoviral delivery system we have developed and extensively
tested. The p53 molecule is one of the most potent members of a group of naturally-occurring tumor
suppressors, which act to kill cancer cells, arrest cancer growth and protect cells from becoming
cancerous. We are developing other product candidates for the treatment of cancer using other
molecules and delivery systems, such as the mda-7 and FUS1 tumor suppressors.
We believe our research and development expertise gained from our targeted molecular therapies
for cancer is also applicable to other diseases that, like cancer, result from cellular dysfunction
and uncontrolled cell growth. As a result, we are conducting research in collaboration with medical
institutions to understand the safety and effectiveness of our targeted molecular therapy product
candidates in the treatment of other diseases.
We typically license the technologies on which our products are based from third parties.
These licenses generally grant us exclusive rights for pre-clinical and clinical development,
manufacturing, marketing and commercialization of product candidates based on those technologies.
Our product research and development efforts include pre-clinical activities as well as the
conduct of Phase 1, 2 and 3 clinical trials. We rely on third parties to treat patients in their
facilities during these clinical trials. We produce ADVEXIN therapy and other product candidates in
manufacturing facilities we own and operate using production methods we developed. We hold a number
of patents or patents pending on certain product candidates and manufacturing processes used to
produce certain product candidates.
We have not yet generated any significant revenue from unaffiliated third parties nor is there
any assurance of future product revenue. We earn minimal revenue from contract services activities,
grants and interest income, as well as rent from the lease of a portion of our facilities to The
University of Texas M. D. Anderson Cancer Center. Our ability to generate revenue from the
commercial sale of our products in the near future is uncertain. We may never generate revenue from
the commercial sale of our products.
We need to obtain additional cash to continue our operations. If we are unable to raise
additional funds for working capital, we will substantially consume all of our cash and cash
equivalents on hand at September 30, 2008, plus the amounts we may earn subsequently from contract
services, grants and/or interest income in the future, sometime during the quarter ending March 31,
2009 and will likely be unable to continue as a going concern at that time. Unforeseen
circumstances could cause us to consume cash more rapidly than expected and shorten the period
during which the resources currently available to us can fund our operations.
We may be able to obtain additional cash through public or private equity offerings, debt
financings, corporate collaborations, licensing arrangements, sales of certain of our assets (such
as real estate) or other means. However, there can be no assurances that additional financing will
be available when needed or on terms favorable to us or our stockholders. If we raise additional
capital by issuing equity securities, our stockholders will experience dilution. If we raise funds
through debt financings, we may become subject to restrictive covenants. If we raise additional
funds through collaboration and licensing arrangements, we may be required to transfer to other
parties rights to our technologies or product candidates, or grant licenses on terms not favorable
to us.
In July 2008, we reduced our staff by approximately 20 positions primarily associated with
ADVEXIN therapy development and regulatory submission programs that have achieved the milestones
discussed in various sections of this document. In the event we cannot obtain additional cash, we
may have to further reduce the scope of our operations and related cash needs to a level that may
extend the period of time during which we can rely on existing resources to conduct our business
activities. Such adjustments in the scope of our operations could include further reduction in the
number of our personnel and perhaps delaying or discontinuing certain product and service
12
development activities critical to achieving our business objectives. In particular, such actions
could adversely affect our ability to continue pursuing regulatory approval to market ADVEXIN
therapy at our desired pace, to continue development of other new product candidates and to pursue
the ITS business plan.
The efforts described above could be unsuccessful. In that event, we would likely be unable to
continue as a going concern.
Our principal executive offices are located at 301 Congress Avenue, Suite 1850, Austin, Texas
78701. Our telephone number is (512) 708-9310. Our Internet website address is www.introgen.com.
Introgens Approach
Our primary approach for the treatment of cancers is to deliver targeted molecular therapies
that increase production of normal cancer-fighting proteins. The resultant proteins engage
disease-related molecular targets or receptors to produce specific therapeutic effects. We believe
we are able to treat a number of cancers in a way that kills cancer cells without harming normal
cells.
Most cancers are amenable to local treatment, such as surgery and radiation, which are
administered far more often than systemic cancer treatments. Our locally delivered product
candidates, such as ADVEXIN therapy and INGN 241 therapy, deposit therapeutic molecules at high
concentrations directly into a patients cancerous tumor by hypodermic syringe. We have systemic
formulations for intravenous use in those cases for which a systemic therapy may be indicated and
have applied ADVEXIN therapy using a nanoparticle formulation system to deliver our tumor
suppressors.
We initially focused on advanced cancers lacking effective treatments and in which local tumor
growth control, where the tumor stops growing or shrinks, is likely to lead to measurable benefit.
We have expanded our focus to
include earlier stage cancers and pre-malignancies. We believe our clinical trials have shown our
therapies can be used alone and in combination with conventional treatments such as surgery,
radiation therapy and chemotherapy.
Introgens Strategy
Our objective is to be a leader in the development of targeted molecular tumor suppressor
therapies and other products for the treatment of cancer and other diseases that, like cancer,
result from cellular dysfunction and uncontrolled cell growth. To accomplish this objective, we are
pursuing the following strategies:
|
|
|
Develop and Commercialize ADVEXIN Therapy, INGN 241, INGN 225 and INGN 401 for Multiple
Cancer Indications. We plan to continue our development programs to commercialize several
of our product candidates in multiple cancer indications, including: |
|
|
|
ADVEXIN therapy, using the p53 tumor suppressor; |
|
|
|
|
INGN 241, using the mda-7 tumor suppressor (also known as interleukin 24 or
IL-24); |
|
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|
|
INGN 225, using the p53 tumor suppressor as a highly specific cancer
immunotherapy; and |
|
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|
|
INGN 401 systemic nanoparticle therapy, using the FUS-1 tumor suppressor. |
|
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Develop Our Portfolio of Targeted Molecular Therapies and Other Drug Products.
Utilizing our research, clinical, regulatory and manufacturing expertise, we are evaluating
development of additional molecular therapies for various cancers, including: |
|
|
|
INGN 234, an oral rinse or mouthwash formulation containing the p53 tumor
suppressor; |
|
|
|
|
INGN 402 and 403, using nanoparticle formulations for systemic delivery of the
p53 and mda-7 tumor suppressors; and |
|
|
|
|
INGN 007, a replication-competent viral therapy. |
|
|
|
Develop a Systemic Nanoparticle Administration Platform. Early pre-clinical and
clinical studies with these new nanoparticle drugs have demonstrated a good safety profile
and promising anti-cancer activity. In |
13
|
|
|
addition to FUS-1, we incorporate the p53 tumor
suppressor and the mda-7 tumor suppressor in these nanoparticle formulations. We also have
in-licensed technologies for systemic nanoparticle delivery of DNA, siRNA, miRNA, proteins,
peptides and polypeptides. |
|
|
|
|
Develop the Topical Use of Tumor Suppressors. We plan to continue developing topical
product candidates for the treatment or prevention of oral and dermal cancers, specifically
INGN 234 referred to above. We believe these treatments are a logical extension of our
loco-regional delivery of cancer therapies and represent attractive product candidates
since pre-malignant and malignant cells can be exposed to natural, biological tumor
suppressors and DNA repairing agents. We are conducting this program in support of our Oral
Care Alliance with Colgate-Palmolive. |
|
|
|
|
Establish Targeted Sales and Marketing Capabilities. The oncology market can be
effectively addressed by a small, focused sales force because it is characterized by a
concentration of specialists in cancer centers and oncology clinics. We believe we can
address this market by a combination of building a direct sales force as part of the
ADVEXIN therapy commercialization process and pursuing marketing and distribution
agreements with corporate partners for ADVEXIN therapy as well as additional products. |
|
|
|
|
Expand Our Market Focus to Non-Cancer Indications. We plan to leverage our scientific,
research and process competencies in molecular therapy and vector development to pursue
targeted molecular therapies for a variety of other diseases and conditions. While our
primary emphasis at this time is on cancer, we believe these therapies could hold promise
for diseases such as cardiovascular disease and rheumatoid arthritis, which, like cancer,
result from cellular dysfunction or uncontrolled cell growth. |
|
|
|
|
Build Upon Our CGMP Manufacturing and Process Development Capabilities. We own and
operate manufacturing facilities, including a commercial-scale, validated manufacturing
facility designed to comply with the FDAs Current Good Manufacturing Practice
requirements, commonly known as CGMP requirements. The recent formation of Introgen
Technical Services (ITS) as a separate business unit will allow us to focus on
opportunities to conduct process development and contract manufacturing services for third
party customers using these capabilities. We believe the market for these services can be
significant and can serve as a profitable business activity for us. |
We have an established process for evaluating new drug candidates and advancing them from
pre-clinical to clinical development. We have identified and licensed multiple technologies, which
we intend to combine with our adenoviral and non-viral vector systems and which we believe are
attractive development targets for the treatment of various cancers. We intend to evaluate
additional opportunities to in-license or acquire new technologies.
Product Development Overview
ADVEXIN Therapy (p53)
Regulatory Filings for Marketing Approval for Treatment of Head and Neck Cancer
ADVEXIN therapy is our lead product candidate. It combines the p53 tumor suppressor with a
non-replicating, non-integrating adenoviral delivery system we have developed and extensively
tested. The p53 molecule is one of the most potent members of a group of naturally-occurring tumor
suppressors, which act to kill cancer cells, arrest cancer cell growth and protect cells from
becoming cancerous. ADVEXIN therapy represents a new class of tumor
suppressor cancer therapy. If approved, ADVEXIN would be the first tumor suppressor therapy
approved in the United States or Europe.
In June 2008, Gendux Molecular Limited, our wholly-owned subsidiary based in Ireland,
submitted a Marketing Authorization Application (MAA) to the European Medicines Evaluation Agency
(EMEA) requesting marketing approval for ADVEXIN therapy to treat recurrent, refractory head and
neck cancer. EMEA has accepted this MAA for review.
In June 2008, we submitted a BLA to the FDA requesting marketing approval for ADVEXIN therapy
to treat recurrent, refractory head and neck cancer. In September 2008, the FDA notified us that
this BLA was not
14
sufficiently complete and would not be filed at that time. We are in the process
of appealing the FDAs refusal to file decision and anticipate a response to our appeal from the
FDA sometime before the end of 2008.
The ADVEXIN therapy BLA for recurrent or refractory Squamous Cell Carcinoma of the Head and
Neck (SCCHN) contains a proforma product package insert describing indicated usage in patients with
certain p53 biomarker profiles. The p53 biomarker profiles appear to identify the majority of the
recurrent SCCHN population, and we believe the p53 biomarker profiles identify a majority the of
the overall solid tumor population.
After submission of the ADVEXIN therapy BLA, FDA notified Introgen of the discontinuation of
the programs current Fast Track designation for SCCHN and simultaneously invited us to request
future Fast Track designation for ADVEXIN therapy development programs, which we plan to pursue
with additional Fast Track designation requests in patients with p53 biomarker profiles in multiple
cancer indications with unmet medical needs. The FDA has advised Introgen that the pending ADVEXIN
BLA is unaffected by the Fast Track designation discussion.
ADVEXIN therapy for head and neck cancer has been designated an Orphan Drug under the Orphan
Drug Act. This designation may give us up to seven years of marketing exclusivity for ADVEXIN
therapy for this indication if approved by the FDA.
Our submission of a BLA to the FDA and an MAA to the EMEA for ADVEXIN therapy is based on the
results of pivotal Phase 2 and 3 clinical trials evaluating survival, tumor response and safety in
patients with recurrent, refractory end-stage, squamous cell carcinoma of the head and neck. These
trials incorporated common diagnostic tests to identify patients most likely to benefit from
ADVEXIN treatment based upon pre-treatment tissue analyses to determine p53 profile status.
The Phase 3 Statistical Analysis Plan was finalized with input from the FDA. We have followed
advice from the FDA in accelerating our Phase 3 safety analysis and performing an efficacy analysis
for this study. An independent Data Safety Monitory Board review in 2006 noted no safety issues
with the Phase 3 study.
In submitting our BLA for ADVEXIN therapy, we were able to rely on an agreement with the FDA
that biomarker evaluations as described in its Critical Path Initiative, which permits new product
evaluation on the basis of specifically targeted (i.e., by prognostic or biologic parameters)
clinical trials and/or patient populations, can be used in the ADVEXIN therapy approval process in
addition to our original Phase 3 protocol determination to assess a patients mutation status and
other Personalized Medicine characteristics. This initiative encourages sponsors to examine novel
approaches to define tumor responses that correlate with clinical benefit. Our Phase 3 statistical
analysis plan and clinical protocols describe assessments of p53 biomarker profiles based not only
on p53 mutational gene sequence evaluations but also on p53protein levels as determined by
prospectively identified immunohistochemistry procedures. We have employed several biomarker and
response criteria to evaluate ADVEXIN therapy efficacy. By using new clinical data and new analyses
of those data, we hope to more specifically target recurrent head and neck cancer in patients using
indicators known as biomarkers, as discussed further below under ADVEXIN Therapy as a Targeted
Molecular Therapy. We believe this Personalized Medicine approach will improve efficacy by
identifying the patients most likely to benefit from ADVEXIN therapy.
Clinical Trials For Treatment of Head and Neck Cancer
Our Phase 3 multicenter, randomized, comparative trial enrolled 123 patients with recurrent
squamous cell carcinoma of the head and neck whose cancers were refractory to platinum or taxane
chemotherapy. Patients were
randomized to receive ADVEXIN therapy or methotrexate as monotherapy. Recurrent, refractory
(end-stage) head and neck cancer is aggressive with a poor prognosis, making it unethical to treat
patients with placebo as an additional comparator.
The primary efficacy endpoint was survival. The secondary efficacy endpoint was tumor
response. Study populations consisted of the p53 biomarker population and the intent to treat
population. All endpoints and populations were prospectively designated before unblinding the Phase
3 database and officially amended with the FDA prior to starting the Phase 3 analysis.
15
Study results compared the patients as a whole for the entire intent-to-treat (ITT) population
and for patients based upon tumor p53 biomarker profiles positive or negative for ADVEXIN therapy
efficacy. Biomarkers for p53 have been shown to be excellent predictors of efficacy following
ADVEXIN therapy and define a group of patients who may benefit more from ADVEXIN therapy than from
methotrexate treatment. The prospectively identified p53 biomarker profiles in the Phase 3 study
confirmed results obtained from earlier hypothesis generating analyses of biomarker profiles data
from Phase 2 study data.
Biomarker analyses were conducted with pre-treatment samples on a completely blinded basis by
an independent laboratory unaware of the clinical results. A total of 67 patients (i.e. n=67),
which is over half of the study patients, had pre-treatment tissue samples available for testing.
The identification of patients according to the predictive p53 profiles yielded statistically
significant findings with regard to efficacy.
Using statistical analysis, the clinical characteristics of the ITT and biomarker populations
demonstrated that the samples are representative of the entire treatment population in demographics
and disease characteristics. Routine, readily available, immunohistochemistry (IHC) and gene
sequencing tests were performed to determine patients tumor p53 profiles that were either positive
or negative for ADVEXIN therapy efficacy. These routine tests are available from many clinical
testing facilities to detect p53 abnormalities associated with the majority of solid tumors.
Notable study results included the following:
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|
|
The survival results in the p53 molecular biomarker population met the studys overall
objective by demonstrating the clinical benefit of ADVEXIN therapy in comparison to
methotrexate. In the tumor p53 positive profile patients, ADVEXIN therapy treatment had a
higher median survival compared to methotrexate (ADVEXIN therapy7.2 months vs.
methotrexate4.3 months). There was a statistically significant difference in survival
outcomes by Cox regression analysis for patients treated with ADXEXIN versus methotrexate
based upon p53 biomarker profiles. There was a statistically significant treatment effect
by tumor p53 profile interaction in terms of overall survival (p = 0.0215) and 6 month
survival (p = 0.0039). Specifically for overall survival, the hazard ratio for the
interaction was 0.249 (95% CI 0.076-0.815), indicating that for patients with a favorable
tumor p53 profile, there was significantly increased survival for treatment with ADVEXIN.
The hazard ratio for the main effect of treatment (2.941, 95% CI 1.057-8.183) revealed that
for patients with an unfavorable tumor p53 profile, there was increased survival for
methotrexate (p = 0.0388). For six month survival, the hazard ratio for the interaction was
0.100 (95% CI 0.0214-0.477), indicating that for patients with a favorable tumor p53
profile, there was an even stronger significantly increased survival for treatment with
ADVEXIN. The hazard ratio for the main effect of treatment (4.333, 95% CI 1.195-15.715)
again revealed that for patients with an unfavorable tumor p53 profile, there was increased
survival for methotrexate treatment (p = 0.0257). (Note: The p-value is a measure of
probability that a difference between groups during an experiment happened by chance. The
lower the p-value, the more likely it is that the difference between groups was caused by
treatment and tumor p53 profile effects rather than by chance.) |
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A complementary statistical analysis evaluating the percentage of patients surviving at
six months also demonstrated the clinical benefit of ADVEXIN therapy in comparison to
methotrexate for patients with tumor p53 profiles positive for ADVEXIN therapy efficacy. At
the six month survival endpoint, 67% of ADVEXIN therapy treated patients were alive
compared to only 39% of the methotrexate treated patients. This difference was
statistically significant (p = 0.0365). |
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There was a statistically significant increase in survival for ADVEXIN therapy treated
patients with positive tumor p53 profiles compared to patients without these profiles
(median survival 7.2 months vs. 2.7 months; p < 0.0001). The p53 profiles predictive of
ADVEXIN treatment effects were retained as an
independent prognostic factor for survival in Cox Proportional Hazard Multivariate Analysis
of known prognostic variables, with a significantly decreased risk of death for patients
with favorable ADVEXIN efficacy profiles (HR 0.15, 95% CI, (0.06, 0.39), p = 0.0001)
compared to patients with unfavorable profiles. In contrast, the p53 profiles predictive of
ADVEXIN survival effects did not predict methotrexate survival outcomes and there was no
statistical difference between the median survivals of methotrexate treated patients with
favorable vs. unfavorable tumor p53 profiles for ADVEXIN treatment effects. |
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With respect to tumor response, similar benefits for ADVEXIN therapy in comparison to
methotrexate in the molecular biomarker population were observed for this parameter of
treatment efficacy that was also observed for the survival outcomes. In the Phase 3 study,
there was a statistically significant increase in |
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tumor responses for ADVEXIN treated
patients with favorable p53 efficacy profiles compared to those with unfavorable profiles
(favorable 71% (n=17/24) vs. unfavorable 18% (2/11); p = 0.0088). In contrast, the p53
profiles predictive of ADVEXIN efficacy did not predict methotrexate response outcomes.
Opposite to ADVEXIN therapy, methotrexate responders had a lower percentage of favorable
p53 profiles and a higher proportion of responders with unfavorable p53 profiles (favorable
50% (n=11/22) vs. unfavorable 83% (5/6). The interaction of tumor response, treatment and
p53 biomarker profiles was statistically significant by logistic regression analysis (p =
0.0069) and indicates that p53 gene therapy and methotrexate tumor responses were
associated with different and complimentary groups of recurrent SCCHN patients. |
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The results of the statistical analyses for survival and tumor response are in agreement
with each other and demonstrate the superior efficacy of ADVEXIN therapy compared to
methotrexate in patients with tumor p53 profiles positive for ADVEXIN therapy efficacy. |
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Another result of the study shows that ADVEXIN therapy and methotrexate have significant
clinical benefits in different groups of patients. These patients could easily be
identified by their predictive tumor p53 profiles. |
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Based on the finding that ADVEXIN therapy and methotrexate demonstrate activity in
complementary groups of patients, it is expected that the median survivals for the overall
intent-to-treat ADVEXIN therapy and methotrexate populations should be similar and without
a statistically significant difference. This was observed in the Phase 3 study (median
survival for ADVEXIN therapy 4.4 months vs. methotrexate of 6.1 months; p = 0.236). The
results demonstrate the importance of evaluating biomarker populations as opposed to the
intent-to-treat groups that do not account for the underlying and identifiable molecular
indicators of ADVEXIN therapy activity that can identify which patients will benefit from
ADVEXIN therapy. |
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In this Phase 3 study, ADVEXIN therapy had a superior safety profile compared to
methotrexate. The side effects more common for methotrexate (inflammation of mouth,
pneumonia and low blood counts) were potentially more clinically significant than the
generally more self-limiting side effects from ADVEXIN therapy (fever, chills, and
injection site discomfort or pain). |
The results presented above are based upon employing > 20% staining tumor cells as
the criterion for elevated p53 protein expression in the p53 biomarker profiles. This criterion
complements results we previously presented in our Form 10Q as of June 30, 2008, which were based
upon > 50% tumor staining. We have performed the analyses under both criteria for
scientific and regulatory purposes and have provided both sets of data for regulatory filings. The
findings show essentially the same results with little or no practical difference in outcome or
clinical application because the majority of patients with > 20% staining were also
found to have > 50% tumor staining.
These findings demonstrate the benefits of ADVEXIN therapy in comparison to methotrexate for
patients with tumor p53 biomarker profiles positive for ADVEXIN therapy. The clinical application
of these biomarkers may allow physicians to select individualized ADVEXIN therapy based upon a
patients tumor p53 profile determined by routine diagnostic tests.
Regulatory Filings for Marketing Approval for Treatment of Li-Fraumeni Syndrome
The EMEA Committee for Orphan Medicinal Products granted ADVEXIN therapy an Orphan Medicinal
Product Designation in Europe for the treatment of Li-Fraumeni Syndrome. This designation has been
ratified by the European Commission. The Orphan Medicinal Product Designation in Europe confers a
number of regulatory benefits to ADVEXIN therapy, including access to protocol assistance, reduced
regulatory fees and a ten-year period
of marketing exclusivity from the date of marketing authorization by the European Commission.
Li-Fraumeni Syndrome is an inherited cancer characterized by inherited mutations in the p53 tumor
suppressor.
We have submitted, and the EMEA has accepted for review, a Marketing Authorization Application
for the use of ADVEXIN therapy for treatment of Li-Fraumeni Syndrome cancers under the EMEAs
Exceptional Circumstances Approval rules for breakthrough therapies. Under these rules, approval,
if granted by the EMEA, will be based on clinical results from the use of ADVEXIN therapy in
Li-Fraumeni Syndrome cancers and also from results of other trials with ADVEXIN therapy in a wide
variety of non-inherited solid tumors that share the p53 biomarker abnormality, which characterizes
Li-Fraumeni Syndrome cancers. We have received review questions from the EMEA in response to this
application and believe we can fully address these questions in a timely manner.
