UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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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
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For the quarterly period ended March 31, 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
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For the transition period from
to
Commission File Number: 000-51709
Iomai Corporation
(exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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52-2049149
(I.R.S. Employer
Identification No.)
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20 Firstfield Road, Suite 250, Gaithersburg, Maryland
(Address of principal executive offices)
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20878
(Zip Code)
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Registrants telephone number, including area code:
(301) 556-4500
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 definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
þ
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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
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No
þ
There were 25,601,344 shares of the registrants Common Stock outstanding as of May 5, 2008.
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
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ITEM 1. Unaudited Financial Statements
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3
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Balance Sheets as of March 31, 2008 and December 31, 2007
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3
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Statements of Operations for the three months ended March 31, 2008 and 2007
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4
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Statements of Cash Flows for the three months ended March 31, 2008 and 2007
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5
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Notes to Unaudited Financial Statements
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6
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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
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12
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ITEM 4. Controls and Procedures
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43
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PART II OTHER INFORMATION
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ITEM 1A. Risk Factors
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44
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ITEM 6. Exhibits
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44
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Signatures
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45
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- 2 -
PART I FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
IOMAI CORPORATION
BALANCE SHEETS
(in thousands, except share and per share data)
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March 31,
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December 31,
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2008
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2007
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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9,822
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$
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15,500
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Accounts receivable
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1,854
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4,011
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Prepaid expenses and other current assets
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803
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589
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Total current assets
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12,479
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20,100
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Property and equipment, net
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6,909
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6,699
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Restricted marketable securities
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265
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265
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Loans to employees
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93
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93
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Other noncurrent assets
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197
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198
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Total assets
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$
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19,943
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$
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27,355
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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1,640
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2,710
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Accrued expenses
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2,587
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2,656
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Notes payable, current portion
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897
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1,005
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Notes payable to related party, current portion
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200
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195
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Total current liabilities
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5,324
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6,566
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Notes payable, long-term portion
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1,109
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1,303
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Notes payable to related party, long-term portion
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1,100
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1,152
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Deferred rent
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392
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381
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Total liabilities
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7,925
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9,402
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Stockholders equity:
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Common stock, $0.01 par value; 200,000,000
shares authorized and 25,593,248 shares issued
and outstanding as of March 31, 2008;
200,000,000 shares authorized; and 25,588,673
shares issued and outstanding as of December
31, 2007
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256
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256
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Additional paid-in capital
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147,289
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146,759
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Accumulated deficit
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(135,527
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(129,062
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Total stockholders equity
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12,018
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17,953
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Total liabilities and stockholders equity
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19,943
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$
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27,355
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See accompanying notes.
- 3 -
IOMAI CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
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Three Months Ended
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March 31,
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2008
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2007
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(Unaudited)
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Revenues
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$
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1,844
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$
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1,588
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Cost and expenses:
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Research and development
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6,159
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8,860
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General and administrative
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2,165
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2,122
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Total costs and expenses
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8,324
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10,982
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Loss from operations
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(6,480
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(9,394
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Other income (expense):
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Interest income
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89
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263
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Interest expense
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(73
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(86
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Other (expense), net
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(1
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(5
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Total other income, net
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15
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172
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Net loss
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$
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(6,465
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$
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(9,222
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Net loss per share of common stockbasic and diluted
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$
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(0.25
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$
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(0.44
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Weighted-average number of shares of common
stockbasic and diluted
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25,589,930
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20,958,806
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See accompanying notes.