17
The EMEAs Exceptional Circumstances Approval provisions are designed to facilitate access to
needed treatments for certain Orphan Medicinal Products. A Marketing Authorization Application
filed with the EMEA under these provisions can be reviewed on an expedited basis. This Exceptional
Circumstance registration approach is designed by EMEA to be more streamlined than EMEAs
Conditional Approval procedures, which are similar to the FDAs Accelerated Approval regulations.
An audit and inspection of Introgens facilities and production processes was performed by a
European Union Qualified Person (QP) during 2007. This inspection resulted in the QP concluding
that ADVEXIN therapy has been manufactured at this site in accordance with the standards of Good
Manufacturing Practices in place in the EU for Investigation Medicinal Products (IMPs). This
inspection covered all aspects of ADVEXIN therapy manufacture, including production and
purification, aseptic filling, labeling, and testing of raw materials, intermediates, and final
product, and all quality systems in place for these aspects.
Our manufacturing facilities were audited in July 2008 by representatives of the Irish
Medicines Board on behalf of the EMEA. The purpose of the inspection was to assess the compliance
of our facilities and GMP systems with the requirements of the EC Guide to GMP with a view to issue
a Manufacturing Authorization in relation to our Marketing Authorization Application to the EMEA
for our ADVEXIN therapy product. We are in the process of evaluating the audit findings and expect
to have all observations resolved by the end of 2008.
There is no assurance we will receive approval from the FDA and/or the EMEA to market ADVEXIN
therapy for recurrent head and neck cancer or Li-Fraumeni syndrome. In particular, there is no
assurance we can successfully appeal the FDAs notification that our BLA requesting marketing
approval for ADVEXIN therapy to treat recurrent, refractory head and neck cancer was not
sufficiently complete and would not be filed. We may encounter unforeseen delays in the regulatory
process due to additional information requirements from regulatory authorities, unintentional
omissions in our applications, additional government regulation or other delays in the review
process. We may update our expectations regarding these regulatory milestones from time to time to
reflect new information as it becomes available to us.
ADVEXIN Therapy as a Targeted Molecular Therapy
As noted above, we identified a set of predictive indicators, commonly referred to as
biomarkers, associated with high response rates and increased survival in our clinical trials of
ADVEXIN therapy in patients with recurrent head and neck cancer. We believe these biomarkers
support the use of ADVEXIN therapy as a targeted molecular therapy.
The FDA, the National Cancer Institute (NCI), and the Centers for Medicare & Medicaid Services
are undertaking the Oncology Biomarker Qualification Initiative to expedite the development of
novel cancer treatments that reflect the Personalized Medicine approach. These agencies define
biomarkers as clinical or biological indicators of disease or therapeutic effects, which can be
measured through dynamic imaging tests, laboratory tests on blood or tissue samples as well as by
clinically defined parameters. This initiative was developed to employ biomarkers as a way of
speeding the development and evaluation of new cancer therapies. The identification of predictive
indicators of ADVEXIN therapy activity is responsive to these initiatives by predicting the patient
populations most likely to benefit from a specific cancer therapy.
We have compiled molecular biomarker data from several of our clinical studies in patients
with head and neck, lung, prostate and Li-Fraumeni Syndrome cancers. Some of these studies are
described in more detail in preceding and subsequent paragraphs.
The targeted molecular therapy provided by ADVEXIN therapy is evidenced by its use to
successfully treat a Li-Fraumeni Syndrome cancer patient on a compassionate use basis under a
protocol authorized by the FDA. Li-Fraumeni Syndrome cancer patients have inherited defects in the
p53 tumor suppressor that is the target of ADVEXIN therapy. Our treatment of a tumor in a
Li-Fraumeni Syndrome cancer patient with ADVEXIN therapy led to improvement of tumor-related
symptoms and resulted in a complete response in the treated lesion as determined by positron
emission tomography (PET) computerized tomography (CT) scans. PET-CT scans measure the metabolic
activity of tumors and are being increasingly utilized in the management of cancer patients because
they provide more sensitive assessments of treatment effects compared to conventional CT and
magnetic resonance imaging scans.
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This Li-Fraumeni Syndrome study defined important biomarkers to guide the administration of
ADVEXIN therapy to patients with other cancers who display p53 pathway abnormalities. Our molecular
analysis of biopsies of the Li-Fraumeni Syndrome tumor before and after treatment identified key
markers of p53 pathway abnormalities that are used to predict and evaluate the effects of ADVEXIN
therapy. These markers included detection of abnormal levels of p53 protein that identify aberrant
p53 pathways and the induction of molecular markers of tumor growth control and tumor cell death
that validate ADVEXIN therapys mechanisms of action. We believe these biomarkers can be used to
identify patients most likely to benefit from ADVEXIN therapy.
Other ADVEXIN Therapy Activities
We performed a Phase 2 clinical trial of ADVEXIN therapy combined with neoadjuvant
chemotherapy and surgery in women with locally advanced breast cancer. The results of this study
were published in the journal Cancer. Objective clinical responses were seen following the combined
therapy in 100% of the patients with a median of 80% reduction in tumor size. Following tumor
shrinkage, complete tumor removal by subsequent surgery was achieved in 100% of the patients. At a
median follow-up of 37 months (range, 30-41 months), four patients (30%) developed systemic
recurrence and two patients died. The estimated breast cancer-specific survival rate at three years
was 84%. There was no increase in systemic toxicity. Neoadjuvant treatments are administered prior
to surgery and represent a novel and increasingly applied approach to making surgical tumor
resections less invasive, improving outcomes and facilitating breast conservation.
We completed a Phase 2 clinical trial of ADVEXIN therapy administered as a complement to
radiation therapy in non-small cell lung cancer. In the 19 patients who participated in the trial,
combined ADVEXIN therapy and radiation treatment resulted in 63% biopsy-proven complete responses
at three months, which is approximately four times the expected rate using radiotherapy alone. The
results of this study were published in Clinical Cancer Research.
We performed a Phase 1/early Phase 2 clinical trial of ADVEXIN therapy for the treatment of
advanced, unresectable, squamous cell esophageal cancer. Results of this trial in patients with
esophageal cancer refractory to chemotherapy and radiation indicate three of the ten patients
treated, or 30%, had negative biopsies after receiving ADVEXIN therapy. The median survival of the
patients treated with ADVEXIN therapy was approximately twelve months, which compared favorably to
historical controls in which a median survival of less than ten months was observed for patients
who did not respond to standard treatments. This clinical trial was performed at Chiba University
in Japan.
We have completed other clinical trials of ADVEXIN therapy, including Phase 1 studies in
prostate cancer and bronchoalveolar carcinoma. To date, clinical investigators at sites in North
America, Europe and Japan have treated over 600 patients with ADVEXIN therapy, establishing a large
safety database. Findings from several of our clinical trials have been published in Clinical
Cancer Research and Proceedings of the American Society for Clinical Oncology as well as presented
at numerous conferences, including the San Antonio Breast Cancer Conference and various meetings of
the ASCO, ASGT and the American Association for Cancer Research.
A growing body of data suggests ADVEXIN therapy demonstrates clinical activity in a variety of
cancer indications. Safety data from our clinical trials suggest this activity may be achieved
without the treatment-limiting side effects frequently associated with many other cancer therapies.
Our clinical trials indicate ADVEXIN therapy is well tolerated as a monotherapy. The addition
of ADVEXIN therapy to standard chemotherapy, surgery or radiation does not appear to increase the
frequency or severity of side effects normally associated with these treatment regimens.
Pre-clinical studies have provided insight into the molecular pathways by which the p53 tumor
suppressor, the active component of ADVEXIN therapy, kills tumor cells. These studies were
undertaken to provide additional molecular data supporting the activity observed during the
clinical development of ADVEXIN therapy and to provide additional information regarding the
specific pathways, including anti-angiogenesis or the reduction of blood vessels supplying the
tumor, that mediate the observed clinical effects of ADVEXIN therapy. The studies were conducted by
our collaborators at Okayama University in Japan, The University of Texas M. D. Anderson Cancer
Center and other academic institutions and were published in Molecular Cancer Therapeutics and
other scientific journals.
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Other data suggest the enhanced therapeutic effects of a combination of ADVEXIN therapy and
Erbitux® therapy in an animal model of human non-small cell lung cancer. Other pre-clinical studies
conducted by our collaborators at Wayne State University, the Karmanos Cancer Institute located in
Detroit, Michigan and the University of California-Irvine, as published in The Laryngoscope, show
that the combination of ADVEXIN therapy and docetaxel resulted in increased levels of programmed
cell death in head and neck tumor cells.
We hold a worldwide, exclusive license to a family of patent applications directed to
combination therapy using ADVEXIN therapy with inhibitors of epidermal growth factor receptors
(EGFR inhibitors) such as Erbitux®, Vectibix®, Tarceva® and Iressa®. We licensed this family of
patents from M. D. Anderson Cancer Center. This important technology is based on the discovery by
scientists at M. D. Anderson Cancer Center that p53 therapies (which is the basis for our ADVEXIN
therapy) and mda7 therapies (which is the basis for our INGN 241 product candidate discussed below)
can work synergistically with inhibitors of epidermal growth factor receptors to arrest tumor
growth. Preclinical studies have shown that this therapeutic approach results in a greater level of
cancer cell death than when either therapy is used alone.
We hold the worldwide rights for pre-clinical and clinical development, manufacturing,
marketing and commercialization of ADVEXIN therapy.
INGN 241 (mda-7)
INGN 241 uses the mda-7 tumor suppressor, that we believe, like the p53 tumor suppressor, has
broad potential to induce apoptosis or cell death in many types of cancer. We have combined the
mda-7 tumor suppressor with our adenoviral delivery system to form INGN 241. Our pre-clinical
trials have shown the protein produced by INGN 241 suppresses the growth of many cancer cells,
including those of the breast, lung, ovaries, colon, prostate and the central nervous system, while
not affecting the growth of normal cells. Because INGN 241 kills cancer cells even if other tumor
suppressors, including p53, are not functioning properly, it appears mda-7 functions via a novel
mechanism of tumor suppression.
We have completed a Phase 1/early Phase 2 clinical trial using INGN 241 to evaluate safety,
mechanism of action and efficacy in approximately 22 patients with solid tumors. This trial
indicated that in patients with solid tumors, INGN 241 was well tolerated, was biologically active
and displayed minimal toxicity associated with its use. Although INGN 241 was administered directly
to tumors, evidence of distant biologic activity was observed, suggesting this therapy may have
utility in treating primary tumors as well as metastatic disease. We are conducting a Phase 2
clinical trial using INGN 241 in patients with metastatic melanoma. We are also conducting a Phase
3 clinical trial using INGN 241 in combination with radiation therapy for solid tumors.
Data from our Phase 1/early Phase 2 clinical trial of INGN 241 in patients with solid tumors
demonstrated that direct injection of INGN 241 induced programmed cell death in 100% of the tumors
treated, even in patients who had failed prior therapy with other anti-cancer drugs. Clinical
responses were observed in 44% of the treated lesions, including complete and partial responses in
two patients with melanoma. Patients treated with INGN 241 had increases in a subset of T-cells
that help to destroy cancer cells, which is consistent with the role of the mda-7 protein as a
member of the interleukin family of immune stimulating proteins.
We have conducted pre-clinical work indicating that in addition to its known activity as a
tumor suppressor, the protein produced by mda-7 may also stimulate the bodys immune system to kill
metastatic tumor cells and to protect the body against cancer, thereby offering the potential of
providing an added advantage in treating various cancers because it may attack cancer using two
different mechanisms. Because the mda-7 tumor suppressor may act as a cytokine, or immune system
modulator, it is also known as interleukin 24, or IL-24. The mda-7 molecule may also work as a
radiation sensitizer to make several types of human cancer cells more susceptible to radiation
therapy. We have seen evidence of this effect in pre-clinical and clinical settings.
We have identified the molecular pathways by which mda-7, the active component of INGN 241,
induces growth arrest and programmed cell death or apoptosis in cancer cells. Pre-clinical studies
using lung cancer cells have demonstrated the mda-7 protein binds to a critical cellular enzyme
known as PKR. The binding of mda-7 to PKR is essential for the anti-cancer activity of INGN 241.
The identification of this binding partner demonstrates a significant advancement in understanding
how this therapeutic can be effective against cancer. Additional studies have identified bystander
killing of pancreatic cancer cells by the mda-7 protein. Bystander killing involves the killing of
neighboring tumor cells by the mda-7 protein released from adjacent INGN 241-treated tumor cells.
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Pre-clinical data indicate the combination of INGN 241 and Velcade® (Bortezeamib), marketed by
Millennium Pharmaceuticals, Inc., can result in increased tumor cell killing in human ovarian
cancer cells. These data showed that co-administration of INGN 241 and Velcade®, a known protein
degradation inhibitor, further elevated mda-7 protein levels and caused a significant increase in
killing of ovarian cancer cells. These findings are published in Cancer Gene Therapy.
Pre-clinical data indicate INGN 241 works synergistically with celecoxib, marketed by Pfizer
as Celebrex®, to inhibit the growth and increase killing of breast cancer cells. The combination of
celecoxib and INGN 241 showed greater than additive increases in cell death compared with either
therapy alone and also resulted in the suppression of tumor cell growth.
Pre-clinical data indicate INGN 241 and bevacizumab, marketed by Roche Holding AG and
Genentech, Inc. (Genentech) as Avastin®, each inhibit tumor angiogenesis through distinct
mechanisms in models of lung cancer. Study results demonstrate the combination of INGN 241 and
Avastin® significantly increases anti-tumor activity compared with either agent used separately. We
have observed synergistic activity resulting in a positive therapeutic effect in the treatment of
lung cancer in laboratory animals following the combination of the two agents. In contrast,
treatment with Avastin® alone demonstrated only minor tumor regression in those animals. These
findings have been published in Molecular Therapy, the journal of the American Society of Gene
Therapy.
Pre-clinical data indicate the combination of INGN 241 and Tarceva®, marketed by Genentech,
more significantly inhibits tumor cell growth than Tarceva® administered alone. The preclinical
data suggest the two agents work in concert to inhibit activity of the epidermal growth factor
receptor, a potent driver for cell growth in many types of cancer.
Our pre-clinical work indicates INGN 241 effectively kills cancer cells that are resistant to
cisplatin, one of the most commonly used chemotherapeutic agents. These pre-clinical studies
identified a novel defect in a protein degradation pathway in the cisplatin-resistant cells. This
defect enhances the activity of INGN 241, suggesting that INGN 241 may have particular utility in
treating cancers that do not respond to cisplatin. We have also observed that INGN 241 can restore
cisplatin sensitivity to certain cancer cells that have become cisplatin-resistant.
In pre-clinical studies, we have observed the expression of mda-7 in ovarian cancer cells
activates a cell death or apoptotic pathway regulated by the Fas signaling system, a key signaling
system in immune regulation, apoptosis and drug resistance. This activation resulted in significant
increases in apoptosis and inhibition of cancer cell proliferation that were specific to cancer
cells. These effects were not observed in normal ovarian tissue, supporting previous data showing a
cancer-selective effect of INGN 241.
We have published preclinical data describing how an important tumor survival pathway impacts
the anticancer activity of INGN 241. Inhibition of this pathway, known as NF-kB, enhanced the tumor
killing effects of INGN 241 in cell culture and in preclinical models of human tumors. Researchers
at Introgen and The University of Texas M. D. Anderson Cancer Center conducted theses studies. The
data appear in the publication Molecular Cancer Therapeutics.
We have published preclinical data demonstrating that vitamin E succinate (VES) enhances the
cytotoxic effects of INGN 241 in ovarian cancer cells. VES is a derivative of Vitamin E that has
demonstrated potent antitumor activity in cell and animal models of cancer. Researchers at Introgen
and The University of Texas M. D. Anderson Cancer Center collaborated on the studies. The results
appear in the publication Cancer Letters.
We have published the results of a pre-clinical study indicating INGN 241 may suppress the
growth in vivo of non-small cell lung cancer through apoptosis in combination with
anti-angiogenesis. The data demonstrate INGN 241 can inhibit production of the VEGF protein, a
potent inducer of angiogenesis, within lung cancer cells, which in turn inhibits tumor
angiogenesis, a key requirement for tumor growth.
Pre-clinical work has demonstrated administration of INGN 241 results in the development of
systemic immune responses against tumor cells and suggests INGN 241 could be used as a novel cancer
molecular immunotherapy. In pre-clinical studies, implantation of INGN 241-treated tumor cells into
mice resulted in significant inhibition of tumor growth. Significantly, mice immunized with INGN
241-treated cells showed inhibition of tumor growth after a subsequent challenge with additional
tumor cells.
We have conducted pre-clinical studies with INGN 241 in breast cancer cell lines as a single
agent, as well as in combination with radiation therapy, with chemotherapy (Taxotere® or
Adriamycin®), with the hormone inhibitor
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Tamoxifen® and with Herceptin®, a biologic cancer therapy.
In all settings, INGN 241 reduced cell growth and increased programmed tumor cell death
(apoptosis). This effect was enhanced when combined with drugs currently used to treat breast
cancer. In animal models of breast cancer, treatment with INGN 241 alone or in combination with
radiation therapy resulted in significant decreases in tumor growth. In particular, our
pre-clinical studies have shown treatment with a combination of INGN 241 plus Herceptin® induces
cell death in Her-2/neu positive breast cancer cells at a rate greater than that seen with either
agent alone. In these studies, it was also noted while Herceptin® exhibited no activity on
Her-2/neu negative cells, INGN 241 did induce cell death in these cells.
Pre-clinical studies indicate the mda-7 protein released from cells treated with INGN 241 can
kill nearby, untreated breast cancer cells resulting in additional therapeutic effect. This
bystander effect occurs when the therapeutic protein binds to certain receptors on nearby cancer
cells. We believe this bystander effect is significant because it could indicate the number of
cancer cells INGN 241 can kill is greater than the number of cells that take up this novel
investigational cancer therapy.
Pre-clinical studies have demonstrated that INGN 241 can induce human lung cancer cells to
undergo apoptosis, or programmed cell death, through the synergistic action of INGN 241 and a class
of tumor-targeted drugs known as heat shock protein 90 (Hsp90) inhibitors. We have observed the
combination of INGN 241 and two Hsp90 inhibitors can result in the enhancement of cell death in
lung cancer cells. This combination treatment inhibited tumor cell movement, suggesting an
anti-metastatic effect.
Findings and results arising from our development of INGN 241 have also been published in the
Journal of Leukocyte Biology, Cancer Gene Therapy, Cancer Research, Molecular Therapy, Oncogene,
Surgery, and International Immunopharmacolgy. Data from this work have also been presented at the
annual San Antonio Breast Cancer Symposium.
We have exclusive licenses from Columbia University and The University of Texas M. D. Anderson
Cancer Center to mda-7 tumor suppressor technology for our therapeutic applications. The technology
licensed from M. D. Anderson Cancer Center was developed pursuant to sponsored and collaborative
research programs over the past several years. Pre-clinical studies regarding the active component
of INGN 241 have included research at The University of Texas M. D. Anderson Cancer Center and
Columbia University. We have an exclusive license to a family of patent applications covering
methods and compositions of the mda-7 tumor suppressor with several types of currently available
therapies, including conventional chemotherapies, vascular endothelial growth factor inhibitors,
such as Avastin® (bevacizumab), non- steroidal anti-inflammatory drugs, which include COX-2
inhibitors such as Celebrex®, (celecoxib) and proteasome inhibitors, which can increase therapeutic
functionality, such as Velcade® (bortezemib).
INGN 225 (p53 molecular immunotherapy)
We are developing INGN 225 using the p53 tumor suppressor in a different manner to create a
molecular immunotherapy for cancer that stimulates a particular type of immune system cell known as
a dendritic cell. Research published in Current Opinion in Drug Discovery & Development concluded
that the p53 tumor suppressor can be used with a patients isolated dendritic cells as an antigen
delivery and immune enhancing therapeutic strategy. Pre-clinical testing has shown that the immune
system can recognize and kill tumors after treatment with dendritic cells stimulated by the p53
tumor suppressor, which suggests a molecular immunotherapy consisting of dendritic cells stimulated
by p53 could have broad utility as a treatment for progression of tumors.
Moffitt Cancer Center is conducting a Phase 2 randomized, controlled study of INGN 225
involving as many as 80 patients with metastatic, small-cell lung cancer. Mutations in the p53
tumor suppressor occur in approximately 90 percent of the patients with this disease such that this
patient population is well-suited for testing the clinical efficacy of INGN 225. One of the
patients in this trial treated solely with INGN 225 had a significant reduction in the size of
metastatic liver tumors. The National Institutes of Health National Cancer Institute awarded to
Moffitt Cancer Center a grant of approximately $1.3 million to fund this trial. We have the right to,
and expect we will, use the clinical data generated from this study as part of our INGN 225
commercial development efforts.
We have completed a Phase 1/2 clinical trial in collaboration with the Moffitt Cancer Center
at the University of South Florida in patients with small cell lung cancer. We are also conducting
a Phase 1/2 trial in patients with breast cancer in collaboration with the University of Nebraska.
In this trial, INGN 225 was administered after the patients have been treated with standard
chemotherapy.
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The results from the Phase 1/2 trial in patients with extensive-stage small cell lung cancer
who were previously treated with chemotherapy demonstrated a 45 percent response rate in patients
with platinum-resistant small-cell lung cancer who received chemotherapy following INGN 225. The
historical response rate is generally less than 15 percent in these patients. Among the 43 patients
evaluable for survival following INGN 225 treatment, survival was also improved compared to
historical controls.
INGN 234 (p53 topical)
We are developing INGN 234 for the prevention of oral cancers and the treatment of oral
leukoplakia. We conducted a Phase 1 clinical trial in which p53 was administered in an oral
mouthwash formulation to prevent precancerous oral lesions from developing into cancerous lesions.
We are conducting pre-clinical work on other topical administrations of tumor suppressors to
control or prevent oral or dermal cancers. We are investigating multiple delivery platforms,
including both viral and non-viral approaches. We are also investigating combining delivery of our
therapies with rinses, patches, ointments and enhancing polymers. We believe the opportunity exists
to develop non-toxic treatments for pre-malignant and malignant cells that can be easily exposed to
natural biological tumor suppressor and DNA repairing molecules.
We have an alliance agreement with Colgate-Palmolive to develop and potentially market oral
healthcare products. See Part I, Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operation Business and Collaborative Arrangements Alliance with
Colgate-Palmolive Company below for further discussion of this alliance agreement.
INGN 401 (FUS-1)
INGN 401 uses systemically administered nanoparticles to express the tumor suppressor FUS-1.
We exclusively license the FUS-1 technology from M. D. Anderson Cancer Center.
A Phase 1/early Phase 2 clinical trial is in process at M. D. Anderson Cancer Center testing
INGN 401 in patients with advanced non-small cell lung cancer who have been treated previously with
chemotherapy. INGN 401 was successfully delivered into the tumors of stage IV lung cancer patients
and was found to be active in patients metastatic non-small cell lung cancer tumors. This finding
is the first clinical demonstration that a gene can be injected intravenously and be taken up and
expressed at high levels in cancer cells at distant sites.
The interim results of this clinical trial were presented by the M. D. Anderson Cancer Center
investigators at the 2007 annual meeting of the American Association of Cancer Research. This
clinical trial consists of patients first treated with front line cisplatin combination
chemotherapy, which failed to halt their disease. They received INGN 401 as a second line therapy.
Blinded analysis of pre- and post-treatment tumor biopsies demonstrated a high level of FUS-1
expression after therapy. At this time, the median survival time for the 21 patients in this study
was 10.3 months which compares favorably to the six to seven month median survival time for
patients receiving conventional second line therapy. Tumor responses were observed in 24% (n=5/21)
of the treated patients. Stable disease was observed in three responding patients and reductions
in tumor size were observed in two additional patients. No significant drug-related toxicity has
been observed with respect to INGN 401. The clinical trial continues and no maximum tolerated dose
has been established.
Pre-clinical data suggests that INGN 401 may have utility as a monotherapy in lung cancer. We
have observed significant inhibition of tumor growth in lung cancer animal models following INGN
401 monotherapy treatment when compared with untreated animals.
Pre-clinical data suggests that a combination of ADVEXIN therapy and INGN 401, administered
intravenously in nanoparticle formulations, is capable of significantly shrinking metastatic tumors
in models of human lung cancer. The data indicates that while ADVEXIN therapy and INGN 401 are each
effective as a monotherapy, more powerful results were observed when the treatments were combined.
The data also indicates that the nanoparticle treatments had no demonstrable adverse effects on
normal cells.
INGN 401 has demonstrated synergistic activity with gefitinib (Iressa®), a novel class of
anti-cancer agents that decrease tumor growth by inhibiting growth factor receptors that promote
tumor proliferation. While gefitinib can produce dramatic responses in a small subset of lung
cancer patients, most lung cancers are refractory to its effects. The data indicate nanoparticle
delivery of INGN 401 can synergize with Gefitinib in killing lung tumor cells resistant to
gefitinib alone. Furthermore, in gefitinib-sensitive tumors, INGN 401 delivery significantly
enhanced anti-cancer activity.
23
Data and findings from our work to develop INGN 401 have been published in Cancer Gene Therapy
and Cancer Research. We are working with investigators at MDACC to design a pivotal clinical trial
for INGN 401.
INGN 402 and INGN 403 (nanoparticle formulations of p53 and mda-7, respectively)
We are developing two nanoparticle formulations for systemic delivery. INGN 402 contains the
p53 tumor suppressor and INGN 403 contains the mda-7 tumor suppressor, also known as interleukin 24
(IL-24). Early studies with these new nanoparticle drug candidates have demonstrated a good safety
profile and promising anti-cancer activity in murine lung tumor models. Data from the mda-7
nanoparticle studies was published in DNA and Cell Biology and presented at the annual meetings of
the ASGT and ASCO.
INGN 007 (oncolytic viral therapy)
We are developing INGN 007, a replication-competent viral therapy, which is also called an
oncolytic virus, in which viruses bind directly to cancer cells, replicate in those cells, and
cause those cancer cells to die. Pre-clinical testing in animal models indicates INGN 007
over-expresses a molecule that allows the vector to saturate the entire tumor. This testing has
demonstrated that INGN 007 has a favorable safety profile and significantly inhibits tumor growth.
Findings from this work to develop INGN 007 have been published in Cancer Research and were
presented at a meeting of ASCO. We are developing this replication-competent viral therapy through
our strategic collaboration with VirRx. The FDA has approved our Investigational New Drug
application for INGN 007 in solid tumors.
Other Research and Development Programs
We are conducting a number of pre-clinical and research programs involving a variety of
targeted therapies for the treatment of cancer. These programs involve molecules that act through
diverse mechanisms to inhibit the growth of or kill cancer cells.
We license from M. D. Anderson Cancer Center a group of molecules known as the 3p21.3 family.
Pre-clinical research performed on these molecules by collaborators at The University of Texas
Southwestern Medical Center and M. D. Anderson Cancer Center suggests that the 3p21.3 family plays
a critical role in the suppression of tumor growth in lung and other cancers. This family of
molecules includes the FUS-1 tumor suppressor we are testing as INGN 401 and the NPRL2 gene. We are
working with M. D. Anderson Cancer Center to further evaluate other 3p21.3 family molecules as
clinically relevant therapeutics.
The NPRL2 gene is believed to be important in the genesis of multiple types of cancer, including
lung cancer and renal cell cancer. Preclinical data with the NPRL2 tumor suppressor gene
demonstrated that systemic treatment using NPRL2 nanoparticles in combination with cisplatin
resulted in a 90% inhibition of tumor growth in human lung cancer cells compared to control
treatments. The ability to use a biomarker assay for NPRL2 to identify patients who might not
experience significant benefit from treatment with cisplatin alone could represent an important
advance in cancer treatment. Development of NPRL2 systemic nanoparticles may help patients whose
tumors are resistant to cisplatin by re-sensitizing tumors to this commonly used therapy. Study
results involving the NPRL2 treatment have been published in Cancer Research, a biomedical journal,
and Cancer Wise, an electronic publication of M. D. Anderson Cancer Center.
We are evaluating additional molecules, including BAK, which hold promise as therapeutic
candidates. BAK is a pro-apoptotic molecule that kills cancer cells. We are working with our
collaborators at M. D. Anderson Cancer Center to identify and develop both viral and non-viral
vectors containing this therapeutic molecule. We have exclusive rights to use the BAK molecule
under a license with Genentech, Inc.
We believe our research and development expertise gained from our molecular therapies for
cancer is also applicable to other diseases that, like cancer, result from cellular dysfunction and
uncontrolled cell growth. As a
result, we are conducting research in collaboration with medical institutions to understand
the safety and effectiveness of our molecular therapy product candidates in the treatment of other
diseases.
Introgen Enabling Technologies
We have a portfolio of technologies, referred to as enabling technologies, for administering
targeted molecular products to patients and for enhancing the effects of these products. We plan to
utilize these technologies to develop
24
additional products to treat cancer and other diseases which, like cancer, result from cellular
dysfunction and uncontrolled cell growth.
Nanoscale Viral Delivery Systems
We have demonstrated that ADVEXIN therapy and INGN 241, which use our adenoviral vector
system, enter tumor cells and express their proteins despite the bodys natural immune response to
the adenoviral vector. While the adenoviral vector system used appears to be appropriate for the
treatment of cancer by local administration, we have developed a number of additional systems that
utilize modified adenoviral vectors for delivery. These systems also may be applicable to
indications where activity of the therapeutic molecule for disease treatment is required for longer
periods of time or where systemic administration may be necessary.
Nanoparticle Systemic Delivery Platform
We hold an exclusive, worldwide license to a portfolio of patents from M. D. Anderson Cancer
Center focused on the delivery of biologically active proteins, polypeptides and peptides using
novel nanoparticle delivery complexes. These systemically-delivered nanoparticles are applicable to
a wide variety of bioactive protein-derived molecules. This technology is directed to specially
designed nanoparticles that carry and deliver therapeutic bioactive proteins, polypeptides and
peptides to targeted cells, such as cancer cells.
These nanoparticle formulations have certain therapeutic advantages. While peptides alone may
be rapidly removed from circulation, requiring frequent administration and high doses, our
nanoparticle-polypeptide formulations can increase therapeutic activity and protect against rapid
degradation normally associated with peptide therapy. Our peptide nanoparticles can include special
targeting molecules to further enhance cellular uptake and to improve therapeutic efficacy. We
believe these formulations can be expected to have a systemic effect.
We have licensed and are developing a non-viral, nanoparticle delivery platform as a
complementary delivery technology for certain types of cancers, or clinical indications,
particularly those that require systemic administration. We are using this technology in INGN 401,
INGN 402 and INGN 403.
Data published in DNA and Cell Biology highlight the potential utility of combining our
nanoparticle delivery system with the mda-7 tumor suppressor for the treatment of lung cancer. This
data demonstrate that combining this innovative delivery system with the mda-7 tumor suppressor
results in potent anti-cancer effects and systemic tumor growth inhibition in an animal model of
lung cancer. We believe combining potent anti-cancer tumor suppressors, such as mda-7 or p53, with
our nanoparticle delivery system could allow development of clinical strategies to attack
metastatic cancers.
Replicating Viral Delivery Systems
Through our strategic collaboration with VirRx, we are developing replication-competent viral
therapies, also known as oncolytic viruses, in which viruses bind directly to cancer cells,
replicate in those cells, and cause those cancer cells to die. This technology forms the basis for
our INGN 007 product development. We anticipate pursuing clinical confirmation as to whether this
self-amplifying delivery system can complement our existing adenoviral delivery system, which is
replication disabled, in selected therapeutic scenarios, in applications beyond INGN 007.
Additional Enabling Technologies
Our research and licensing activities include a number of additional technologies that expand
our capabilities. These activities include the following:
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Multi-Molecule Vector System. This technology is designed to combine multiple
therapeutic molecules with a vector. This approach has the potential for use with both
viral and non-viral delivery systems to allow the activity of more than one molecular
therapy at a time for disease treatment. |
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Pro-Apoptotic Molecule Delivery System. This technology is designed to allow the
activity of pro-apoptotic, or apoptosis-inducing, molecules during treatment only, while
temporarily suppressing the ability of the apoptotic molecule to kill producer cells during
production. This system could facilitate more efficient production of pro-apoptotic agents. |
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Tissue-Specific Targeting Systems. This technology is designed to promote the activity
of the therapeutic molecule in only those cells which have been affected by the disease
being targeted. It is intended to be applied to both viral and non-viral vectors. |
Manufacturing and Process Development
Background
Commercialization of a targeted molecular therapy product requires process methodologies,
formulations and quality release assays to produce high quality materials at a large scale. We
believe the expertise we have developed in the areas of manufacturing and process development
represents a competitive advantage. We have developed scale-up methodologies for both upstream and
downstream production processes, formulations that are safe and stable, and product release assays
that support product quality control.
We own and operate manufacturing facilities, including a commercial-scale, validated
manufacturing facility designed to comply with the FDAs Current Good Manufacturing Practice
requirements, commonly known as CGMP requirements. We have produced numerous batches of ADVEXIN
therapy clinical material for use in our Phase 1, 2 and 3 clinical trials. The design and processes
of the facility used for ADVEXIN therapy production have been reviewed with the FDA. We plan to use
our facilities for the market launch of ADVEXIN therapy.
We also use our facilities to produce INGN 241 and other investigative materials for use in
clinical trials of those product candidates. From time to time, as requirements for our own
products allow, we also manufacture pre-clinical and clinical materials for outside parties for a
fee under contract services arrangements.
As a result of an audit and inspection by a European Union Qualified Person (QP), we are
certified with the Medicines and Healthcare Products Regulatory Agency (MHRA) that our facilities
and production processes are compliant with European Good Manufacturing Practices for the
manufacture and testing of ADVEXIN therapy. The MHRA is the competent authority in the UK and is a
component of the EMEA.
Our manufacturing facilities were audited in July 2008 by representatives of the Irish
Medicines Board on behalf of the EMEA. The purpose of the inspection was to assess the compliance
of our facilities and GMP systems with the requirements of the EC Guide to GMP with a view to issue
a Manufacturing Authorization in relation to our Marketing Authorization Application to the EMEA
for our ADVEXIN therapy product. We are in the process of evaluating the audit findings and expect
to have all observations resolved by the end of 2008.
Introgen Technical Services
In June 2008, we formed Introgen Technical Services, Inc. (ITS), a wholly-owned subsidiary.
Using the manufacturing and process development resources and capabilities described above as a
foundation, we anticipate ITS will pursue the following objectives:
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Assume responsibility for producing investigative materials for our clinical trials; |
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Produce and provide us commercial supplies of products for which we may receive
marketing approval from the appropriate regulatory agencies; and |
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Pursue contract production, process development and manufacturing services for third
parties. |
We anticipate ITS will assume responsibility for overseeing and managing the resources used in
our manufacturing activities, including employing and managing the personnel involved with those
processes and operating the facilities we currently use in our manufacturing operations. Introgen
intends to retain ownership of intellectual property that facilitates these manufacturing and
process development activities but may grant ITS a non-exclusive license to use that intellectual
property to support Introgens needs and to pursue other ITS business objectives.
Our manufacturing capabilities have allowed us to build sufficient supplies of clinical
materials to meet our needs for the foreseeable future. We believe this accomplishment offers us
the opportunity to leverage our
26
manufacturing expertise and assets to potentially create incremental revenue from the
production of biologics and other compounds for third-parties who do not possess their own in-house
capabilities to meet their needs for these products. Accordingly, ITS will actively market our
manufacturing capabilities as a service we can provide to others.
While ITS is a wholly-owned subsidiary, we anticipate ITS will make royalty payments to
Introgen in consideration for the use of the intellectual property, processes and practices
developed by Introgen. We may also pursue financing to facilitate ITS growth in a manner that
results in ITS issuing its own securities to third-party investors.
Business and Collaborative Arrangements
Alliance with The Texas A&M University System
In June 2008, The Texas A&M University System (A&M System) and Introgen formed an alliance
(The Alliance) to address opportunities for process development and production of therapeutics,
vaccines, delivery systems and devices for human and veterinary applications for biopharmaceutical
industry, academic research and government clients, including the bio-defense and public health
sectors. The Alliance will initially include the use of Introgens two GMP facilities in Houston,
Texas.
Key objectives and activities of The Alliance will include:
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Production of therapeutics, vaccines and delivery systems for human and veterinary
applications. |
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Development of new methods, standards and intellectual properties to advance
healthcare research regulation of new healthcare technologies. |
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Collaboration with non-profit and government institutions to enhance research,
educational, technical training and economic development goals. |
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Promotion of academic collaborations with an expanding number of universities in
Texas and worldwide. |
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Working cooperatively to develop new research and manufacturing opportunities with
prospective partners and clients in government, academic and commercial sectors. |
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Creation of new commercial enterprises or development of new business combinations
to pursue alliance objectives. |
Alliance with Colgate-Palmolive Company
We have an alliance agreement with Colgate-Palmolive to develop and potentially market oral
healthcare products. We are conducting research and development activities involving specialized
formulations of our molecular therapies (such as p53, mda-7 and FUS-1) targeted at precancerous
conditions of the oral cavity and at oral cancer. The objective is to market these formulations as
oral healthcare products. The alliance agreement excludes certain of our cancer product candidates,
including ADVEXIN therapy, INGN 241, INGN 225 and INGN 401.
In connection with the alliance agreement, Colgate-Palmolive purchased shares of our common
stock. They agreed to vote these shares and any other shares of our capital stock they own in favor
of corporate actions approved by our Board of Directors. This voting agreement is subject to
suspension or termination upon certain events specified in the common stock purchase agreement.
Colgate-Palmolive has a first right to negotiate development, manufacturing, marketing and
distribution rights with us for specifically designed oral healthcare products for use in the human
oral cavity that may result from these research and development activities. We agreed to use
commercially reasonable efforts to develop one or more
27
specialized oral formulations through completion of Phase 2 clinical trials within the
seven-year term of the alliance agreement. We can terminate our development efforts earlier under
certain circumstances, including if the prospects for these products do not warrant further
investment, or if we expend $15.0 million in this effort. In calculating the amount of our
expenditures on these efforts, we may include grant funding received by us or our collaborators for
work performed by third parties (e.g., universities and other institutions) that is directly
related to program activities, as specified in the alliance agreement. The term of the alliance
agreement continues to November 2012, unless earlier terminated by the parties as provided in the
alliance agreement.
VirRx, Inc.
We are working with VirRx to investigate other vector technologies, specifically
replication-competent viral therapies, for delivering products into targeted cells. These
technologies form the basis for our INGN 007 product candidate. We own approximately 49% of the
outstanding common stock of VirRx.
Under a collaboration and license agreement with VirRx, we are required to make additional
milestone stock purchases, either for cash or through the issuance of our common stock, upon the
completion of Phase 1, 2 and 3 clinical trials involving technologies licensed under this
agreement. We are required to make a $5.0 million cash milestone payment to VirRx, for which we
will receive no VirRx stock, upon approval by the FDA of a BLA for the first collaboration product
based on these technologies. To the extent we have already made cash milestone payments, we may
receive a credit of 50% of the Phase 2 clinical trial milestone payments and 25% of the Phase 3
clinical trial milestone payments against this $5.0 million cash milestone payment.
The additional milestone stock purchases and cash payments are not anticipated to be required
in the near future. We may unilaterally terminate this collaboration and license agreement with 90
days prior notice, which would also terminate the requirement for us to make any additional stock
purchases.
Academic and Other Collaborations
Academic collaboration agreements have been a cost-effective way of expanding our intellectual
property portfolio, generating data necessary for regulatory submissions, accessing industry
expertise and finding new technology in-license candidates, all without building a large internal
scientific and administrative infrastructure.
The University of Texas M. D. Anderson Cancer Center
Many of our core technologies were developed by scientists at M. D. Anderson Cancer Center in
Houston, Texas, one of the largest academic cancer centers in the world. We sponsor research
conducted at M. D. Anderson Cancer Center to further the development of technologies that have
potential commercial viability. Through these sponsored research agreements, we have access to M.
D. Anderson Cancer Centers resources and expertise for the development of our technology. In
addition, we have the right to include certain patentable inventions arising from these sponsored
research agreements under our exclusive license with M. D. Anderson Cancer Center.
We have license agreements with The Board of Regents of The University of Texas System and M.
D. Anderson Cancer Center, a component institution of The University of Texas System, whereby we
have exclusive, worldwide licenses to make, use and sell certain technology. Under the terms of the
license, we will pay M. D. Anderson Cancer Center a royalty based on net sales by us or our
affiliates or by sublicense agreement of products incorporating any of such technologies. We are
obligated by the license agreements to reimburse any of M. D. Anderson Cancer Centers costs that
may be incurred in connection with obtaining patents related to the licensed technologies.
Our strategy for product development is designed to take advantage of the significant
multidisciplinary resources available at M. D. Anderson Cancer Center. Through these efforts, we
have licensed numerous technologies and patents over the past several years that we believe could
hold promise for development into commercial products.
National Cancer Institute
We have multiple cooperative research and development agreements, or CRADA, with the NCI.
Under one of these agreements, the NCI will conduct a Phase 2 clinical study to treat cancer
patients with genetically engineered therapies targeted to abnormal p53 pathways. This clinical
study will combine our p53 formulations with a novel p53 targeted treatment developed by
investigators at the NCI. This agreement continues until March 2012 and is terminable earlier upon
the mutual consent of the parties. We are paying the NCI approximately $19,000 per quarter through
March 2009 to support their technical, statistical and administrative activities under this CRADA.
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Under another CRADA, the NCI agreed to sponsor and conduct pre-clinical and human clinical
trials to evaluate the effectiveness and potential superiority to other treatments of ADVEXIN
therapy against a range of designated cancers, including breast cancer, ovarian cancer, bladder
cancer and brain cancer. To date, the NCI has conducted numerous Phase 1 clinical trials for
ADVEXIN therapy. The NCI provided most of the funding for these activities. We supplied the NCI
with ADVEXIN therapy product to be administered in these trials. We have exclusive rights to all
pre-clinical and clinical data accumulated under the CRADA. The CRADA has a flexible duration, but
is terminable upon the mutual consent of the parties or upon 30 days notice of either party.
Research and License Agreements for mda-7 Tumor Suppressor Programs
We have exclusive licenses from Columbia University and M. D. Anderson Cancer Center to mda-7
tumor suppressor related technology for our therapeutic applications. The technology licensed from
M. D. Anderson Cancer Center was developed pursuant to sponsored and collaborative research
programs over the past several years. The agreement is effective until the last to expire of the
subject patents. It is terminable upon the breach or insolvency of either party. Under the
sublicense agreement, we have agreed to make additional payments to Columbia University upon the
achievement of development milestones, as well as royalty payments on product sales.
Moffitt Cancer Center
We are collaborating with the H. Lee Moffitt Cancer Center and Research Institute to advance
our INGN 225 molecular cancer immunotherapy program. Moffitt Cancer Center has conducted
pre-clinical research with us and has completed a Phase1/2 clinical trial in patients with small
cell lung cancer. The National Institutes of Health National Cancer Institute awarded Moffitt
Cancer Center a grant of approximately $1.3 million to conduct a Phase 2 clinical trial of INGN
225, which is open and enrolling patients. We have the right to, and expect we will, use the
clinical data generated from this study as part of our INGN 225 commercial development efforts.
Marketing and Sales
We are focusing our current product development and commercialization efforts on the oncology
market. This market is characterized by its concentration of specialists in relatively few major
cancer centers, which we believe can be effectively addressed by a small, focused sales force. As
possible regulatory approval of one or more of our product candidates for commercial sale
approaches, we will address the methods of sales and marketing available to us. We will continue to
evaluate the merits of building our own direct sales force, pursuing marketing and distribution
arrangements with corporate partners or some combination of both.