- 4 -
IOMAI CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
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Three Months Ended
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March 31,
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2008
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2007
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(Unaudited)
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Cash flows from operating activities
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Net loss
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$
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(6,465
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$
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(9,222
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization
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476
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382
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Stock-based compensation expense
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525
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540
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Non-cash interest expense and amortization of discount of marketable
securities
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(1
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(13
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Deferred rent
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11
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11
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Loss on disposal of property and equipment
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1
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3
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Changes in operating assets and liabilities:
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Accounts receivable
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2,157
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(1,589
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Prepaid expenses and other current assets
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(215
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(651
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Loans to employees
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(105
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Accounts payable
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(1,171
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381
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Accrued expenses
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(70
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137
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Net cash used in operating activities
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(4,752
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(10,126
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Cash flows from investing activities
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Purchases of property and equipment
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(586
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(555
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Restricted cash and marketable securities
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4
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9
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Sales/maturities of marketable securities
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1,500
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Net cash (used in) provided by investing activities
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(582
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954
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Cash flows from financing activities
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Proceeds from the exercise of stock options
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4
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18
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Proceeds from private placement of common stock
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31,884
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Stock issuance costs
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(1,497
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Principal payments on notes payable
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(302
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(450
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Principal payments on notes payable to related party
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(46
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(42
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Payments under capital lease obligations
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(1
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Net cash (used in) provided by financing activities
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(344
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29,912
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Net increase(decrease) in cash and cash equivalents
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(5,678
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20,740
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Cash and cash equivalents at beginning of period
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15,500
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13,847
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Cash and cash equivalents at end of period
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$
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9,822
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$
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34,587
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Supplemental cash flow disclosures:
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Cash paid for interest
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$
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96
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$
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119
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See accompanying notes.
- 5 -
IOMAI CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements of Iomai Corporation (the Company or Iomai) for the three-month
periods ended March 31, 2008 and 2007 are unaudited and include all adjustments which, in the
opinion of management, are necessary to present fairly the financial position and results of
operations for the periods then ended. These financial statements should be read in conjunction
with the financial statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2007 filed with the Securities and Exchange Commission.
The results of operations for any interim period are not necessarily indicative of the results
of operations for any other interim period or for a full fiscal year.
2. Managements Plans as to Continuing as a Going Concern
The accompanying financial statements have been prepared on a going-concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of
business. Since inception, the Company has incurred, and continues to incur, significant losses
from operations. In addition, the Company would need to raise additional capital to continue its
business operations as currently conducted and fund deficits in operating cash flows. The Company
may raise additional capital to finance the development of its business operations, although such
capital raising activity cannot be assured.
Potential alternatives for accessing funding include: (1) out-licensing technologies or
product candidates to one or more corporate partners, (2) completing an outright sale of assets or
the company, (3) securing debt financing, and/or (4) selling additional equity securities. There is
no assurance that the Company will raise capital sufficient to enable the Company to continue to
conduct its operations for the next 12 months. See Note 6 for a discussion of our proposed merger
with Zebra Merger Sub, Inc., a wholly-owned subsidiary of Intercell AG (Intercell).
In the event the Company does not access funding to continue to conduct its operations for the
next 12 months, the Company will likely revise its planned clinical trials, other development
activities, capital expenditure plans, and the scale of its operations, until it is able to obtain
sufficient financing to do so, or pursue other alternatives.
These factors could significantly limit the Companys ability to continue as a going concern.
The balance sheets do not include any adjustments relating to recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
3. Significant Accounting Policies
Use of estimates
The preparation of the financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Restricted marketable securities
Restricted marketable securities at March 31, 2008 and December 31, 2007 include marketable
securities with a face value of $265,000, pledged as collateral to secure payment of notes payable
issued to finance, in part, the build-out of the Companys facilities.
- 6 -
Accounts receivable
Accounts receivable that management has the intent and ability to hold until payment are
reported in the balance sheets at outstanding amounts, less the allowance for doubtful accounts.
The Company writes off uncollectible receivables when the likelihood of collection is remote. The
Company maintains an allowance for doubtful accounts, which is determined based on historical
experience and managements expectations of future losses. There was no allowance for doubtful
accounts for the three-month periods ended March 31, 2008 or 2007.
Unbilled accounts receivable consist principally of expenses incurred on reimbursable research
grants and contracts prior to the end of the period that have not yet been billed to the
contracting agent. Unbilled accounts receivable at March 31, 2008 and December 31, 2007 are
approximately $800,000 and $2.2 million respectively.