Patents and Intellectual Property
Our Portfolio
Our success will depend in part on our ability to develop and maintain proprietary aspects of
our technology. To this end, we have an intellectual property program directed at developing
proprietary rights in technology that we believe may be important to our success. We also rely on a
licensing program to ensure continued strong technology development and technology transfer from
companies and research institutions with whom we work. We have entered into a number of exclusive
license agreements or options with companies and institutions, including M. D. Anderson Cancer
Center, Sidney Kimmel Cancer Center, Sanofi-Aventis, Columbia University, VirRx and Genentech. In
addition to patents, we rely on trade secrets and proprietary know-how, which we seek to protect,
in part, through confidentiality and proprietary information agreements.
We currently own or have an exclusive license to a large number of issued and pending United
States and foreign patents and patent applications. Currently, the last to expire patents key to
our ADVEXIN therapy expire in 2020. We have applications pending that could extend our coverage for
our ADVEXIN therapy beyond these dates. Patents key to our INGN 241 product, using the mda-7 tumor
suppressor, expire in the time frame of 2013 to 2016, although we have pending patent cases that
could extend our protection beyond these expiration dates. The exclusive licenses that give us
rights on the patents, and applications that such licenses cover, will expire no earlier than the
life of any patent covered under the license.
Adenoviral p53 Compositions and Therapies
In developing our patent portfolio, we have focused our efforts in part on seeking protection
for our potential products and how they will be used in the clinical trials. Arising out of our
independent development programs and work with M. D. Anderson Cancer Center, we currently have an
exclusive license to a number of United States and corresponding international patents and patent
applications directed to adenoviruses that contain p53, referred to as adenoviral p53, adenoviral
p53 DNA, adenoviral p53 pharmaceutical compositions, the production of adenoviral p53 compositions
and the use of such compositions in various cancer therapies and protocols.
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We have exclusively licensed from Sanofi-Aventis patent applications directed to adenoviral
p53 and its clinical applications. We have an exclusive license to a United States patent
application and corresponding international applications directed to the use of the p53 tumor
suppressor in the treatment of cancer patients whose tumors express a normal p53 protein.
Combination Therapy with Tumor Suppressors, including p53 and mda-7/IL24
Our portfolio development includes seeking protection for clinical therapeutic strategies that
combine the use of either the p53 tumor suppressor or the mda-7/IL-24 tumor suppressor with
traditional cancer therapies. In this regard, also arising out of our work with M. D. Anderson
Cancer Center, we have an exclusive license to a number of issued United States patents and
applications with corresponding international patents and applications directed to cancer therapy
using either the p53 tumor suppressor or the mda-7/IL-24 tumor suppressor in combination with
conventional radiotherapy and/or other anti-cancer compounds. Such compounds include:
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DNA-damaging agents and conventional chemotherapies; |
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Immunotherapeutics (e.g., Herceptin®); |
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COX-2 inhibitors (e.g., celecoxib); |
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Hsp90 inhibitors; |
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Proteasome inhibitors; |
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VEGF inhibitors (e.g., Avastin®); and |
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EGFr inhibitors (e.g., Tarceva®, Iressa®). |
These United States patents and applications and corresponding international patents and
applications concern the therapeutic application of the p53 tumor suppressor or the mda-7/IL-24
tumor suppressor before, during or after treatment with radiotherapy or other anti-cancer
compounds.
To further extend our portfolio as it relates to combinatorial anti-cancer therapy, we have
licensed from Aventis a United States patent and corresponding international patents and
applications directed to therapy using the p53 tumor suppressor together with taxanes such as
Taxol® or Taxotere®. We have exclusively licensed a United States patent application and
corresponding international applications directed to the use of the p53 tumor suppressor in
combination with surgical intervention in cancer therapy.
Adenovirus Production, Purification and Formulation
Another focus of our research has involved the development of procedures for the
commercial-scale production of our potential adenoviral-based products, including that of ADVEXIN
therapy. We own various issued United States patents and related European patents, as well as a
number of pending United States applications and corresponding international applications directed
to highly purified adenoviral compositions, commercial-scale processes for producing
adenoviral-based compositions having a high level of purity and storage-stable formulations. These
patents and patent applications include procedures for preparing commercial quantities of
recombinant adenovirus products and include procedures applicable to the p53 tumor suppressor, as
well as any of our other potential products.
We have licensed from Sanofi-Aventis in the p53 field a United States patent and corresponding
international applications directed to processes for the production of purified adenoviruses, which
are useful for our product applications. With respect to storage-stable formulations, we were
issued a United States patent directed to compositions and methods concerning improved,
storage-stable adenovirus formulations. This patent is not limited to our ADVEXIN therapy product
candidate and may eventually replace formulations currently in use.
Other Tumor Suppressors
We either own or have exclusively licensed rights in a number of other patents and
applications directed to compositions and clinical applications of various tumor suppressors other
than p53, including the mda-7, BAK, and the 3p21.3 family (FUS-1). We have exclusively licensed or
optioned rights in a number of issued United States patents covering the use of the mda-7 and BAK
tumor suppressors.
Other Therapeutic, Composition and Process Technologies
We own or have exclusively licensed a number of United States and international patent
applications on a range of additional technologies. These licenses include various applications and
patents relating to p53, combination
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therapy with 2-methoxyestradiol, anti-proliferative factor technologies, retroviral delivery
systems, stimulation of anti-p53 and screening and product assurance technologies.
We have exclusively licensed a number of United States and international applications directed
to various improved vector applications employing more than one molecular therapy for disease
treatment, as well as applications directed to the delivery of molecular therapies for disease
treatment without the use of a vector, or non-viral therapy. For example, a United States patent,
exclusively licensed to us, was issued that is directed to adenoviruses that exhibit tissue
specific replication. We have exclusive rights in an issued United States patent and corresponding
international applications directed to a low toxicity analogue of IL-24, also called F42K. We also
have been issued exclusively licensed patents in Europe directed to our nanoparticle delivery
system for delivering tumor suppressor genes.
Trade Secrets
We rely on trade secrets law to protect technology where we believe patent protection is not
appropriate or obtainable. Trade secrets are difficult to protect. We generally require employees,
academic collaborators and consultants to enter into confidentiality agreements covering our trade
secrets and other confidential information. Despite these measures, we may not be able to
adequately protect our trade secrets or other proprietary information.
We are a party to various license agreements that give us rights to use specified technologies
in our research and development processes. If we are not able to continue to license this
technology on commercially reasonable terms, our product development and research may be delayed.
In the case of technologies we have licensed, we may not have the ability to make the final
decisions on how the patent application process is managed, and accordingly may be unable to
exercise the same degree of control over this intellectual property as we exercise over our
internally developed technology.
Our research collaborators and scientific advisors have rights to publish data and information
in which we have rights. If we cannot maintain the confidentiality of our technology and other
confidential information in connection with our collaborations, then our ability to receive patent
protection or protect our proprietary information will be diminished.
Financial Overview
Since our inception in 1993, we have used our resources primarily to conduct research and
development activities for ADVEXIN therapy and, to a lesser extent, for other product candidates.
At September 30, 2008, we had an accumulated deficit of $217.4 million. We anticipate we will incur
losses in the future that may be greater than losses incurred in prior periods. At September 30,
2008, we had cash and cash equivalents of $6.3 million.
Going Concern
We need to obtain additional cash to continue our operations. If we are unable to raise
additional funds for working capital, we will substantially consume all of our cash and cash
equivalents on hand at September 30, 2008, plus the amounts we may earn subsequently from contract
services, grants and/or interest income in the future, sometime during the quarter ending March 31,
2009 and will likely be unable to continue as a going concern at that time. Unforeseen
circumstances could cause us to consume cash more rapidly than expected and shorten the period
during which the resources currently available to us can fund our operations.
We may be able to obtain additional cash through public or private equity offerings, debt
financings, corporate collaborations, licensing arrangements, sales of certain of our assets (such
as real estate) or other means. However, there can be no assurances that additional financing will
be available when needed or on terms favorable to us or our stockholders. If we raise additional
capital by issuing equity securities, our stockholders will experience dilution. If we raise funds
through debt financings, we may become subject to restrictive covenants. If we raise additional
funds through collaboration and licensing arrangements, we may be required to transfer to other
parties rights to our technologies or product candidates, or grant licenses on terms not favorable
to us.
In July 2008, we reduced our staff by approximately 20 positions primarily associated with
ADVEXIN therapy development and regulatory submission programs that have achieved the milestones
discussed in various sections of this document. In the event we cannot obtain additional cash, we
may have to further reduce the scope of our operations and related cash needs to a level that may
extend the period of time during which we can rely on existing resources to conduct our business
activities. Such adjustments in the scope of our operations could include further
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reduction in the number of our personnel and perhaps delaying or discontinuing certain product
and service development activities critical to achieving our business objectives. In particular,
such actions could adversely affect our ability to continue pursuing regulatory approval to market
ADVEXIN therapy at our desired pace, to continue development of other new product candidates and to
pursue the ITS business plan.
The efforts described above could be unsuccessful. In that event, we would likely be unable to
continue as a going concern.
Cash Sources and Uses
We have used cash primarily as follows (in thousands):
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|
$ |
17,404 |
|
|
$ |
15,382 |
|
Purchases of property and equipment |
|
|
52 |
|
|
|
167 |
|
Principal payments on notes payable |
|
|
704 |
|
|
|
484 |
|
Payment of offering costs related to previous sales of common stock |
|
|
1,571 |
|
|
|
200 |
|
We have received cash primarily as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Proceeds from sale of marketable securities |
|
$ |
|
|
|
$ |
7,429 |
|
Proceeds from notes payable |
|
|
157 |
|
|
|
158 |
|
Proceeds from stock option exercises |
|
|
145 |
|
|
|
86 |
|
We expect to incur substantial additional operating expenses and losses during the foreseeable
future as our research, development, pre-clinical testing and clinical trial activities continue
and as we evolve our operations and systems to support commercialization of our product candidates.
These losses, among other things, have caused and may cause our total assets, stockholders equity
and working capital to decrease.
In January 2008, we sold all the shares of Silence Therapeutics plc we owned for their quoted
market value on the Alternative Investment Market of the London Stock Exchange on the date of the
sale. We received net proceeds of approximately $7.4 million from this sale. We purchased these
shares for approximately $3.0 million in July 2005. These shares were presented as marketable
securities in our financial statements at December 31, 2007.
Reduction in Staff
In July 2008, we reduced our staff by approximately 20 positions primarily associated with
ADVEXIN therapy development and regulatory submission programs that have achieved the milestones
discussed in various sections above. We re-allocated the approximately 50 remaining personnel to
focus on future regulatory review and commercial activities related to ADVEXIN therapy and our
other technologies and to pursue our ITS business plan. About half of those remaining personnel
will continue as Introgen employees and the others have become ITS employees.
Listing on NASDAQ Stock Market
In July 2008, The NASDAQ Stock Market (NASDAQ) notified us that we do not comply with the
minimum $50,000,000 market value of listed securities nor the alternative requirement of a minimum
$50,000,000 in total assets and total revenue required for continued listing on The NASDAQ Global
Market set forth in the NASDAQ Marketplace Rules 4450(b)(1)(A) and 4450(b)(1)(B), respectively, and
we may be subject to delisting from the Nasdaq Global Market if we failed to demonstrate compliance
with the NASDAQ Marketplace Rules by August 29, 2008. We received a Staff Determination Letter
from NASDAQ on September 4, 2008 informing us that we had not regained compliance by August 29,
2008. We appealed this initial delisting determination to a hearing conducted by a NASDAQ Listing
Qualifications Panel, or the Panel, on October 16, 2008. The Panel has not yet
32
rendered a decision regarding our appeal, and our common stock remains listed on the NASDAQ
Global Market pending the decision of the Panel and any exception it may grant us. In the event of
an unfavorable determination by the Panel, we would alternatively apply to have our common stock
transferred to the NASDAQ Capital Market, as long as we satisfy the requirements for continued
inclusion on the NASDAQ Capital Market set forth in the NASDAQ Marketplace Rules. There can be no
assurance that the Panel will grant our request for continued listing on The NASDAQ Global Market,
nor can there be assurance that our shares will alternatively be approved for listing on the NASDAQ
Capital Market. We believe that we do not currently comply with the minimum listing requirements
for The NASDAQ Capital Market.
On September 29, 2008, NASDAQ notified us that for the last 30 consecutive business days, our
bid price for our common stock had closed below the minimum $1.00 required for continued listing on
The NASDAQ Global Market as set forth in Marketplace Rule 4450(a)(5). In accordance with NASDAQ
Marketplace Rules, we will have one hundred eighty (180) days, to regain compliance with the
minimum bid price requirement by maintaining a closing bid price of $1.00 per share or higher for a
minimum of 10 consecutive business days. On October 16, 2008, NASDAQ announced that they had
suspended the enforcement of Marketplace Rule 4450(a)(5) until January 19, 2009, and as a result,
the period during which we have to regain compliance has been extended to July 1, 2009. If we are
unsuccessful in meeting the minimum bid requirement on or before July 1, 2009, NASDAQ will notify
us that our common stock will be delisted from the NASDAQ Global Market. If we receive such a
notice, we may appeal NASDAQs determination to delist our common stock or, alternatively, we may
apply to transfer our common stock to the NASDAQ Capital Market, provided that we satisfy all
criteria for initial listing on the NASDAQ Capital Market, other than compliance with the minimum
bid price requirement. If such application to the NASDAQ Capital Market is approved, then we will
have an additional 180-day compliance period in order to regain compliance with the minimum bid
price requirement while listed on the NASDAQ Capital Market.
Agreement With a Third-Party Advisor
In
November 2008, we entered into an agreement with Torreya
Partners, LLC to assist us in exploring
strategic alternatives for the Company. For those services, we will
pay Torreya Partners, LLC:
|
|
|
A retainer fee of $150,000, and |
|
|
|
|
A success fee, net of the retainer fee and subject to a maximum of $5 million, of: |
o |
|
3% of the transaction value in the case of a sale of the Company, or |
|
o |
|
6% of the transaction value in the case of a sale of the assets of the Company. |
No success fee is payable in the event of a transaction between the Company and:
|
|
|
Governmental entities in the State of Texas, including, without limitation, a State university; or |
|
|
|
|
Any entity owned in whole or in part by an affiliate of the Company, as defined. |
In a situation where the company receives payments over time, the success fee shall be payable
at the time that each such payment is actually received by the Company or its stockholders. No
success fee is due if the cash consideration from a transaction is insufficient to pay that fee.
Offering of Our Common Stock
In August 2008, we entered into a sales agreement with Cantor Fitzgerald & Co., as placement
agent, to sell up to 6 million shares of our common stock in one or more, at-the-market offerings
from time to time. Even though this agreement remains in place, if our common stock is delisted
from NASDAQ as discussed above, the terms of the agreement preclude us from selling shares of our
common stock under the agreement until such time as our listing
on NASDAQ is restored. We may apply to transfer the listing of our common stock from the
NASDAQ Global Market to the NASDAQ Capital Market if we are able to satisfy the listing
qualifications of the NASDAQ Capital Market and our application is accepted by NASDAQ. However,
the sales agreement includes various conditions to the placement agents obligations, which if not
satisfied, may prevent us from selling shares of our common stock under the agreement
notwithstanding any such transfer. For example, one of the closing conditions is that we shall
33
have not experienced a material adverse change. The impact of a transfer to the NASDAQ Capital
Market is unknown and we may experience difficulty or be unable to sell our common stock under the
sales agreement.
Each time we desire to sell shares under this agreement, we will notify the placement agent of
the parameters under which we desire the shares be sold, including:
|
|
|
The number of shares we want to sell; |
|
|
|
|
The time period during which we want the sales to occur; |
|
|
|
|
Any limitation we want on the number of shares that may be sold in any one day;
and |
|
|
|
|
Any minimum price below which sales may not be made. |
The placement agent is required to use its commercially reasonable efforts consistent with its
customary trading and sales practices to sell these shares, but is under no obligation to us if it
is unable to sell the shares. We are obligated to pay the placement agent a commission of 7% of the
gross proceeds from any sales of the shares under the sales agreement. We or the placement agent
may terminate this agreement at any time.
Any shares we sell under this agreement will be sold under our previously filed registration
statement on Form S-3 (File No. 333-140424) and related prospectus and prospectus supplement.
Stock Options
From time to time, we grant options to purchase our common stock to our directors, officers,
employees and other service providers in recognition of their contribution to achieving our
corporate objectives and as an incentive for their future contributions to us. These options
typically vest under the following general terms:
|
|
|
Options issued to members of our Board of Directors vest monthly over 12 months. |
|
|
|
|
Options issued to our Chief Executive Officer vest 100% on the date of grant. |
|
|
|
|
Options issued to other persons vest over four years at the rate of 25% per year on
each annual anniversary of the grant date. |
Our outstanding stock options have an exercise price equal to the market price of our common
stock on their date of grant. At September 30, 2008, we had options outstanding to purchase the
following numbers of shares of our common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of |
Vested |
|
Unvested |
|
Total |
|
Exercise Prices |
Options |
|
Options |
|
Options |
|
Per Share |
6,753,095
|
|
3,541,498
|
|
10,294,593
|
|
$0.52 to $8.94 |
We issued the following number of shares of common stock as a result of exercises of stock
options granted from our stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
September 30, |
|
|
|
|
|
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
118,000 |
|
|
|
206,723 |
|
|
|
138,073 |
|
|
|
|
|
Stock Purchase Warrants
From time to time, we issue stock purchase warrants, generally to investors or placement
agents, in connection with sales of our common stock. As of September 30, 2008, we have fully
vested warrants outstanding to purchase an aggregate of 713,945 shares of our common stock at
prices ranging from $4.75 per share to $8.00 per share. These warrants expire on various dates
through December 2015.
In June 2008, warrants to purchase 686,087 shares of our common stock at $4.60 per share
expired unexercised.
34
Agreement With Board Member
We have a business development agreement with a member of our Board of Directors under which
he will provide certain business development services to us in connection with potential
co-development, collaborative, marketing partnership or certain other potential strategic
transactions. In consideration for his services, upon the consummation of such a transaction, we
will pay him a fee equal to one-half of one percent (0.5%) of certain monetary benefits received by
our stockholders or us. The maximum fee he can receive is $3,000,000. The fee we pay him will be
reduced by expenses or other expenditures made or contemplated under such a transaction.
This fee is not payable for funding we receive that we are expected to expend for research and
development programs, full time equivalent payments to employees, loans, collaborative programs,
business partnerships or strategic transactions, or otherwise. Transactions between our affiliates
and us, whether now existing or created in the future, are excluded from this agreement. This
agreement may be terminated at any time by written notice from us or this board member. In the
event of such termination, the fee shall be paid with respect to a transaction produced through
services performed by this board member before termination if the transaction is closed within two
years after the date of termination of the agreement.
Critical Accounting Policies and Recently Issued Accounting Pronouncements
Our critical accounting policies and recently issued accounting pronouncements of significance
to us are described in our most recent annual report on Form 10-K for the year ended December 31,
2007, filed with the Securities and Exchange Commission on March 17, 2008. There have been no
material changes in these items since that time. As noted in that annual report, Statement of
Financial Accounting Standards No. 157, Fair Value Measurements, and Statement of Financial
Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities, were effective for us on January 1, 2008. Our adoption of those standards has no
material effect on our financial statements.
Results of Operations
Research and Development of Our Product Candidates and Technologies
Our operations consist primarily of the research and development of our product candidates and
technologies described above in Part I, Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations Product Development Overview. Our research and development
expense includes, but is not limited to, expense related to personnel, facilities and equipment,
pre-clinical research, clinical trials, manufacturing of materials for use in clinical trials,
conducting data analysis and conducting regulatory documentation submissions to the FDA. Our
research and development expense can be divided between programs in the pre-clinical stage and
programs in the clinical stage, and general research and development expense attributable to all
programs. We manage our business by tracking research and development expense in these categories
in lieu of tracking research and development expense on a project-by-project basis. Tables setting
forth the amount of research and development expense we have incurred in each of these categories
are presented below under Comparison of Three Months Ended September 30, 2008 and September 30,
2007 and Comparison of Nine Months Ended September 30, 2008 and September 30, 2007.
To commercialize our product candidates, we must obtain certain regulatory approvals.
Satisfaction of regulatory requirements typically takes many years and involves compliance with
requirements covering pre-clinical research, clinical trials, manufacturing, quality control,
labeling and promotion of drugs for human use. To obtain regulatory approvals, we must, among other
requirements, complete clinical trials and other work demonstrating our product candidates are safe
and effective for a particular cancer type or other disease. The FDA, EMEA and other similar
agencies throughout the world have substantial discretion over the work we must perform to obtain
regulatory approval.
The likelihood that a product candidate will be commercially successful may be affected by a
variety of factors, including, among others, the quality of the product candidate, the validity of
the target and disease indication, early clinical data, competition, manufacturing capability and
commercial viability. Because of the discretion of the FDA, EMEA and similar agencies throughout
the world, as well as the foregoing factors, we cannot predict with reasonable accuracy:
|
|
|
The future expense we will incur developing these product candidates; |
|
|
|
|
When we will complete our work in developing these product candidates; |
|
|
|
|
When, if ever, we will earn significant revenue from approved products
that might result from these product development programs. |
35
For a discussion of the risks and uncertainties associated with developing our products, as
well as the risks and uncertainties associated with potential commercialization of our product
candidates, see Part II, Item 1A. Risk Factors, and particularly the risk factors entitled:
|
|
|
If we are unable to commercialize ADVEXIN therapy in various markets for multiple
indications, particularly for the treatment of recurrent head and neck cancer, our business
will be harmed; |
|
|
|
|
If we fail to comply with FDA, EMEA or other foreign regulatory authority requirements
or encounter delays or difficulties in clinical trials for our product candidates, we may
not obtain regulatory approval of some or all of our product candidates on a timely basis,
if at all; |
|
|
|
|
Even if our products are approved by regulatory authorities, if we fail to comply with
ongoing regulatory requirements, or if we experience unanticipated problems with our
products, these products could be subject to restrictions or withdrawal from the market; |
|
|
|
|
Failure to comply with foreign regulatory requirements governing human clinical trials
and marketing approval for drugs could prevent us from selling our products in foreign
markets, which may adversely affect our operating results and financial conditions; |
|
|
|
|
If we continue to incur operating losses for a period longer than we anticipate and
fail to obtain the capital necessary to fund our operations, we will be unable to advance
our development program and complete our clinical trials; |
|
|
|
|
If we cannot maintain our existing corporate and academic arrangements and enter into
new arrangements, we may be unable to develop products effectively, or at all; |
|
|
|
|
If we are not able to create effective collaborative marketing relationships, we may
be unable to market our products successfully or in a cost-effective manner; and |
|
|
|
|
Even if we receive regulatory approval to market our ADVEXIN therapy, INGN 241, INGN
225 or other product candidates, we may not be able to commercialize them profitably. |
Manufacturing and Process Development Services
As discussed above under Manufacturing and Process Development, we formed Introgen Technical
Services, Inc. in June 2008 as a wholly-owned subsidiary to provide production, manufacturing and
process development services to us and to third parties. To expand these services to third parties,
we may create, through ITS, a marketing and sales activity we do not currently have that targets
those potential customers. We may have to implement, through ITS, additional operating policies,
practices and procedures we do not currently have, including possible additional production
capacity and new business systems. We may have to raise capital, which may not be available to us,
to support ITS operations.
Operating Expenses and Financing Sources
We expect our operating expenses discussed below to increase in the future as we continue to
pursue the objectives of our research and development programs, work to commercialize our product
candidates and pursue services to third parties through ITS. If we are successful in receiving
approval from regulatory agencies to sell one or more of our product candidates and as we grow our
ITS activities, we expect to incur expenses in the future that we have not incurred in the past,
such as product manufacturing costs, sales and marketing expenses and costs associated with
implementing new business practices, processes and systems. We may also require additional
production capacity. If we are able to sell one or more of our product candidates and/or sell
services to third parties through ITS, we may receive revenue in the future that we have not
received in the past.
Comparison of Three Months Ended September 30, 2008 and September 30, 2007
The following comparisons are for the three months ended September 30, 2008 and September 30,
2007. References to the 2008 period refer to the three months ended September 30, 2008 and
references to the 2007 period refer to the three months ended September 30, 2007. All dollar
amounts in the tables are in thousands unless noted otherwise.
36
Contract Services, Grant and Other Revenue
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Contract services, grant and other revenue |
|
$ |
139 |
|
|
$ |
331 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
138 |
% |
The change in contract services, grant and other revenue for the 2008 period compared to the
2007 period was a result of increased contract manufacturing process development and product
production services revenue for work we performed for third parties as a result of our efforts to
expand our offering of these services.
Research and Development Expense
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended September 30, |
|
|
|
2007 |
|
|
2008 |
|
Pre-clinical stage programs expense |
|
$ |
474 |
|
|
$ |
225 |
|
Clinical stage programs expense |
|
|
3,683 |
|
|
|
3,174 |
|
General research and development expense |
|
|
917 |
|
|
|
385 |
|
|
|
|
|
|
|
|
Total research and development expense |
|
$ |
5,074 |
|
|
$ |
3,784 |
|
|
|
|
|
|
|
|
Percent increase (decrease) in total from previous period |
|
|
N/A |
|
|
|
(25 |
)% |
Research and development expense included share-based compensation expense of $136,000 for the
2008 period and $180,000 for the 2007 period.
We experienced a reduction in research and development expense in the 2008 period compared to
the 2007 period due to:
|
|
|
Decreased costs of manufacturing supplies of clinical materials as our manufacturing
activities in earlier periods provided us with adequate quantities of clinical materials to
conduct our clinical trials for the foreseeable future such that we were able to reduce
such manufacturing activities in the 2008 period; |
|
|
|
|
Decreased clinical and regulatory expenses related to the preparation of filings with
the FDA and EMEA as we completed those initial filings related to ADVEXIN therapy during
the quarter ended June 30, 2008; |
|
|
|
|
A reduction in staff in the 2008 period of approximately 20 positions primarily
associated with ADVEXIN therapy development and regulatory submission programs that have
achieved the milestones for which these positions were required; and |
|
|
|
|
Ongoing programs to reduce our operating expenses. |
General and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
General and administrative expense |
|
$ |
2,980 |
|
|
$ |
2,699 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
(9 |
)% |
General and administrative expense included share-based compensation expense of $983,000 for
the 2008 period and $946,000 for the 2007 period.
The change in the 2008 period compared to the 2007 period was a result of:
|
|
|
The termination of the consulting agreement between EJ Financial and us effective
December 31, 2007; and |
|
|
|
|
Ongoing programs to reduce our operating expenses. |
which were offset by:
|
|
|
Increased legal and professional fees incurred with respect to certain matters arising
during the normal course of our business; |
37
|
|
|
Increased share-based compensation expense, which is discussed further below under
Share-Based Compensation Expense. |
Share-Based Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Share-based compensation expense |
|
$ |
1,126 |
|
|
$ |
1,119 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
(1 |
)% |
The 2008 period compared to the 2007 period was substantially unchanged due to no material
changes in our overall stock options profile.
Interest Income
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Interest income |
|
$ |
281 |
|
|
$ |
26 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
(91 |
)% |
The change in the 2008 period compared to the 2007 period was a result of:
|
|
|
A lower overall average balance of cash, cash equivalents and short-term
investments in the 2008 period compared to the 2007 period as a result of the 2007
period being shortly after our sales of common stock in November 2006 and December 2006
for which there were no similar transactions subsequent to those dates; and |
|
|
|
|
Generally lower interest rates during the 2008 period compared to the 2007
period; |
which were partially offset by
|
|
|
Earnings on the proceeds received from the sale of marketable securities in the
2008 period as further discussed in the Financial Overview section above. |
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Interest expense |
|
$ |
169 |
|
|
$ |
155 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
(8 |
)% |
This expense decreased for the 2008 period compared to the 2007 period due to reductions in
the total principal balance outstanding under notes payable on which we are paying interest as a
result of normal debt service payments.
Other Income
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Other income |
|
$ |
257 |
|
|
$ |
306 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
19 |
% |
The dollar amount of other income was generally comparable between the 2008 and 2007 periods,
which is consistent with the nature of our activities that generate other income. The percentage
variations in this income is not material to our business due to the relatively low dollar amounts
involved. This income is earned primarily from our sublease of space to M. D. Anderson Cancer
Center and other miscellaneous activities.
38
Comparison of Nine Months Ended September 30, 2008 and September 30, 2007
The following comparisons are for the nine months ended September 30, 2008 and September 30,
2007. References to the 2008 period refer to the nine months ended September 30, 2008 and
references to the 2007 period refer to the nine months ended September 30, 2007. All dollar
amounts in the tables are in thousands unless noted otherwise.
Contract Services, Grant and Other Revenue
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Contract services, grant and other revenue |
|
$ |
543 |
|
|
$ |
638 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
17 |
% |
The change in contract services, grant and other revenue for the 2008 period compared to the
2007 period was a result of:
|
|
|
Increased contract services revenue for research work and manufacturing process
development and product production we performed for third parties as a result of our
efforts to expand our offering of these services; |
which was offset by:
|
|
|
Decreased research activity funded by federal grants as the work under these grants
approached completion and had yet been fully supplemented by activity and funding under new
grants; |
Research and Development Expense
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
Ended
September 30, |
|
|
|
2007 |
|
|
2008 |
|
Pre-clinical stage programs expense |
|
$ |
1,137 |
|
|
$ |
938 |
|
Clinical stage programs expense |
|
|
9,359 |
|
|
|
9,745 |
|
General research and development expense |
|
|
2,516 |
|
|
|
1,937 |
|
|
|
|
|
|
|
|
Total research and development expense |
|
$ |
13,012 |
|
|
$ |
12,620 |
|
|
|
|
|
|
|
|
Percent increase (decrease) in total from previous
period |
|
|
N/A |
|
|
|
(3)% |
|
Research and development expense included share-based compensation expense of $454,000 for the
2008 period and $799,000 for the 2007 period.
We experienced a reduction in research and development expense in the 2008 period compared to
the 2007 period due to:
|
|
|
Decreased share-based compensation expense which is discussed further below under
Share-Based Compensation Expense; |
|
|
|
|
Decreased costs of manufacturing supplies of clinical materials as our manufacturing
activities in earlier periods provided us with adequate quantities of clinical materials to
conduct our clinical trials for the foreseeable future such that we were able to reduce such
manufacturing activities in the 2008 period; |
|
|
|
|
Decreased clinical and regulatory expenses related to the preparation of filings with the
FDA and EMEA as we completed those initial filings related to ADVEXIN therapy during the
2008 period; |
|
|
|
|
A reduction in staff in the 2008 period primarily associated with ADVEXIN therapy
development and regulatory submission programs that have achieved the milestones toward
which these positions were required; and |
|
|
|
|
Ongoing programs to reduce our operating expenses. |
39
which was offset by:
|
|
|
The effect on the 2007 period of reaching an agreement with a third party during that
period that resulted in us not having to pay certain of their invoices that were previously
included in our accounts payable that in turn reduced operating expenses for that period.. |
General and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
General and administrative expense |
|
$ |
9,780 |
|
|
$ |
7,720 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
(21 |
)% |
General and administrative expense included share-based compensation expense of $2.8 million
for the 2008 period and $3.1 million for the 2007 period.
The change in the 2008 period compared to the 2007 period was a result of:
|
|
|
Decreased legal fees incurred with respect to certain matters arising during the normal
course of our business; |
|
|
|
|
The termination of the consulting agreement between EJ Financial and us effective
December 31, 2007; |
|
|
|
|
Cash compensation paid to our Board of Directors in connection with a grant of
restricted stock to them during the 2007 period for which there was no similar grant during
the 2008 period; |
|
|
|
|
Ongoing programs to reduce our operating expenses; and |
|
|
|
|
Decreased share-based compensation expense, which is discussed further below under
Share-Based Compensation Expense. |
Share-Based Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Share-based compensation expense |
|
$ |
3,885 |
|
|
$ |
3,302 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
(15 |
)% |
The change in the 2008 period compared to the 2007 period was primarily a result of:
|
|
|
A grant of restricted stock to our Board of Directors during the 2007 period for which
there was no similar grant during the 2008 period; |
|
|
|
|
The forfeiture of stock options resulting from normal employee attrition and reductions
in staff; and |
|
|
|
|
Variances in the risk-free interest rate, the volatility of our stock price and other
factors considered in our determination of share-based compensation expense using the
Black-Scholes option pricing model. |
Interest Income
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Interest income |
|
$ |
1,096 |
|
|
$ |
186 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
(83 |
)% |
The change in the 2008 period compared to the 2007 period was a result of:
|
|
|
A lower overall average balance of cash, cash equivalents and short-term investments in
the 2008 period compared to the 2007 period as a result of the 2007 period being shortly
after our sales of common stock in |
40
|
|
|
November 2006 and December 2006 for which there were no
similar transactions subsequent to those dates; and |
|
|
|
|
Generally lower interest rates during the 2008 period compared to the 2007 period; |
which were partially offset by
|
|
|
Earnings on the proceeds received from the sale of marketable securities in the 2008
period as further discussed in the Financial Overview section above. |
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Interest expense |
|
$ |
514 |
|
|
$ |
480 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
(7 |
)% |
This expense decreased for the 2008 period compared to the 2007 period due to reductions in
the total principal balance outstanding under notes payable on which we are paying interest as a
result of normal debt service payments.
Realized Gain on Sale of Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Realized gain on sale of marketable securities |
|
$ |
|
|
|
$ |
4,388 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
100 |
% |
The change in the 2008 period compared to the 2007 period was a result of our sale of all the
shares we owned of Silence Therapeutics as further discussed in the Financial Overview section
above.
Other Income
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Other income |
|
$ |
755 |
|
|
$ |
882 |
|
Percent increase (decrease) from previous period |
|
|
N/A |
|
|
|
17 |
% |
The dollar amount of other income was generally comparable between the 2008 and 2007 periods,
which is consistent with the nature of our activities that generate other income. The percentage
variations in this income is not material to our business due to the relatively low dollar amounts
involved. This income is earned primarily from our sublease of space to M. D. Anderson Cancer
Center and other miscellaneous activities.
Liquidity and Capital Resources
In the following discussion of liquidity and capital resources, references to the 2008 period
refer to the nine months ended September 30, 2008 and references to the 2007 period refer to the
nine months ended September 30, 2007. All dollar amounts are in thousands unless noted otherwise.
We expect to focus our future activities primarily in the following areas:
|
|
|
Conducting Phase 3 and other clinical trials, conducting data analysis related to those
trials, preparing regulatory documentation submissions to the FDA, producing ADVEXIN therapy
and other clinical materials for use in our clinical trials and conducting pre-marketing
activities for ADVEXIN therapy. We
expect to continue our research and development of various other targeted molecular therapy
technologies. If ADVEXIN therapy or any of our other product candidates are approved for
commercial sale by the FDA, we expect to conduct activities supporting the marketing, sales,
production and distribution of those products, either ourselves or in collaboration with
other parties. |
41
|
|
|
Developing through ITS a business to provide production, manufacturing and process
development services to Introgen and to third parties. We expect ITS will assume
responsibility for producing investigative materials for Introgens clinical trials, will
produce and provide Introgen commercial supplies of products for which we may receive
marketing approval from the appropriate regulatory agencies and will pursue contract
production, process development and manufacturing services for third parties. |
Going Concern
We need to obtain additional cash to continue our operations. If we are unable to raise
additional funds for working capital, we will substantially consume all of our cash and cash
equivalents on hand at September 30, 2008, plus the amounts we may earn subsequently from contract
services, grants and/or interest income in the future, sometime during the quarter ending March 31,
2009 and will likely be unable to continue as a going concern at that time. Unforeseen
circumstances could cause us to consume cash more rapidly than expected and shorten the period
during which the resources currently available to us can fund our operations.
We may be able to obtain additional cash through public or private equity offerings, debt
financings, corporate collaborations, licensing arrangements, sales of certain of our assets (such
as real estate) or other means. However, there can be no assurances that additional financing will
be available when needed or on terms favorable to us or our stockholders. If we raise additional
capital by issuing equity securities, our stockholders will experience dilution. If we raise funds
through debt financings, we may become subject to restrictive covenants. If we raise additional
funds through collaboration and licensing arrangements, we may be required to transfer to other
parties rights to our technologies or product candidates, or grant licenses on terms not favorable
to us.
In July 2008, we reduced our staff by approximately 20 positions primarily associated with
ADVEXIN therapy development and regulatory submission programs that have achieved the milestones
discussed in various sections of this document. In the event we cannot obtain additional cash, we
may have to further reduce the scope of our operations and related cash needs to a level that may
extend the period of time during which we can rely on existing resources to conduct our business
activities. Such adjustments in the scope of our operations could include further reduction in the
number of our personnel and perhaps delaying or discontinuing certain product and service
development activities critical to achieving our business objectives. In particular, such actions
could adversely affect our ability to continue pursuing regulatory approval to market ADVEXIN
therapy at our desired pace, to continue development of other new product candidates and to pursue
the ITS business plan.
The efforts described above could be unsuccessful. In that event, we would likely be unable to
continue as a going concern.
Funds on Hand and Consumed
We have incurred annual operating losses since our inception. At September 30, 2008, we had an
accumulated deficit of $217.4 million.
Our cash equivalents and short-term investments are generally comparable financial
instruments, with short-term investments having original maturity dates in excess of three months.
At December 31, 2007, our marketable securities consisted of issued share capital of other public
companies and were classified as available-for-sale. Our balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2007 |
|
|
2008 |
|
Cash and cash equivalents |
|
$ |
11,320 |
|
|
$ |
6,294 |
|
Short-term investments |
|
|
3,585 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and short-term investments |
|
|
14,905 |
|
|
|
6,294 |
|
Marketable securities |
|
|
10,165 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, short-term investments
and marketable securities |
|
$ |
25,070 |
|
|
$ |
6,294 |
|
|
|
|
|
|
|
|
In January 2008, we sold all of our marketable securities we held at December 31, 2007, at
their quoted market value for net cash proceeds of approximately $7.4 million.
42
The change in our cash and cash equivalents, exclusive of short-term investments and
marketable securities, consisted of the following amounts, the details of which are presented in
our condensed consolidated statements of cash flows in Item 1. Financial Statements above:
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Net cash (used in) operating activities |
|
$ |
(17,404 |
) |
|
$ |
(15,382 |
) |
Net cash provided by investing activities |
|
$ |
3,211 |
|
|
$ |
10,847 |
|
Net cash (used in) financing activities |
|
$ |
(1,973 |
) |
|
$ |
(440 |
) |
From inception through September 30, 2008, we have financed our operations primarily from the
following sources, the amounts of which are presented net of related expenses paid in cash (in
millions):
|
|
|
|
|
Equity sales in December 2003, December 2004, November 2006 and
December 2006 through registered direct offerings under a shelf
registration filed with the SEC |
|
$ |
69.1 |
|
Collaborative research and development payments from Aventis
Pharmaceutical Products, Inc, which is now Sanofi-Aventis,
(Aventis) from 1994 to 2000 |
|
|
49.7 |
|
Private equity sales to Aventis from 1994 to 1999 |
|
|
39.4 |
|
Initial public offering in October 2000 |
|
|
32.2 |
|
Private equity sales to various other parties |
|
|
29.9 |
|
Contract services, grants, interest and other income |
|
|
31.8 |
|
Equity sales to Colgate-Palmolive under a shelf registration filed
with the SEC and pursuant to an alliance agreement entered into in
November 2005 |
|
|
19.6 |
|
Mortgage financing from banks for our facilities |
|
|
9.9 |
|
Sales of ADVEXIN therapy product to Aventis for use in later-stage
clinical trials from 1997 to 2000 |
|
|
7.5 |
|
Sale of shares of shares of Silence Therapeutics plc in January 2008 |
|
|
7.4 |
|
Leases and notes payable from commercial lessors and lenders to
acquire equipment pledged as collateral for those leases and notes |
|
|
6.6 |
|
Net Cash Used in Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Net cash used in operating activities |
|
$ |
(17,404 |
) |
|
|
($15,382 |
) |
The net cash we used in our operating activities relates to the following items:
|
|
|
Net loss - The net loss reported in our statement of operations includes certain
expenses that do not involve the use of cash. The following table illustrates the portion
of our net loss for which we use cash: |
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
|
2007 |
|
|
2008 |
|
Net loss |
|
$ |
(20,912 |
) |
|
$ |
(14,722 |
) |
Less expenses not requiring the use of cash: |
|
|
|
|
|
|
|
|
Non-controlling interests in income of consolidated subsidiary |
|
|
|
|
|
|
(4 |
) |
Depreciation |
|
|
788 |
|
|
|
746 |
|
Share-based compensation |
|
|
3,885 |
|
|
|
3,302 |
|
Gain on sale of marketable securities |
|
|
|
|
|
|
(4,388 |
) |
|
|
|
|
|
|
|
Portion of net loss for which we use cash |
|
$ |
(16,239 |
) |
|
$ |
(15,066 |
) |
|
|
|
|
|
|
|
Percent decrease from previous period |
|
|
N/A |
|
|
|
(7 |
)% |
|
|
|
|
|
|
|
See Comparison of Nine Months Ended September 30, 2008 and September 30, 2007 above for a
discussion of the changes in the components of our net loss.
|
|
|
Accounts payable and accrued liabilities Changes in these accounts arise primarily
from variations in the timing of payments to vendors and employees that arise in the
ordinary course of business. This timing is a function of: |
43
|
|
|
Variations in our general business activities; |
|
|
|
|
The nature of vendors to whom we have obligations; |
|
|
|
|
The nature of payment terms we receive from vendors; |
|
|
|
|
The timing of when we receive invoices from vendors; |
|
|
|
|
The timing of when we elect to make payments to vendors based on our available
cash balances and cash flow needs; and |
|
|
|
|
The timing of our regularly scheduled paydays for our employees relative to the
end of our accounting periods. |
The changes in our accounts payable and accrued liabilities for the 2008 and 2007 periods are
related to one or more of the above items, with no single component of those aggregate changes
being material to our business as a whole.
|
|
|
Deferred revenue and other - These accounts relate to: |
|
|
|
Cash payments for contract manufacturing, process development and product
production services work received in advance of completing the work to which the
payments relate, which increases our deferred revenue. This deferred revenue decreases,
with no effect on cash, as we complete the work and recognize the related revenue; and |
|
|
|
|
Rental income we receive from the sublease of laboratory space to third parties
under leases that have variable monthly rent amounts over the term of the lease. We
recognize this income on a straight-line basis over the term of the lease. Cash payments
received in excess of rental income recognized is recorded as deferred revenue. This
deferred revenue decreases, with no effect on cash, when the cash payments we receive
are less than the rental income recognized on a straight-line basis. |
The changes in deferred revenue and other for the 2008 and 2007 periods are related to one or
more of the above items, with no single component of those aggregate changes being material to
our business as a whole. In addition to the above items, we experienced a larger increase in
deferred revenue and other collectively in the 2008 period compared to the 2007 period due to
increased contract services for manufacturing process development and product production we
performed for third parties as a result of our active efforts to expand our offering of these
services for which revenue is deferred until substantial completion of the work;
|
|
|
Other assets Other assets decreased in the 2008 period and the 2007 period. Changes
in other assets vary in direction and amount based on the timing of and dollars involved in
transactions related to items such as prepaid expenses, grant funding receivable and
deposits. The aggregate changes in other assets during the 2008 and 2007 periods resulted
from such activities that arose during the normal course of our business, with no component
of those aggregate changes being material to our business as a whole. |
Depreciation is an expense in our net loss that does not use cash. This expense decreased in
the 2008 period compared to the 2007 period due to the absence of significant property and
equipment acquisitions during the 2008 and 2007 periods and our use of declining balance
depreciation methods that results in decreasing depreciation charges over the life of an asset.
Share-based compensation is an expense in our net loss that does not use cash. See
Share-Based Compensation Expense above for a discussion of the changes in this expense between
periods.
The gain on sale of marketable securities in the 2008 period resulted from the sale of the
shares we owned in Silence Therapeutics as discussed further under Investment in Silence
Therapeutics plc in the Financial Overview section above.