Revenue recognition
The Company recognizes revenue when all terms and conditions of the agreements have been met,
including persuasive evidence of an arrangement, services have been rendered, price is fixed or
determinable, and collectability is reasonably assured. For reimbursable cost research grants and
contracts, the Company recognizes revenue as costs are incurred. Funding of government grants and
contracts beyond the U.S. governments current fiscal year is subject to annual congressional
appropriations, and the Company cannot recognize revenue for subsequent years until the period in
which such funding is duly authorized. Provisions for estimated losses on research grant projects
and any other contracts are made in the period such losses are determined.
Research and development costs
The Company expenses its research and development costs as incurred; however, equipment and
facilities that are acquired or constructed for research and development activities that have
alternative future uses (in research and development projects or otherwise) are capitalized and
depreciated as tangible assets.
Stock-based compensation
Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB
Statement No. 123(R),
Share-Based Payment
(Statement 123(R)), using the
modified-prospective-transition method. The Company uses the Black-Scholes-Merton formula to
estimate the value of stock options granted to employees. Equity instruments issued to nonemployees
are accounted for under the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No.
96-18,
Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or
in conjunction with, Selling, Goods and Services
. Accordingly, the estimated fair value of the
equity instrument is recorded on the earlier of the performance commitment date or the date the
services required are completed.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157). SFAS
157 provides guidance for using fair value to measure assets and liabilities. It also responds to
investors requests for expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value and the effect of fair value
measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value, and does not expand the use of fair value in any new
circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. The Company has adopted the provisions of SFAS 157 as of January 1, 2008,
for financial instruments. Although the adoption of SFAS 157 did not materially impact its
financial condition, results of operations or cash flow, the Company is now required to provide
additional disclosures as part of its financial statements. SFAS 157 establishes a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
- 7 -
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Level 1, defined as observable inputs such as quoted prices in active markets for identical
assets;
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Level 2, defined as observable inputs other than level 1 prices such as quoted prices
for similar assets; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities; and
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Level 3, defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions.
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The Companys cash equivalents and restricted marketable securities are subject to fair value
measurements. The inputs used in measuring the fair value of these instruments are considered to
be level 1 in accordance with the SFAS 157 hierarchy.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS
159 expands the use of fair value accounting but does not affect existing standards that require
assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair
value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities,
equity method investments, accounts payable, guarantees and issued debt. Other eligible items
include firm commitments for financial instruments that otherwise would not be recognized at
inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to
provide the warranty goods or services. If the use of fair value is elected, any upfront costs and
fees related to the item must be recognized in earnings and cannot be deferred, such as debt
issuance costs. The fair value election is irrevocable and generally made on an
instrument-by-instrument basis, even if a company has similar instruments that it elects not to
measure based on fair value. At the adoption date, unrealized gains and losses on existing items
for which fair value has been elected are reported as a cumulative adjustment to beginning retained
earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized in
earnings. SFAS 159 is effective for financial statements issued for fiscal years beginning after
November 15, 2007. The adoption of SFAS 159 did not have a material impact on the financial
position and results of operations of the Company.
In June 2007, the FASB ratified EITF 07-03, Accounting for Nonrefundable Advance Payments for
Goods or Services Received for Use in Future Research and Development Activities (EITF 07-3).
EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities be deferred and capitalized and recognized
as an expense as the goods are delivered or the related services are performed. EITF 07-3 is
effective, on a prospective basis, for financial statements issued for fiscal years beginning after
December 15, 2007. The adoption of EITF 07-03 did not have a material impact on the financial
position and results of operations of the Company.
4. Government Contract for Pandemic Flu
On January 17, 2007, the Company was awarded a five-year, cost-plus reimbursement contract by
the U.S. Department of Health and Human Services (HHS) to fund the development of a dose-sparing
patch for use with a pandemic flu vaccine. The immunostimulant (IS) patch is intended to stimulate
an immune response to influenza when used in conjunction with small doses of influenza vaccine. If
the product is developed through licensure, the total cost reimbursed by HHS, plus a fixed fee, is
estimated to be $128 million. During the first stage of the contract, HHS allotted approximately
$14.5 million for the Company to assess the safety and immunogenicity of the patch in initial
clinical trials, and to develop plans on how the Company would produce 150 million IS patches in a
six-month period, as required under the contract. Accordingly, for the first quarter of 2008, we
recognized government contract revenues of approximately $1.8 million under the HHS contract. As
of March 31, 2008, we had recognized total revenue under the HHS contract of approximately $12.5
million, of which approximately $11.7 million had been billed and approximately $10.6 million had
been paid.