Net Cash Provided by Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Net cash provided by investing activities |
|
$ |
3,211 |
|
|
$ |
10,847 |
|
44
The change in the 2008 period compared to the 2007 period was primarily due to:
|
|
|
The sale of our marketable securities for net cash proceeds of approximately $7.4
million in the 2008 period; and |
|
|
|
|
A higher amount of equipment purchases to support our business being necessary in the
2008 period compared to the 2007 period; |
which was offset by:
|
|
|
A lower level of net activity in sales of short-term investments in the 2008 period
compared to the 2007 period arising from (1) normal variations in the amount and timing of
purchases and sales of short-term investments based on our operating needs for cash and
cash equivalents and (2) the availability of cash from sales of our common stock; |
We have no obligations at this time to purchase significant amounts of additional property or
equipment, but our needs may change. It may be necessary for us to purchase larger amounts of
property and equipment to support our clinical programs, other research, development and
manufacturing activities and the development of our contract services business through ITS. We may
need to obtain debt or lease financing to facilitate such purchases. If that financing is not
available, we may need to use our existing resources to fund those purchases, which could result in
a reduction in the cash and cash equivalents available to fund operating activities.
Net Cash Used in Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Ended September 30, |
|
|
2007 |
|
2008 |
Net cash used in financing activities |
|
$ |
(1,973 |
) |
|
$ |
(440 |
) |
The change in the 2008 period compared to the 2007 period was primarily due to:
|
|
|
The payment during the 2007 period of approximately $1.6 million of fees payable to a
placement agent that were accrued as of December 31, 2006, which were for the placement
agents work supporting the sale of our common stock in November 2006 and December 2006;
and |
|
|
|
|
A decrease in proceeds from exercise of options for common stock in the 2008 period
compared to the 2007 period, which is activity that can vary based upon the discretionary
actions of the individuals holding such options; which were offset by: |
|
|
|
|
A decrease in the payment of mortgage loan and equipment notes principal in the 2008
period compared to the 2007 period as equipment notes balances were paid in full through
normal schedule payments. |
Debt Service, Lease and Other Contractual Obligations
We have fixed debt service obligations under notes payable for which the liability is
reflected on our balance sheet. We used the proceeds from these notes payable to finance facilities
and equipment. Aggregate payments due under these obligations are as follows (in thousands):
|
|
|
|
|
Total debt service payments for October 1, 2008 through December 31, 2008 |
|
$ |
274 |
|
Total debt service payments due during the year ending December 31: |
|
|
|
|
2009 |
|
|
1,011 |
|
2010 |
|
|
881 |
|
2011 |
|
|
760 |
|
2012 |
|
|
735 |
|
2013 |
|
|
735 |
|
Thereafter |
|
|
8,167 |
|
|
|
|
|
Total debt service payments |
|
|
12,563 |
|
Less portion representing interest |
|
|
(5,149 |
) |
|
|
|
|
Total principal balance at September 30, 2008 |
|
$ |
7,414 |
|
|
|
|
|
Principal balance presented on the September 30, 2008 balance sheet as
liabilities in these categories: |
|
|
|
|
Current portion of notes payable |
|
$ |
517 |
|
Notes payable, net of current portion |
|
|
6,897 |
|
|
|
|
|
Total principal balance at September 30, 2008 |
|
$ |
7,414 |
|
|
|
|
|
45
We have a mortgage note payable to a bank related to our facilities that originated in
November 1998. We make monthly principal and interest payments on this note based on a 25 year
amortization schedule, which is the basis upon which the debt service obligations illustrated above
are computed. This note has an eleven year term such that it matures in November 2009 at which time
the then outstanding principal balance of approximately $6.6 million is due. If we are unable enter
into a transaction to refinance that balance to extend the period of time over which it can be paid
or relieve ourselves of that note obligation (such as through a sale of our real estate), we could
be in default on the note when it matures and the lender could then exercise its rights with regard
to our primary facility that is collateral for this note, which could include us losing the right
to use that facility as a result of foreclosure or other actions by the mortgage lender.
We have fixed, noncancellable rent obligations under operating leases consisting primarily of
the following:
|
|
|
A ground lease for the land on which we built our primary research and
manufacturing facilities with annual rent payments of $156,000 through September 2026.
These payments are subject to adjustment in the future for inflation; |
|
|
|
|
A lease for a building housing our second production facility with annual rent
payments of $101,000 through January 2009; and |
|
|
|
|
A lease for our corporate office space with annual rent payments of $234,000
through July 2009. |
The latter two leases are subject to adjustment annually for changes in operating expenses.
Since these leases are operating leases under generally accepted accounting principles, no
liability related to them is reflected on our balance sheet. Future minimum annual rental payments
due under these leases and all other operating leases, the last of which is due in 2026, are as
follows (in thousands):
|
|
|
|
|
October 1, 2008 through December 31, 2008 |
|
$ |
128 |
|
Year ending December 31,
|
|
|
|
|
2009 |
|
|
320 |
|
2010 |
|
|
166 |
|
2011 |
|
|
161 |
|
2012 |
|
|
156 |
|
2013 |
|
|
156 |
|
Thereafter |
|
|
1,991 |
|
|
|
|
|
Total minimum lease payments under operating leases |
|
$ |
3,078 |
|
|
|
|
|
In the normal course of business, we may enter into various long-term agreements with vendors
to provide services to us. Some of these agreements may require up-front payment prior to services
being rendered. Some may require periodic monthly payments and some may provide for the vendor to
bill us for their services as they are rendered. In substantially all cases, we may cancel these
agreements at any time with minimal or no penalty and pay the vendor only for services actually
rendered. Regardless of the timing of the payments under these agreements, we record the expense
incurred in the periods in which the services are rendered.
Pursuant to a consulting agreement, in 2007 and earlier years we paid consulting fees of
approximately $175,000 per annum to EJ Financial, a company owned by a member of our Board of
Directors. EJ Financial has provided us guidance on strategic product development, business
development and marketing activities. Effective December 31, 2007, this consulting agreement was
ended by mutual agreement between EJ Financial and us. Accordingly, we made no such payments in
2008 and do not anticipate making any further payments under this agreement.
We have a consulting agreement with Jack A. Roth, M.D., Chairman of the Department of Thoracic
Surgery and Director of the Keck Center for Gene Therapy at The University of Texas M. D. Anderson
Cancer Center where he holds the Bud Johnson Clinical Distinguished Chair. Dr. Roth is the primary
inventor of the technology upon which our ADVEXIN therapy is based and numerous other technologies
we utilize. We licensed Dr. Roths inventions from M. D. Anderson Cancer Center. Dr. Roth is our
Chief Medical Advisor and chairman of our scientific advisory board. His duties involve the regular
interaction and consultation with our scientists and others on our behalf. As compensation for his
services and responsibilities, this consulting agreement provides for payments to Dr. Roth of
$215,000 per annum. These payments continue through the end of the consulting agreement term on
September 30, 2009. We may terminate this agreement at our option upon one years advance notice.
If we had terminated this
46
agreement as of September 30, 2008, we would have been obligated to make
final payments totaling $215,000. Dr. Roth is one of our stockholders.
A placement agent assisted with our sale of common stock in November 2006 and December 2006.
As consideration for its services, our arrangement with them provides for future payments to them
of fees totaling $100,000 through December 2008. The obligation to make these remaining payments is
in question and is currently under review.
We sublease a portion of our facilities to M. D. Anderson Cancer Center, a component
institution of The University of Texas System, which is one of our shareholders. They are obligated
to pay us rent and facilities operating expense reimbursements of approximately $32,000 per month
through January 31, 2009 and $27,000 per month thereafter for the remainder of the non-cancelable
term of this lease, which expires in 2012.
Non-Audit Services of Independent Registered Public Accounting Firm
Pursuant to Section 10A(i)(2) of the Exchange Act, as added by Section 202 of the
Sarbanes-Oxley Act of 2002, we are responsible for disclosing the non-audit services approved by
the Audit Committee to be performed by Ernst & Young LLP, our independent auditors. Non-audit
services are defined as services other than those provided in connection with an audit or a review
of our financial statements. The services approved by the Audit Committee are each considered by
the Audit Committee to be services closely related to the financial audit process. Each of the
services was pre-approved by the Audit Committee.
The Audit Committee has pre-approved additional engagements of Ernst & Young LLP for the
non-audit services of preparation of state and federal tax returns.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to changes in interest rates, foreign currency exchange
rates and equity prices. Our risks, risk management strategies and sensitivity analyses estimating
the effects of changes in fair values for each of these exposures at September 30, 2008 are
outlined below. Actual results may differ materially from our sensitivity analyses based on changes
in the timing and amount of interest rate, foreign currency exchange rate and equity price
movements and our actual exposures.
Our market risk profile has not changed significantly from that described in our Annual Report
on Form 10-K for the year ended December 31, 2007, filed with the SEC on March 17, 2008.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our fixed rate
long-term debt and short-term investments in investment grade securities, which consist primarily
of federal government obligations. Investments are classified as held-to-maturity and are carried
at amortized cost. We do not hedge interest rate exposure or invest in derivative securities.
We have performed sensitivity analyses as of September 30, 2008 and December 31, 2007 using a
modeling technique that measures the change in our interest income arising from a hypothetical
100-basis point decrease in the levels of interest rates across the entire yield curve, with all
other variables held constant. The analyses cover our fixed rate long-term debt and short-term
investments. The analyses use actual maturities for our fixed rate long-term debt and short-term
investments. The discount rates we used were based on the market interest rates in effect at
September 30, 2008 and December 31, 2007. The sensitivity analyses indicated a hypothetical
100-basis point decrease in the interest rates of our cash, cash equivalents and short-term
investments as of September 30, 2008 would decrease our interest income by approximately $63,000
per year and approximately $15,750 per quarter, compared to a decrease in our interest income of
approximately $149,000 per year and approximately $37,260 per quarter as of December 31, 2007.
At September 30, 2008, the fair value of our fixed-rate debt approximated its carrying value
based upon discounted future cash flows using current market prices.
Foreign Currency Exchange Rate Risk
Substantially all of our revenue and expenses are denominated in U.S. dollars, and therefore
our results of operations are not subject to foreign currency risk. However, we may continue to
expand our operations globally and receive payments and incur expenses that are denominated in
foreign currencies, which may increase our exposure to foreign currency exchange fluctuations.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management evaluated, with the
participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of
our disclosure controls and procedures as of the end of the period covered by this Quarterly Report
on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer
have concluded that our disclosure controls and procedures are effective to ensure that information
we are required to disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms and are
effective in ensuring that information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is accumulated and communicated to our management, including our
Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures.
Changes in Internal Control over Financial Reporting. There was no change in our internal
control over financial reporting that occurred during the period covered by this Quarterly Report
on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
We are involved from time to time in legal proceedings relating to claims arising out of our
operation in the ordinary course of business, including actions relating to intellectual property
rights.
We do not believe that the outcome of any present, or all litigation in the aggregate, will
have a material effect on our business. You can read the discussion of our opposition of the
patents under Part II, Item 1A. Risk Factors.
Item 1A. Risk Factors
If we are unable to raise additional funds for working capital, we will likely be unable to
continue as a going concern.
We need to obtain additional cash to continue our operations. If we are unable to raise
additional funds for working capital, we will substantially consume all of our cash and cash
equivalents on hand at September 30, 2008, plus the amounts we may earn subsequently from contract
services, grants and/or interest income in the future, sometime during the quarter ending March 31,
2009 and will likely be unable to continue as a going concern at that time. Unforeseen
circumstances could cause us to consume cash more rapidly than expected and shorten the period
during which the resources currently available to us can fund our operations.
We may be able to obtain additional cash through public or private equity offerings, debt
financings, corporate collaborations, licensing arrangements, sales of certain of our assets (such
as real estate) or other means. However, there can be no assurances that additional financing will
be available when needed or on terms favorable to us or our stockholders. If we raise additional
capital by issuing equity securities, our stockholders will experience dilution. If we raise funds
through debt financings, we may become subject to restrictive covenants. If we raise additional
funds through collaboration and licensing arrangements, we may be required to transfer to other
parties rights to our technologies or product candidates, or grant licenses on terms not favorable
to us.
In July 2008, we reduced our staff by approximately 20 positions primarily associated with
ADVEXIN therapy development and regulatory submission programs that have achieved the milestones
discussed in various sections of this document. In the event we cannot obtain additional cash, we
may have to further reduce the scope of our operations and related cash needs to a level that may
extend the period of time during which we can rely on existing resources to conduct our business
activities. Such adjustments in the scope of our operations could include further reduction in the
number of our personnel and perhaps delaying or discontinuing certain product and service
development activities critical to achieving our business objectives. In particular, such actions
could adversely affect our ability to continue pursuing regulatory approval to market ADVEXIN
therapy at our desired pace, to continue development of other new product candidates and to pursue
the ITS business plan.
The efforts described above could be unsuccessful. In that event, we would likely be unable to
continues as a going concern.
If we are unable to maintain our NASDAQ Global Market listing, the liquidity of our common stock
would be seriously limited.
On September 4, 2008, we received a Staff Determination Letter from NASDAQ indicating that we
had not regained compliance with Market Place Rule 4450(b)(1)(A), requiring a minimum $50 million
market value of listed securities for continued inclusion on The NASDAQ Global Market. We appealed
this initial delisting determination to a hearing conducted by a NASDAQ Listing Qualifications
Panel (the Panel), on October 16, 2008. The Panel has not yet rendered a decision regarding our
appeal. In the event of an unfavorable determination by the Panel, we would alternatively apply to
have our common stock transferred to the NASDAQ Capital Market, as long as we satisfy the
requirements for continued inclusion on the NASDAQ Capital Market set forth in the NASDAQ
Marketplace Rules. There can be no assurance that the Panel will grant our request for
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continued listing on The NASDAQ Global Market, nor can there be assurance that our shares will
alternatively be approved for listing on the NASDAQ Capital Market. We believe that we do not
currently comply with the minimum listing requirements for The NASDAQ Capital Market.
On September 29, 2008, NASDAQ notified us that for the last 30 consecutive business days, our
bid price for our common stock had closed below the minimum $1.00 required for continued listing on
The NASDAQ Global Market as set forth in Marketplace Rule 4450(a)(5). In accordance with NASDAQ
Marketplace Rules, we will have one hundred eighty (180) days, to regain compliance with the
minimum bid price requirement by maintaining a closing bid price of $1.00 per share or higher for a
minimum of 10 consecutive business days. On October 16, 2008, NASDAQ announced that they had
suspended the enforcement of Marketplace Rule 4450(a)(5) until January 19, 2009, and as a result,
the period during which we have to regain compliance has been extended to July 1, 2009. If we are
unsuccessful in meeting the minimum bid requirement on or before July 1, 2009, NASDAQ will notify
us that our common stock will be delisted from the NASDAQ Global Market. If we receive such a
notice, we may appeal NASDAQs determination to delist our common stock or, alternatively, we may
apply to transfer our common stock to the NASDAQ Capital Market, provided that we satisfy all
criteria for initial listing on the NASDAQ Capital Market, other than compliance with the minimum
bid price requirement. If such application to the NASDAQ Capital Market is approved, then we will
have an additional 180-day compliance period in order to regain compliance with the minimum bid
price requirement while listed on the NASDAQ Capital Market.
Delisting from The NASDAQ Global Market could have an adverse effect on our business and on
the trading of our common stock. If our common stock is delisted from the NASDAQ Stock Market, our
common stock would trade on the OTC Bulletin Board or on the pink sheets maintained by the
National Quotation Bureau, Inc., which are generally considered less efficient trading markets. As
a result, any delisting from the NASDAQ Stock Market would likely materially limit the liquidity of
our common stock, which would reduce the ability of holders of our common stock to purchase or sell
shares as quickly and as inexpensively as they have done historically, and impair our potential to
raise future capital through the sale of our common stock. Delisting from the NASDAQ Stock Market
could also, have an adverse effect on the trading price of our common stock, and as a result, could
adversely affect our relationships with vendors and customers as well as our ability to hire and
retain qualified employees.
We have a mortgage note to a bank that is due and payable in November 2009.
We have a mortgage note payable to a bank related to our facilities. This note originated in
November 1998. We make monthly principal and interest payments on this note based on a 25 year
amortization schedule. This note has an eleven year term such that it matures in November 2009 at
which time the then outstanding principal balance of approximately $6.6 million is due. If we are
unable enter into a transaction to refinance that balance to extend the period of time over which
it can be paid or relieve ourselves of that note obligation (such as through a sale of our real
estate), we could be in default on the note when it matures and the lender could then exercise its
rights with regard to our primary facilities that are collateral for this note, which could include
us losing the right to use those facilities as a result of foreclosure or other actions by the
mortgage lender.
If we are unable to commercialize ADVEXIN therapy in various markets for multiple indications,
particularly for the treatment of recurrent head and neck cancer, our business will be harmed.
Our ability to achieve and sustain operating profitability depends on our ability to
successfully commercialize ADVEXIN therapy in various markets for multiple indications, which
depends in large part on our ability to commence, execute and complete clinical programs and obtain
regulatory approvals for ADVEXIN therapy and other product candidates. In particular, our ability
to achieve and sustain profitability will depend in large part on our ability to commercialize in
the United States ADVEXIN therapy for the treatment of recurrent head
and neck cancer. In September 2008, we announced that the FDA notified us that our BLA for
ADVEXIN® (p53 tumor suppressor therapy)
for the treatment of recurrent, refractory squamous cell carcinoma of the head and neck, submitted
on June 30, 2008, was not sufficiently complete and would not be
accepted for filing at that time. We are
working with the FDA to cure any deficiencies in the application. However, there can be no
assurance that our application will be accepted. We cannot assure you we will receive approval for
ADVEXIN therapy for the treatment of recurrent head and neck cancer or other types of cancer or
indications in the United States or in other countries or if approved that we will achieve
significant level of sales. If we are unable to do so, our business will be harmed.
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If we fail to comply with FDA, EMEA or other foreign regulatory authority requirements or encounter
delays or difficulties in clinical trials for our product candidates we may not obtain regulatory
approval of some or all of our product candidates on a timely basis, if at all.
In order to commercialize our product candidates, we must obtain certain regulatory approvals.
Satisfaction of regulatory requirements typically takes many years and involves compliance with
requirements covering research and development, testing, manufacturing, quality control, labeling
and promotion of drugs for human use. To obtain regulatory approvals, we must, among other
requirements, complete clinical trials demonstrating our product candidates are safe and effective
for a particular cancer type or other disease. Regulatory approval of a new drug is never
guaranteed. The FDA, EMEA and other foreign regulatory authorities have substantial discretion in
the approval process. Despite the time and experience exerted, failure can occur at any stage, and
we could encounter problems causing us to abandon clinical trials.
We have completed or are conducting various clinical trials of our lead product candidate,
ADVEXIN therapy, which is based on the p53 tumor suppressor, for the treatment of various cancers.
Current or future clinical trials may demonstrate ADVEXIN therapy is neither safe nor effective in
the patient populations evaluated in those studies.
We have completed or are conducting clinical trials of INGN 241, a product candidate based on
the mda-7 tumor suppressor. We will need to continue conducting significant research and animal
testing, referred to as pre-clinical testing, to support performing clinical trials for our other
product candidates. It will take us many years to complete pre-clinical testing and clinical
trials, and failure could occur at any stage of testing. Current or future clinical trials may
demonstrate INGN 241 or our other product candidates are neither safe nor effective.
Any delays or difficulties we encounter in our pre-clinical research and clinical trials may
delay or preclude regulatory approval. Our product development costs will increase if we experience
delays in testing or regulatory approvals or if we need to perform more or larger clinical trials
than planned or make any unplanned changes to our product candidates. Any delay or preclusion could
also delay or preclude the commercialization of ADVEXIN therapy or any other product candidates. In
addition, we, the FDA, EMEA or other foreign regulatory authorities might delay or halt any of our
clinical trials of a product candidate at any time for various reasons, including:
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the product candidate is less effective and/or more toxic than current therapies; |
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the presence of unforeseen adverse side effects of a product candidate, including its
delivery system; |
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a longer than expected time required to determine whether or not a product candidate is
effective; |
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the death of patients during a clinical trial, even if the product candidate did not
cause those deaths; |
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the failure to enroll a sufficient number of patients in our clinical trials; |
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the inability to produce sufficient quantities of a product candidate to complete the
trials; or |
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the inability to commit the necessary resources to fund the clinical trials. |
We cannot be certain the results we observed in our pre-clinical testing will be confirmed in
clinical trials or the results of any of our clinical trials will support FDA, EMEA or other
regulatory approval. Pre-clinical and clinical data can be interpreted in many different ways, and
the FDA, EMEA or other foreign regulatory officials could interpret differently data we consider
promising, which could halt or delay our clinical trials or prevent regulatory approval.
We have encountered a delay in the acceptance of our BLA for ADVEXIN and may additional
encounter delays in the regulatory approval process due to additional information requirements from
the FDA, unintentional omissions in our BLA for ADVEXIN therapy, or other delays in the FDAs
review process. We may encounter delays in the regulatory approval process due to additional
information requirements from the EMEA, unintentional omissions in our Marketing Authorization
Application filed with the EMEA, or other delays in the EMEAs review process. We may encounter
delays or rejections in the regulatory approval process because of additional government regulation
from future legislation or administrative action or changes in FDA or EMEA policy during the period
of product development, clinical trials and FDA and EMEA regulatory review.
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Despite the initiation of the BLA process for ADVEXIN therapy under the FDAs accelerated
approval regulations, the FDA could determine that accelerated approval is not warranted and that a
traditional BLA filing must be made. Such a determination could delay regulatory approval.
Additionally, accelerated approval of an application could be subject to Phase 4 or post-approval
studies to validate the surrogate endpoint or confirm the effect on the clinical endpoint. Failure
to validate a surrogate endpoint or confirm a clinical benefit during post-approval studies could
cause the product to be withdrawn from the market by the FDA on an expedited basis.
Even if our products are approved by regulatory authorities, if we fail to comply with ongoing
regulatory requirements, or if we experience unanticipated problems with our products, these
products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain marketing approval, along with the manufacturing processes,
post-approval clinical data and promotional activities for such product, will be subject to
continual review and periodic inspections by the FDA, EMEA and other regulatory bodies. Even if
regulatory approval of a product is granted, the approval may be subject to limitations on the
indicated uses for which the product may be marketed or certain requirements for costly
post-marketing testing and surveillance to monitor the safety or efficacy of the product. Later
discovery of previously unknown problems with our products, including unanticipated adverse events
of unanticipated severity or frequency, manufacturer or manufacturing processes or failure to
comply with regulatory requirements, may result in restrictions on such products or manufacturing
processes, withdrawal of the products from the market, voluntary or mandatory recall, fines,
suspension of regulatory approvals, product seizures or detention, injunctions or the imposition of
civil or criminal penalties.