In April 2008, the Company received approval from HHS to expand our program to begin a Phase 2
dose-ranging study designed to identify the optimum dose of antigen and adjuvant that can be used
in a one-dose or two-dose regimen to enhance the immune response to a H5N1 influenza vaccine. The
Company is currently working with HHS to refine the clinical development plan and budget for the
new Phase 2 trial going forward.
- 8 -
5. Stockholders Equity
Stock-Based Compensation
A summary of all stock option plan activity during the three-month period ended March 31, 2008
is as follows:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic Value
(1)
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term
|
|
|
($000s)
|
|
|
Outstanding at December 31, 2007
|
|
|
4,126,218
|
|
|
$
|
3.16
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
295,000
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,575
|
)
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(16,250
|
)
|
|
$
|
2.56
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(9,805
|
)
|
|
$
|
1.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
4,390,588
|
|
|
$
|
3.01
|
|
|
|
7.4
|
|
|
$
|
1,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2008
|
|
|
2,233,241
|
|
|
$
|
2.69
|
|
|
|
6.0
|
|
|
$
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated using the per-share closing price of the Companys common stock on March 31, 2008, which was
$1.60.
|
The total fair value of stock options which vested during the three-month period ended March
31, 2008, less estimated forfeitures, was approximately $525,000. During the three-month period
ended March 31, 2008, participants exercised stock options totaling 4,575, and the total intrinsic
value of stock options exercised during the three-month period ended March 31, 2008 was
approximately $1,000. Cash received from option exercises under all stock compensation plans was
approximately $4,000 for the three-month period ended March 31, 2008.
As of March 31, 2008, there was approximately $4.1 million of total unrecognized compensation
expense, less estimated forfeitures, related to unvested options under the Companys stock
compensation plans. The expenses are expected to be recognized over a weighted-average period of
2.9 years.
Stock options awarded to directors and employees generally are granted with an exercise price
equal to the market price of the Companys stock on the date of grant. Those options generally
vest in equal installments over a four-year period based on continued service and have ten-year
contractual terms. The Company recognizes compensation costs for those options on a straight-line
basis over the requisite service period for the entire award (that is, generally over four years).
During the three-month period ended March 31, 2008, the Company issued 295,000 options, which
vest in equal installments over a four-year period. The weighted-average fair value of the options
granted during the three-month period ended March 31, 2008 was $0.60 per share applying the
Black-Scholes-Merton option-pricing model utilizing the following weighted-average assumptions:
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2008
|
|
Expected dividend yield
|
|
0%
|
Expected volatility
|
|
75.8%
|
Risk-free interest rate
|
|
3.2%
|
Expected average life of options
|
|
6.25 years
|
Expected forfeiture rate
|
|
3.0% 7.0%
|
Expected Dividend Yield
The Company has never declared or paid dividends and has no plans
to do so in the foreseeable future.
- 9 -
Expected Volatility
Volatility is a measure of the amount by which a financial variable
such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected
volatility) during a period. The Company tracks the historical volatility of its own stock, but
since the Company went public only in February 2006, the Company uses an estimated volatility based
on the volatility of the daily stock price of a number of similarly situated biotechnology
companies, along with other factors deemed relevant by management. In the first quarter of 2008,
estimated volatility used to value options ranged between 75.6% and 75.8%.
Risk-Free Interest Rate
This is the U.S. Treasury rate for the week of each option grant
during the quarter having a term that most closely resembles the expected life of the option.
Expected Average Life of the Option Term
This is the period of time that the options
granted are expected to remain unexercised. Options granted during the year have a maximum term of
ten years. Prior to January 1, 2008, the Company estimated the expected life of the option term to
be five years. As of January 1, 2008 the Company adopted SAB 110s simplified method for
estimating the expected term of share-based awards granted. Management expects that over time,
management will track estimates of the expected life of the option term so that its estimates will
approximate actual past behavior for similar options.