Failure to comply with foreign regulatory requirements governing human clinical trials and
marketing approval for drugs could prevent us from selling our products in foreign markets, which
may adversely affect our operating results and financial conditions.
For marketing drugs and biologics outside the United States, the requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country
to country and may require additional testing. The time required to obtain approvals outside the
United States may differ from that required to obtain FDA approval. We may not obtain foreign
regulatory approval on a timely basis, if at all. Approval by the FDA does not ensure approval by
regulatory authorities in other countries, and approval by one foreign regulatory authority does
not ensure approval by regulatory authorities in other countries or by the FDA. Failure to comply
with these regulatory requirements or to obtain required approvals could impair our ability to
develop these markets and could have a material adverse effect on our results of operations and
financial condition.
We have a history of operating losses, expect to incur significant additional operating losses and
may never become profitable.
We have generated operating losses since we began operations in June 1993. As of September 30,
2008, we had an accumulated deficit of approximately $217.4 million. We expect to incur
substantial additional operating expense and losses over the next several years as our research,
development, pre-clinical testing and clinical trial activities continue. As we expand our
operations and develop systems to support commercialization of our product candidates, these
losses, among other things, have had, and are expected to continue to have, an adverse impact on
our total assets, stockholders equity and working capital.
We have no products that have generated any commercial revenue. Presently, we earn minimal
revenue from contract services activities, grants, interest income and rent from the lease of a
portion of our facilities to M. D. Anderson Cancer Center. We do not expect to generate revenue
from the commercial sale of products in the near future, and we may never generate revenue from the
commercial sale of products.
If we continue to incur operating losses for a period longer than we anticipate and fail to obtain
the capital necessary to fund our operations, we will be unable to advance our development program
and complete our clinical trials.
Developing a new drug and conducting clinical trials is expensive. Our product development
efforts may not lead to commercial products, either because our product candidates fail to be found
safe or effective in clinical trials or because we lack the necessary financial or other resources
or relationships to pursue our programs through commercialization. Our capital and future revenue
may not be sufficient to support the expense of our operations, the development of commercial
infrastructure and the conduct of our clinical trials and pre-clinical research.
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Our stock price may fluctuate substantially.
The market price for our common stock may be affected by a number of factors, including:
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progress and results of our pre-clinical and clinical trials; |
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announcement of technological innovations by us or our competitors; |
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developments concerning proprietary rights, including patent and litigation matters; |
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publicity regarding actual or potential results with respect to products under
development by us or by our competitors; |
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regulatory developments; |
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the announcement of new products by us or our competitors; |
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quarterly variations in our or our competitors results of operations; |
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failure to achieve operating results projected by securities analysts; |
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changes in earnings estimates or recommendations by securities analysts; |
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developments in our industry; and |
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general market conditions and other factors. |
In addition, stock prices for many companies in the technology and emerging growth sectors
have experienced wide fluctuations that have often been unrelated to the operating performance of
such companies.
If we do not progress in our programs as anticipated, our stock price could decrease.
For planning purposes, we estimate the timing of a variety of clinical, regulatory and other
milestones, such as when a certain product candidate will enter clinical development, when a
clinical trial will be completed or when an application for regulatory approval will be filed. Some
of our estimates are included in our Annual Report on Form 10-K for the year ended December 31,
2007, filed with the SEC on March 17, 2008. Our estimates are based on present facts and a variety
of assumptions. Many of the underlying assumptions are outside of our control. If milestones are
not achieved when we expect them to be, investors could be disappointed, and our stock price may
decrease.
If we cannot maintain our existing corporate and academic arrangements and enter into new
arrangements, we may be unable to develop products effectively, or at all.
Our strategy for the research, development and commercialization of our product candidates may
result in our entering into contractual arrangements with corporate collaborators, academic
institutions and others. We have entered into sponsored research, license and/or collaborative
arrangements with several entities, including M. D. Anderson Cancer Center, the NCI, Chiba
University in Japan, Columbia University, Moffitt Cancer Center at the University of South Florida,
Oregon Health and Science University and VirRx, Inc., as well as numerous other institutions that
conduct clinical trials work or perform pre-clinical research for us. Our success depends upon our
collaborative partners performing their responsibilities under these arrangements and complying
with the regulations and requirements governing clinical trials. We cannot control the amount and
timing of resources our collaborative partners devote to our research and testing programs or
product candidates, or their compliance with regulatory requirements which can vary because of
factors unrelated to such programs or product candidates. These relationships may in some cases be
terminated at the discretion of our collaborative partners with only limited notice to us. We may
not be able to maintain our existing arrangements, enter into new arrangements or negotiate current
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or new arrangements on acceptable terms, if at all. Some of our collaborative partners may
also be researching competing technologies independently from us to treat the diseases targeted by
our collaborative programs.
If we do not continue to receive grant funding from federal agencies and others we may be unable to
continue our research and development programs for certain of our product candidates at current
levels or in the manner we have planned for the future.
We rely in part on grants from third parties, generally federal agencies, to provide the
funding necessary to conduct our research and development programs for some of our technologies and
product candidates. Funding of these grants is typically subject to government appropriations.
These grants often contain provisions that allow for termination at the convenience of the
government. Further, these grants are subject to complex federal guidelines and regulations. If
federal agencies or regulatory authorities determine that we, or the programs for which we desire
to receive or have received grant funding, do not qualify for funding, our scientific or product
development programs could be slowed or stopped, and we may suffer financial losses and be unable
to successfully commercialize our products.
If we are not able to create effective collaborative marketing relationships, we may be unable to
market our products successfully or in a cost-effective manner.
To effectively market our products, we will need to develop sales, marketing and distribution
capabilities. In order to develop or otherwise obtain these capabilities, we may have to enter into
marketing, distribution or other similar arrangements with third parties in order to sell, market
and distribute our products successfully. To the extent we enter into any such arrangements with
third parties, our product revenue is likely to be lower than if we directly marketed and sold our
products, and any revenue we receive will depend upon the efforts of such third parties. We have no
experience in marketing or selling pharmaceutical products and we currently have no sales,
marketing or distribution capability. We may be unable to develop sufficient sales, marketing and
distribution capabilities to commercialize our products successfully.
Serious and unexpected side effects attributable to molecular therapies may result in governmental
authorities imposing additional regulatory requirements or a negative public perception of our
products.
ADVEXIN therapy and most of our other product candidates under development could be broadly
described as targeted molecular therapies or recombinant DNA therapies. A number of clinical trials
are being conducted by other pharmaceutical companies involving related therapies, including
compounds similar to, or competitive with, our product candidates. The announcement of adverse
results from these clinical trials, such as serious unwanted and unexpected side effects
attributable to treatment, or any response by the FDA or foreign regulatory authorities to such
clinical trials, may impede the timing of our clinical trials, delay or prevent us from obtaining
regulatory approval or negatively influence public perception of our product candidates, which
could harm our business and results of operations and depress the value of our stock.
The United States Senate has held hearings concerning the adequacy of regulatory oversight of
recombinant DNA therapy clinical trials, as well as the adequacy of research subject education and
protection in clinical research in general, and to determine whether additional legislation is
required to protect volunteers and patients who participate in such clinical trials. The
Recombinant DNA Advisory Committee, which acts as an advisory body to the NIH, has expanded its
public role in evaluating important public and ethical issues in recombinant DNA therapy clinical
trials. Implementation of any additional review and reporting procedures or other additional
regulatory measures could increase the costs of or prolong our product development efforts or
clinical trials.
We report to the FDA, EMEA and other regulatory agencies serious adverse events, including
those we believe may be reasonably related to the treatments administered in our clinical trials.
Such serious adverse events, whether treatment-related or not, could result in negative public
perception of our treatments and require additional regulatory review or measures, which could
increase the cost of or prolong our clinical trials.
No recombinant DNA therapy products of the types being developed by us have been approved by
the FDA for sale in the United States or by the EMEA for sale in Europe. The commercial success of
our products will depend in part on public acceptance of the use of these types of recombinant DNA
products, which are a new type of disease treatment for the prevention or treatment of human
diseases. Public attitudes may be influenced by claims that these types of recombinant DNA products
are unsafe, and these treatment methodologies may not gain the acceptance of
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the public or the medical community. Negative public reaction to these types of recombinant
DNA products could also result in greater government regulation and stricter clinical trial
oversight.
Patient enrollment may be slow and patients may discontinue their participation in clinical
studies, which may negatively impact the results of these studies and extend the timeline for
completion of our and our collaborators development programs for our product candidates.
The time required to complete clinical trails is dependent upon, among other factors, the rate
of patient enrollment. Patient enrollment is a function of many factors, including:
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the nature of the clinical protocol requirements; |
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the diversion of patients to other trials or marketed therapies; |
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the ability to recruit and manage clinical centers and associated trials; |
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the proximity of patients to clinical sites; and |
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the patient eligibility criteria for the study. |
We are subject to the risk that patients enrolled in our and our collaborators clinical
studies for our product candidates may discontinue their participation at any time during the study
as a result of a number of factors, including, withdrawing their consent or experiencing adverse
clinical events which may or may not be related to our product candidates under evaluation. We are
subject to the risk that if a large number of patients in any one of our studies discontinue their
participation in the study, the results from that study may not be positive or may not support an
NDA for regulatory approval of our product candidates or we may be forced to terminate or abandon
the study.
We cannot predict the safety profile of the use of ADVEXIN therapy when used in combination with
other therapies.
Many of our trials involve the use of ADVEXIN therapy in combination with other drugs or
therapies. While the data we have evaluated to date suggest ADVEXIN therapy does not increase the
adverse effects of other therapies, we cannot predict if this outcome will continue to be true or
whether possible adverse side effects not directly attributable to the other drugs will compromise
the safety profile of ADVEXIN therapy when used in certain combination therapies.
If we fail to adequately protect our intellectual property rights our competitors may be able to
take advantage of our research and development efforts to develop competing drugs.
Our commercial success will depend in part on obtaining patent protection for our products and
other technologies and successfully defending these patents against third-party challenges. Our
patent position, like that of other biotechnology and pharmaceutical companies, is highly
uncertain. One uncertainty is that the United States Patent and Trademark Office, or PTO, or the
courts, may deny or significantly narrow claims made under patents issued to us or patent
applications we file. This is particularly true for patent applications or patents that concern
biotechnology and pharmaceutical technologies, such as ours, since the PTO and the courts often
consider these technologies to involve unpredictable sciences. Another uncertainty is that any
patents that may be issued or licensed to us may not provide any competitive advantage to us
because they may not effectively preclude others from developing and marketing products like ours.
Also, our patents may be successfully challenged, invalidated or circumvented in the future. In
addition, our competitors, many of which have substantial resources and have made significant
investments in competing technologies, may seek to apply for and obtain patents that will prevent,
limit or interfere with our ability to make, use and sell our potential products either in the
United States or in foreign markets.
Our ability to develop and protect a competitive position based on our biotechnological
innovations, innovations involving molecular therapies, recombinant DNA therapeutic agents, viruses
for delivering targeted molecular therapies to cells, formulations, delivery systems not involving
viruses, and the like, is particularly uncertain. Due to the unpredictability of the
biotechnological sciences, the PTO, as well as patent offices in other jurisdictions, has often
required patent applications concerning biotechnology-related inventions to be limited or narrowed
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substantially to cover only the specific innovations exemplified in the patent application,
thereby limiting their scope of protection against competitive challenges. Similarly, courts have
invalidated or significantly narrowed many key patents in the biotechnology industry. Thus, even if
we are able to obtain patents covering commercially significant innovations, our patents may not be
upheld or our patents may be substantially narrowed.
Through our exclusive license with The University of Texas System for technology developed at
M. D. Anderson Cancer Center, we have obtained and are currently seeking further patent protection
for adenoviral p53, including ADVEXIN therapy, and its use in cancer therapy. Further, the PTO
issued to us United States patents for our adenovirus production technology and our purified
adenoviral compositions. We also control, through licensing arrangements, United States patents for
combination therapy involving the p53 tumor suppressor and conventional chemotherapy or radiation,
the use of adenoviral p53 in cancer therapy, adenoviral p53 as a product, the core DNA of
adenoviral p53, pharmaceutical compositions of adenoviral p53 and clinical applications of such
pharmaceutical compositions, as well as patents covering our mda-7 technology. Our competitors may
challenge the validity of one or more of our patents in the courts or through an administrative
procedure known as an interference, in which the PTO determines the priority of invention where two
or more parties are claiming the same invention. The courts or the PTO may not uphold the validity
of our patents, we may not prevail in such interference proceedings regarding our patents and none
of our patents may give us a competitive advantage. In this regard, we have been notified by the
PTO that an unidentified third party has attempted to initiate an interference with one of our
patents directed to adenoviral p53 therapy. We have information indicating this party is Canji and
that, to date, these interference attempts have been unsuccessful. We cannot assess the likelihood
of an interference actually being declared. Should that party prevail in an interference
proceeding, a patent may issue to that party that is infringed by, and therefore potentially
preclude our commercialization of, products like ADVEXIN therapy that are used for adenoviral p53
therapy.
Schering-Plough filed with the European Patent Office, or EPO, an opposition against our
European patent directed to combination therapy with p53 and conventional chemotherapy and/or
radiation. An opposition is an administrative proceeding instituted by a third party and conducted
by the EPO to determine whether a patent should be maintained or revoked, in part or in whole,
based on evidence brought forth by the party opposing the patent. In February 2006, the Technical
Board of Appeals of the EPO held a final oral proceeding concerning Schering-Ploughs opposition
and determined our patent should be maintained as amended. No further appeal by Schering-Plough is
possible.
Crucell Holland has filed with the EPO an opposition to a European patent we own that covers
an adenovirus production process. This proceeding is in its early stages. An oral hearing date has
not yet been set.
We rely on trade secrets law to protect technology where we believe patent protection is not
appropriate or obtainable. However, trade secrets are difficult to protect. In addition, we
generally require employees, academic collaborators and consultants to enter into confidentiality
agreements. Despite these measures, we may not be able to adequately protect our trade secrets or
other proprietary information. We are a party to various license agreements that give us rights to
use specified technologies in our research and development processes. If we are not able to
continue to license this technology on commercially reasonable terms, our product development and
research may be delayed. In addition, in the case of technologies that we have licensed, we do not
have the ability to make the final decisions on how the patent application process is managed, and
accordingly are unable to exercise the same degree of control over this intellectual property as we
exercise over our internally developed technology. Our research collaborators and scientific
advisors have rights to publish data and information in which we have rights. If we cannot maintain
the confidentiality of our technology and other confidential information in connection with our
collaborations, then our ability to receive patent protection or protect our proprietary
information will be diminished.
Third party claims of infringement of intellectual property could require us to spend time and
money to address the claims and could limit our intellectual property rights.
The biotechnology and pharmaceutical industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies have employed intellectual
property litigation to gain a competitive advantage. We are aware of a number of issued patents and
patent applications related to recombinant DNA therapy, the treatment of cancer and the use of the
p53 and other tumor suppressors. Schering-Plough, including its subsidiary Canji, controls various
United States applications and a European patent and applications, some of which are directed to
therapy using p53, and others to adenoviruses containing p53, or adenoviral p53, and to methods for
carrying out therapy using adenoviral p53. Adenoviral p53 technology underlies our ADVEXIN
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therapy product candidate. Furthermore, we are aware of a United States patent directed to
replication-deficient recombinant adenoviral vectors apparently controlled by Transgene SA
(Transgene). While we believe the claims of the Transgene adenoviral vector patent are invalid or
not infringed by our products, Transgene could assert a claim against us.
One of the foregoing patent applications directed to p53 therapy, which we understand is owned
by The Johns Hopkins University (Johns Hopkins) and controlled by Schering-Plough, was involved in
a PTO interference proceeding with a patent owned by Canji. This Johns Hopkins application was the
United States counterpart to the European patent recently revoked in its entirety by the EPO (see
below). Priority of invention in that interference was awarded by the PTO to the Johns Hopkins
inventors, leading to the issuance of a United States patent, and the Canji patent has been found
unpatentable. While it is our belief that the claims of the Johns Hopkins patent are invalid and
not infringed by our ADVEXIN therapy, Schering-Plough or Johns Hopkins may assert that our ADVEXIN
therapy, which uses p53 therapy, infringes the claims of such patent. While we believe we would
have both an invalidity and non-infringement defense against such an assertion, in the United
States an issued patent enjoys a presumption of validity, which can be overcome only through clear
and convincing evidence. We cannot assure such a defense would prevail.
We may also become subject to infringement claims or litigation arising out of other patents
and pending applications of our competitors, if they issue, or additional interference proceedings
are declared by the PTO to determine the priority of inventions. The defense and prosecution of
intellectual property suits, PTO interference proceedings and related legal and administrative
proceedings are costly and time-consuming to pursue, and their outcome is uncertain. Such suits and
proceedings may distract our management and key personnel from our core business. Litigation may be
necessary to enforce our issued patents, to protect our trade secrets and know-how or to determine
the enforceability, scope and validity of the proprietary rights of others. An adverse
determination in litigation or interference proceedings to which we may become a party could
subject us to significant liabilities, require us to obtain licenses from third parties, or
restrict or prevent us from selling our products in certain markets. Although patent and
intellectual property disputes are often settled through licensing or similar arrangements, costs
associated with such arrangements may be substantial and could include ongoing royalties.
Furthermore, the necessary licenses may not be available to us on satisfactory terms, if at all. In
particular, if we were found to infringe a valid claim of the Transgene adenoviral vector United
States patent, the Johns Hopkins patent or a patent that may issue from a currently pending
application, our business could be materially harmed.
We have recently been involved in patent opposition proceedings before the EPO, in which we
have sought to have the EPO revoke three different European patents owned or controlled by
Canji/Schering-Plough. These European patents relate to the use of p53, or the use of tumor
suppressors, in the preparation of therapeutic products. In one opposition involving a Canji
European patent directed to the use of a recombinant tumor suppressor, the EPO revoked the European
patent in its entirety in a final, non-appealable decision. In the second opposition, involving a
patent that is directed to therapeutic and other applications of the p53 and that is owned by Johns
Hopkins and, we understand, controlled by Schering-Plough, the EPO recently revoked the patent in
its entirety. The patent owner appealed this decision and the final hearing before the EPO
Technical Board of Appeals was held in June 2005, at which time the Technical Board of Appeals
confirmed the final revocation of all claims of this patent relevant to clinical therapeutic
applications of p53. In a third case involving the use of p53, the European patent at issue was
initially upheld, but finally revoked in a hearing held in late April 2004.
We may be subject to litigation and infringement claims that may be costly, divert managements
attention and materially harm our business.
Extensive litigation regarding patents and other intellectual property rights has been common
in the biopharmaceutical industry. Litigation may be necessary to assert infringement claims,
enforce patent rights, protect trade secrets or know-how and determine the enforceability, scope
and validity of certain proprietary rights. The defense and prosecution of intellectual property
lawsuits, PTO interference proceedings, and related legal and administrative proceedings in the
United States and internationally involve complex legal and factual questions. As a result, such
proceedings are costly and time-consuming to pursue and their outcome is uncertain.
Regardless of merit or outcome, our involvement in any litigation, interference or other
administrative proceedings could cause us to incur substantial expense and could significantly
divert the efforts of our technical and management personnel. An adverse determination may subject
us to the loss of our proprietary position or to significant liabilities, or require us to seek
licenses that may include substantial cost and ongoing royalties. Licenses
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may not be available from third parties, or may not be obtainable on satisfactory terms. An
adverse determination or a failure to obtain necessary licenses may restrict or prevent us from
manufacturing and selling our products, if any. These outcomes could materially harm our business,
financial condition and results of operations.
If we fail to meet our obligations under license agreements, we may lose our rights to key
technologies on which our business depends.
Our business depends in part on patents licensed from third parties. The related license
agreements impose obligations on us, such as payment obligations and obligations to diligently
pursue development of commercial products under the licensed patents. If a licensor believes we
have failed to meet our obligations under a license agreement, the licensor could seek to limit or
terminate our license rights, which could lead to costly and time-consuming litigation and,
potentially, a loss of the licensed rights. During the period of any such litigation, our ability
to carry out the development and commercialization of product candidates could be significantly and
negatively affected. If our license rights were restricted or ultimately lost, our ability to
continue our business based on the affected technology platform would be severely adversely
affected.
Competition and technological change may make our product candidates and technologies less
attractive or obsolete.
The market for therapeutic and commercial products is intensely competitive, rapidly evolving
and subject to rapid technological change. We compete with pharmaceutical and biotechnology
companies, including Canji and Genvec, which are pursuing forms of treatment similar to ours for
the diseases ADVEXIN therapy and our other product candidates target. We are aware that Canji, with
its parent Schering-Plough, has in the past been involved in research and/or development of
adenoviral p53 products and has numerous patents and patent applications relating to adenoviral p53
therapy. We understand Schering-Plough has stopped its adenoviral p53 clinical trials, and it is
unknown whether these parties are continuing their adenoviral p53 research and/or development
efforts. We are also aware that a Chinese pharmaceutical company, Benda Pharmaceutical, Inc.
(formerly SiBiono GeneTech), has received regulatory approval from the Chinese drug regulatory
agency to market an adenoviral p53 product only in China. We control an issued Chinese patent
covering adenoviral p53, and a number of pending Chinese applications directed to p53 therapy and
adenoviral production. We understand enforcement of patents in China is unpredictable. We do not
know if monetary damages could be recovered from Benda Pharmaceutical, Inc. if its product
infringes our patent or patent applications. Patent enforcement and respect of international patent
standards, rules and laws have not historically been a key characteristic of the Chinese government
and patent system. Geopolitical developments, including trade and tariff disputes between the
government of China and the United States Department of Commerce could add additional uncertainty
to any effort to enforce patents, recover damages, if any, or engage in the sales and marketing of
patented or non-patented products in China. We are aware that ImClone and Bristol Myers Squibb have
obtained marketing approval for a monoclonal antibody product (Erbitux) for the treatment of
certain kinds of recurrent head and neck cancer. We also may face competition from companies that
may develop internally or acquire competing technology from universities and other research
institutions. As these companies develop or acquire their technologies, they may develop
competitive positions that may prevent or limit our product commercialization efforts.
Some of our competitors are established companies with greater financial and other resources
than ours. Other companies may succeed in developing products earlier than we do, obtaining FDA or
foreign regulatory authority approval for products before we do or developing products that are
more effective than our product candidates. While we will seek to expand our technological
capabilities to remain competitive, research and development by others may render our technology or
product candidates obsolete or non-competitive or result in treatments or cures superior to any
therapy developed by us.
Even if we receive regulatory approval to market our ADVEXIN therapy, INGN 241, INGN 225 or other
product candidates, we may not be able to commercialize them profitably.
Our profitability will depend on the markets acceptance of ADVEXIN therapy, INGN 241, INGN
225 and our other product candidates, if approved. The commercial success of our product candidates
will depend on whether:
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they are more effective than alternative treatments; |
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their side effects are acceptable to patients and doctors; |
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insurers and other third-party healthcare payers will provide adequate reimbursement
for them; |
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we produce and sell them at a profit; and |
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we market ADVEXIN therapy, INGN 241, INGN 225 and our other product candidates
effectively. |
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We must achieve significant market share and obtain high per-patient prices for our products to
achieve profitability.
ADVEXIN therapy, our lead product candidate, will, if approved by the FDA, initially be
targeted for the treatment of recurrent head and neck cancer, a disease with an annual incidence of
approximately 40,000 patients in the United States. We are simultaneously pursuing approval of
ADVEXIN therapy in Europe for the treatment of recurrent head and neck cancer where the annual
incidence is equal to and perhaps greater than the US incidence of this disease. Also in Europe, we
are seeking approval from the EMEA to market ADVEXIN therapy for Li Fraumeni Syndrome, a rare,
inherited disorder. As a result, our per-patient prices must be sufficiently high in order to
recover our development costs and achieve profitability. Until additional disease targets with
larger potential markets are approved, we believe we will need to market worldwide to achieve
significant market penetration. If we are unable to obtain sufficient market share for our drug
products at a high enough price, or obtain expanded approvals for larger markets, we may not
achieve profitability or be able to independently continue our product development efforts.
If we are unable to obtain adequate reimbursement from governments or third-party payors for any
products that we may develop or if we are unable to obtain acceptable prices for those products,
they may not be purchased or used and our revenues and prospects for profitability will suffer.
Our future revenues and profits will depend heavily upon the availability of adequate
reimbursement for the use of our approved product candidates from governmental and other
third-party payors, both in the United States and in other markets. Reimbursement by a third-party
payor may depend upon a number of factors, including the third-party payors determination that use
of a product is:
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a covered benefit under its health plan; |
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safe, effective and medically necessary; |
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appropriate for the specific patient; |
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cost-effective; and |
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neither experimental nor investigational. |
Obtaining reimbursement approval for a product from each government or other third-party payor
is a time-consuming and costly process that could require us to provide supporting scientific,
clinical and cost-effectiveness data for the use of our products to each payor. We may not be able
to provide data sufficient to gain acceptance with respect to reimbursement. Even when a payor
determines that a product is eligible for reimbursement, the payor may impose coverage limitations
that preclude payment for some uses that are approved by the FDA, EMEA or other foreign regulatory
authorities. In addition, eligibility for coverage does not imply that any product will be
reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs.
Interim payments for new products, if applicable, may also not be sufficient to cover our costs and
may not be made permanent.
Governments outside the United States may impose strict price controls, which may adversely affect
our revenues, if any.
In some countries, particularly the countries of the European Union, the pricing of
prescription pharmaceuticals is subject to governmental control. In these countries, pricing
negotiations with governmental authorities can take considerable time after the receipt of
marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we
may be required to conduct a clinical trial that compares the cost-effectiveness of our product
candidate to other available therapies. If reimbursement of our products is unavailable or limited
in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely
affected.
Legislation has been introduced into the United States Congress that, if enacted, would permit
more widespread re-importation of drugs from foreign countries into the United States, which may
include re-importation from foreign countries where the drugs are sold at lower prices than in the
United States. Such legislation, or similar regulatory changes, could decrease the price we receive
for any approved products which, in turn, could adversely affect our operating results and our
overall financial condition.
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If we are unable to manufacture our products in sufficient quantities or obtain regulatory
approvals for our manufacturing facilities, or if our manufacturing process is found to infringe a
valid patented process or processes of another company, then we may be unable to meet demand for
our products and lose potential revenue.
To complete our clinical trials and commercialize our product candidates, if approved, we will
need access to, or will need to develop, facilities to manufacture a sufficient supply of our
product candidates. We have used manufacturing facilities we constructed in Houston, Texas to
manufacture ADVEXIN therapy, INGN 241 and other product candidates for currently planned clinical
trials. We anticipate our facilities are suitable for the initial commercial launch of ADVEXIN
therapy. We have no experience manufacturing ADVEXIN therapy, INGN 241 or any other product
candidates in the volumes necessary to support commercial sales. If we are unable to manufacture
our product candidates in clinical or, when necessary, commercial quantities, then we will need to
rely on third-party manufacturers to produce our products for clinical and commercial purposes.
These third-party manufacturers must receive FDA, EMEA approval or approval of other relevant
foreign authorities approval before they can produce clinical material or commercial product. Our
products may be in competition with other products for access to these facilities and may be
subject to delays in manufacturing if third parties give other products greater priority than ours.
In addition, we may not be able to enter into any necessary third-party manufacturing arrangements
on acceptable terms. There are a limited number of contract manufacturers who currently have the
capability to produce ADVEXIN therapy, INGN 241 and our other product candidates, and the inability
of any of these contract manufacturers to deliver our required quantities of product candidates
timely and at commercially reasonable prices would negatively affect our operations.
Before we can begin commercially manufacturing ADVEXIN therapy, INGN 241 or any other product
candidate, we must obtain regulatory approval of our manufacturing facilities and processes.
Manufacturing of our product candidates for clinical and commercial purposes must comply with the
FDAs CGMP requirements in the United States and European Good Manufacturing Practices in Europe.
These requirements govern quality control and documentation policies and procedures. In complying
with these requirements, we will be obligated to expend time, money and effort in production,
record keeping and quality control to assure the product meets applicable specifications and other
requirements. We must also pass a certain inspections by regulatory authorities in the United
States and Europe to obtain marketing approval in those countries.
Our manufacturing facilities were audited in July 2008 by representatives of the Irish
Medicines Board on behalf of the EMEA. The purpose of the inspection was to assess the compliance
of our facilities and GMP systems with the requirements of the EC Guide to GMP with a view to issue
a Manufacturing Authorization in relation to our Marketing Authorization Application to the EMEA
for our ADVEXIN therapy product. We are in the process of evaluating the audit findings and expect
to have all observations resolved by the end of 2008.
We have not yet been subject to a Pre-Approval Inspection by the FDA, EMEA or other foreign
regulatory authorities. Failure to pass Pre-Approval Inspections may significantly delay approval
of our products. If we fail to comply with these requirements, we would be subject to possible
regulatory action and may be limited in the jurisdictions in which we are permitted to sell our
products. Further, the FDA, EMEA and other foreign regulatory authorities have the authority to
perform unannounced periodic inspections of our manufacturing facilities to ensure compliance with
CGMP and foreign regulatory requirements. Our facilities in Houston, Texas are our only
manufacturing facilities. If these facilities were to incur significant damage or destruction, then
our ability to manufacture ADVEXIN therapy, INGN 241 or any other product candidates would be
significantly hampered, and our pre-clinical testing, clinical trials and commercialization efforts
would be delayed.
In order to produce our products in the quantities we believe will be required to meet
anticipated market demand, if our products are approved, we will need to increase, or scale-up,
our production process. If we are unable to do so, or if the cost of this scale-up is not
economically viable to us, we may not be able to produce our products in a sufficient quantity to
meet the requirements of future demand.
Canji controls a United States patent and the corresponding international applications,
including a European counterpart, relating to the purification of viral or adenoviral compositions.
While we believe our manufacturing process does not infringe this patent, Canji could still assert
a claim against us. We may also become subject to infringement claims or litigation if our
manufacturing process infringes other patents. The defense and prosecution of intellectual property
suits and related legal and administrative proceedings are costly and time-consuming to pursue, and
their outcome is uncertain.
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Our formation and development of Introgen Technical Services, Inc. ITS may not be successful, may
be costly and may divert management attention and resources away from the development and
commercialization of ADVEXIN therapy and our other product candidates.
We have limited experience using our resources in biologics manufacturing and process
development as well as our manufacturing facilities, practices and processes to provide
manufacturing process development and product manufacturing services to third parties. We have
limited experience conducting a business consisting of both (1) pursuing development and approval
of drug candidates for marketing and sale and (2) providing contract process development and
manufacturing services to third parties. The development and management of the ITS business plan
and resulting operations will require additional financial and other resources that may not be
available to us and could divert management attention away from other activities. There are other
companies competing in ITS targeted marketplace with more financial resources and experience in
this field than we possess at this time. ITS currently has few customers. We may have to develop or
acquire additional manufacturing and process development expertise to serve our potential customers
and to effectively compete in this marketplace. We may have to raise capital, which may not be
available to us, to support ITS operations. Any of these factors occurring individually or
collectively could result in us not achieving the ITS business plan and incurring costs and
diversion of management attention for which there is no resulting return on investment.
We rely on a limited number of suppliers for some of our manufacturing materials. Any problems
experienced by such suppliers could negatively affect our operations.
We rely on third-party suppliers for most of the equipment, materials and supplies used in the
manufacturing of ADVEXIN therapy, INGN 241 and our other product candidates. Some items critical to
the manufacturing of these product candidates are available from a limited number of suppliers or
vendors. We do not have supply agreements with these key suppliers. To mitigate the related supply
risk, we maintain inventories of these items. Any significant problem experienced by one or more of
these limited number of suppliers could result in a delay or interruption in the supply of
materials to us until the supplier cures the problem or until we locate an alternative source of
supply. Such problems would likely lead to a delay or interruption in our manufacturing operations
or could require a significant modification to our manufacturing process, which could impair our
ability to manufacture our product candidates in a timely manner and negatively affect our
operations.
If product liability lawsuits are brought against us, we may incur substantial expenses and damages
and demand for our product candidates may be reduced.
The testing and marketing of medical products is subject to an inherent risk of product
liability claims. Regardless of their merit or eventual outcome, product liability claims may
result in:
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decreased demand for our product candidates; |
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a diversion of our management and key personnel away from our core business; |
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injury to our reputation, significant media attention and potential harm to our market
position; |
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withdrawal of clinical trial volunteers; |
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substantial delay in or withdrawal of FDA, EMEA or other foreign regulatory authority
approval; |
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costs of investigation and litigation; and |
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substantial monetary awards to plaintiffs. |
We currently maintain product liability insurance with coverage of $5.0 million per occurrence
with a $10.0 million annual aggregate limit. This coverage may not be sufficient to protect us
fully against product liability claims. We intend to expand our product liability insurance
coverage beyond clinical trials to include the sale of commercial products if we obtain marketing
approval for any of our product candidates. Our inability to obtain sufficient product liability
insurance at an acceptable cost to protect against product liability claims could prevent or limit
the commercialization of our products.
We use hazardous materials in our business. Any claims relating to improper handling, storage, use
or disposal of these materials could significantly harm our business.
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Our business involves the use of a broad range of hazardous chemicals and materials.
Environmental laws impose stringent civil and criminal penalties for improper handling, disposal
and storage of these materials. In addition, in the event of the improper or unauthorized release
of, or the exposure of individuals to, hazardous materials, we could be subject to civil liability
due to personal injury or property damage caused by the release or exposure. A failure to comply
with environmental laws could result in fines and the revocation of environmental permits, which
could significantly harm our business.
Our research and development efforts may not result in additional product candidates being
discovered on anticipated timelines, if at all, which could limit our ability to generate revenues.
Our research and development programs, other than our programs for ADVEXIN therapy and INGN
241, are at preclinical stages. Additional product candidates that we may develop will require
significant research, development, preclinical studies and clinical trials, regulatory approval and
commitment of resources before any commercialization may occur. We cannot predict whether our
research will lead to the discovery of any additional product candidates that could generate
revenues for us.
Certain regulations may make it more difficult and costly for us to obtain regulatory approval of
our product candidates and to produce, market and distribute our existing products.
On September 27, 2007, the President signed into law the FDA Amendments Act, or FDAAA. This
legislation grants significant new powers to the FDA, many of which are aimed at improving drug
safety and assuring the safety of drug products after approval. Under the FDAAA, companies that
violate the new law are subject to substantial civil monetary penalties. While we expect the FDAAA
to have a significant impact on the pharmaceutical industry, the FDA has not yet implemented many
of its provisions and the extent of the impact is not yet known. The requirements and changes
imposed by the FDAAA may make it more difficult, and more costly, to obtain and maintain approval
of new pharmaceutical products and to produce, market and distribute existing products.
In addition, the FDAs regulations, policies or guidance may change and new or additional
statutes or government regulations may be enacted that could prevent or delay regulatory approval
of our product candidates or further restrict or regulate post-approval activities. It is
impossible to predict whether additional legislative changes will be enacted, or FDA regulations,
guidance or interpretations changed, or what the impact of such changes, if any, may be.
Any acquisition we might make may be costly and difficult to integrate, divert management resources
or dilute stockholder value.
As part of our business strategy, we may acquire assets or businesses principally relating to
or complementary to our current operations, and we have in the past evaluated and discussed such
opportunities with interested parties. Any acquisitions we undertake will be accompanied by the
risks commonly encountered in business acquisitions. These risks include, among other things:
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potential exposure to unknown liabilities of acquired companies; |
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the difficulty and expense of assimilating the operations and personnel of acquired
businesses; |
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diversion of management time and attention and other resources; |
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loss of key employees and customers as a result of changes in management; |
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the incurrence of amortization expense; and |
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possible dilution to our stockholders. |
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In addition, geographic distances may make the integration of businesses more difficult. We
may not be successful in overcoming these risks or any other problems encountered in connection
with any acquisitions.
If we lose key personnel or are unable to attract and retain additional, highly skilled personnel
required to develop our products or obtain new collaborations, our business will suffer.
We depend, to a significant extent, on the efforts of our key employees, including senior
management and senior scientific, clinical, regulatory, manufacturing and other personnel. The
development of new therapeutic products requires expertise from a number of different disciplines,
some of which is not widely available. We depend upon our scientific staff to discover new product
candidates and to develop and conduct pre-clinical studies of those new potential products. Our
clinical and regulatory staff is responsible for the design and execution of clinical trials in
accordance with FDA, EMEA and other foreign regulatory authority requirements and for the
advancement of our product candidates toward FDA, EMEA and other foreign regulatory authority
approval. Our manufacturing staff is responsible for designing and conducting our manufacturing
processes in accordance with the FDAs CGMP requirements. The quality and reputation of our
scientific, clinical, regulatory and manufacturing staff, especially the senior staff, and their
success in performing their responsibilities, are a basis on which we attract potential funding
sources and collaborators. In addition, our Chief Executive Officer and other executive officers
are involved in a broad range of critical activities, including providing strategic and operational
guidance. The loss of these individuals, or our inability to retain or recruit other key management
and scientific, clinical, regulatory, manufacturing and other personnel, may delay or prevent us
from achieving our business objectives. We face intense competition for personnel from other
companies, universities, public and private research institutions, government entities and other
organizations.
Future changes in financial accounting standards or practices or existing taxation rules or
practices may cause adverse unexpected financial reporting fluctuations and affect our reported
results of operations.
A change in accounting standards or practices or a change in existing taxation rules or
practices can have a significant effect on our reported results and may even affect our reporting
of transactions completed before the change is effective. New accounting pronouncements and
taxation rules and varying interpretations of accounting pronouncements and taxation practice have
occurred and may occur in the future. Changes to existing rules or the questioning of current
practices may adversely affect our reported financial results or the way we conduct our business.
For example, Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment,
became effective for us on January 1, 2006. This statement requires that employee share-based
compensation be measured based on its fair value on the grant date and treated as an expense that
is reflected in the financial statements over the related service period. SFAS No. 123R has had a
significant impact on our results of operations for the three months and nine months ended
September 30, 2008. Using the Black-Scholes option pricing model to compute share-based
compensation expense as we do requires extensive use of accounting judgment and financial
estimates. Items requiring estimation include the expected term optionholders will retain their
vested stock options before exercising them, the estimated volatility of our common stock price
over the expected term of a stock option and the number of stock options that will be forfeited
prior to the completion of their vesting requirements. Application of alternative assumptions could
result in significantly different share-based compensation amounts being recorded in our financial
statements. We anticipate that SFAS No. 123R will continue to have a significant impact on our
results of operations.
Our corporate governance structure, including provisions in our certificate of incorporation and
by-laws, and Delaware law, may prevent a change in control or management that stockholders may
consider desirable.
Section 203 of the Delaware General Corporation Law and our certificate of incorporation and
by-laws contain provisions that might enable our management to resist a takeover of our company or
discourage a third party from attempting to take over our company. These provisions include the
inability of stockholders to act by written consent or to call special meetings, the ability of our
board of directors to designate the terms of and issue new series of preferred stock without
stockholder approval and the fact that our board of directors is divided into three classes serving
staggered three-year terms.
These provisions could have the effect of delaying, deferring, or preventing a change in
control of us or a change in our management that stockholders may consider favorable or beneficial.
These provisions could also discourage proxy contests and make it more difficult for stockholders
to elect directors and take other corporate actions. These
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provisions could also limit the price that investors might be willing to pay in the future for
shares of our common stock or our other securities.
Our executive officers, directors and principal stockholders will maintain the ability to control
all matters submitted to stockholders for approval.
Our executive officers, directors and stockholders who own more than 5% of our outstanding
common stock beneficially own shares representing more than 50% of our outstanding capital stock.
As a result, these stockholders, if they act together, will be able to exercise a controlling
influence over matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, such as mergers, consolidations and sales of all or
substantially all of our assets, and will have significant control over our management and
policies. The interests of this group of stockholders may not always coincide with our corporate
interests or the interests of other stockholders. This significant concentration of stock ownership
could also result in the entrenchment of our management and adversely affect the price of our
common stock.
Some of our insiders are parties to transactions with us that may cause conflicting obligations.
Dr. John N. Kapoor, a member of our Board of Directors, is also associated with EJ Financial,
a healthcare investment firm that is wholly owned by him. In the past, we have paid EJ Financial
$175,000 per year under a consulting agreement for certain management consulting services, which is
based on anticipated time spent by EJ Financial personnel on our affairs. EJ Financial is also
involved in the management of healthcare companies in various fields, and Dr. Kapoor is involved in
various capacities with the management and operation of these companies. In addition, EJ Financial
is involved with other companies in the cancer field. Although these companies are pursuing
different therapeutic approaches for the treatment of cancer, discoveries made by one or more of
these companies could render our products less competitive or obsolete. Effective December 31,
2007, this consulting agreement ended by mutual agreement between EJ Financial and us. Accordingly
we no longer make payments under this agreement.
David Parker, Ph.D., J.D., our Vice President, Intellectual Property, is a partner with the
law firm Fulbright & Jaworski LLP, which provides legal services to us as our primary outside
counsel for intellectual property matters.
We have relationships with Jack A. Roth, M.D., a beneficial owner of our common stock, and M.
D. Anderson Cancer Center, both of whom are affiliated with The Board of Regents of the University
of Texas System, one of our stockholders. For more information concerning these relationships, see
our Notes to Consolidated Financial Statements beginning on page F-8 of our Annual Report on Form
10-K for the year ended December 31, 2007, filed with the SEC on March 17, 2008.
In the three months ended March 31, 2007, we became an owner of 49% of the outstanding stock
of Introgen Research Institute (IRI). The other 51% of IRI is owned by our corporate Secretary, who
is also an Introgen stockholder. We have contractual relationships with IRI under which we may
perform research and development services for them in the future.
We have an agreement with Mr. Robert W. Pearson, who became a member of our Board of Directors
in April 2008. Under this agreement, he will provide certain business development services to us in
connection with potential co-development, collaborative, marketing partnership or certain other
potential strategic transactions. In consideration for his services, upon the consummation of such
a transaction, we will pay him a fee equal to one-half of one percent (0.5%) of certain monetary
benefits received by our stockholders or us. The maximum fee he can receive is $3,000,000. The fee
we pay him will be reduced by expenses or other expenditures made or contemplated under such a
transaction. This fee is not payable for funding we receive that we are expected to expend for
research and development programs, full time equivalent payments to employees, loans, collaborative
programs, business partnerships or strategic transactions, or otherwise. Transactions between our
affiliates and us, whether now existing or created in the future, are excluded from this agreement.
This agreement may be terminated at any time by written notice from us or this board member. In the
event of such termination, the fee shall be paid with respect to a transaction produced through
services performed by this board member before termination if the transaction is closed within two
years after the date of termination of the agreement.
We believe the foregoing transactions with insiders were and are in our best interests and the
best interests of our stockholders. However, the transactions may cause conflicts of interest with
respect to those insiders.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On November 5, 2008, James W. Albrecht, Jr., tendered his resignation as Introgens Chief
Financial Officer and from all positions that he held with Introgen and its subsidiaries, effective
as of November 14, 2008. Mr. Albrecht advised us that he resigned to pursue new opportunities and
not because of any disagreement with management or our accounting practices or policies for which
he was responsible. We have accepted his resignation. A copy of the disclosure in this Form 10-Q
was provided to Mr. Albrecht, and he has indicated his agreement with the contents of this
disclosure.
Item 6. Exhibits
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Exhibit |
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Number |
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Description of Document |
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3.2
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Third Amended and Restated Bylaws |
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31.1
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Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act |
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32.1
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Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly
caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto
duly authorized.
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INTROGEN THERAPEUTICS, INC.
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November 10, 2008 |
By: |
/s/ James W. Albrecht, Jr.
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James W. Albrecht, Jr. |
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On behalf of the Registrant and as Chief
Financial Officer
(Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
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Exhibit |
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Number |
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Description of Document |
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3.2
|
|
|
|
Third Amended and Restated Bylaws |
|
|
|
|
|
31.1
|
|
|
|
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Exchange Act |
|
|
|
|
|
32.1
|
|
|
|
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 |
66