Expected Forfeiture Rate
The forfeiture rate is the estimated percentage of options
granted that are expected to be forfeited or canceled on an annual basis before becoming fully
vested. The Company estimates the forfeiture rate based on past turnover data ranging anywhere from
the past one to three years, with further consideration given to the class of employees to whom the
options were granted.
6. Subsequent Events
On May 12, 2008, the Company, Intercell, a
joint stock corporation incorporated under the laws of the Republic of Austria (Intercell) and
Zebra Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Intercell (Merger
Sub), entered into an Agreement and Plan of Merger (the Merger Agreement) whereby the Company
has agreed to be acquired by Intercell subject to the terms and conditions of the Merger Agreement.
Under the Merger Agreement, Merger Sub will be merged with and into the Company, with the
Company continuing after the Merger as the surviving corporation and as a wholly-owned subsidiary
of Intercell (the Merger). Among other things, the Merger Agreement contains detailed
representations and warranties made by the Company to Intercell, covenants regarding the conduct of
the Companys business pending completion of the Merger, consents and approvals required for and
conditions to the completion of the Merger, the Companys ability to consider other acquisition
proposals and terms of interim financing that may be provided by Intercell to the Company. The
consummation of the transactions contemplated by the Merger Agreement is subject to regulatory
clearances and the approval of the stockholders of the Company. The transaction is expected to
close in the third quarter of 2008.
Under
the Merger Agreement, each outstanding share of the Companys
common stock will be converted into the right to receive $6.60 in
cash at the effective time of the Merger, other than those shares of
the Companys common stock owned by
Intercell or its subsidiaries immediately prior to the effective time of the Merger and shares of
the Companys common stock exchanged for shares of Intercell common stock (Intercells Common
Stock) pursuant to the Share Exchange Agreement defined and described below. In addition, each
outstanding option or warrant to purchase shares of the
Companys common stock will be cancelled in
consideration for a cash payment equal to the excess of $6.60 over the per share exercise price for
the option or warrant multiplied by the number of shares subject to the option or warrant, other
than those options or warrants subject to the Share Exchange Agreement defined and described below,
and unexercised or unvested options granted under the Companys 2005 Incentive Plan to persons
other than non-employee directors of the Company. Unexercised or unvested options granted under the
Companys 2005 Incentive Plan to persons other than non-employee directors of the Company will be
cancelled and replaced with options to purchase shares of Intercells Common Stock.
- 10 -
Under the Merger Agreement, the Company may be obligated to pay a termination fee in the
amount of $6,000,000 in specified circumstances in connection with the termination of the Merger
Agreement, including if the
Company enters into an agreement with a party other than Intercell with respect to an
acquisition of the Company or a specified amount of the Companys voting stock or assets within
12 months after termination of the Merger Agreement.
On May 12, 2008, in connection with the Merger Agreement, New Enterprise Associates, Essex
Woodlands Health Ventures, Gruber and McBaine Capital Management, Technology Partners Fund,
ProQuest Investments (and certain of each of their respective affiliates) and all of the Companys
executive officers, together holding over 50% of the Companys total shares outstanding, entered
into a voting agreement with Intercell (the Voting Agreement). Under the terms of the Voting
Agreement, each of the above stockholders agreed to vote, and irrevocably appointed Intercell as
its proxy to vote, all outstanding shares of the Companys
common stock held by such stockholder as
of the record date: (1) in favor of the Merger and the adoption of the Merger Agreement; (2)
against any action or agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation of the Company under the Merger
Agreement; and (3) against (i) any extraordinary corporate transaction, such as a merger, rights
offering, reorganization, recapitalization or liquidation involving the Company, other than the
Merger, (ii) a sale or transfer of a material amount of assets or capital stock of the Company or
(iii) any action that is intended, or would reasonably be expected, to impede, interfere with,
prevent, delay, postpone or adversely affect the Merger or the transactions contemplated by the
Merger Agreement.
Under the terms of the Voting Agreement, each stockholder agrees not to exercise any appraisal
rights or any dissenters rights that such stockholder may have or could potentially have in
connection with the Merger or the Merger Agreement.
On May 12, 2008, in connection with the Merger Agreement, New Enterprise Associates, Essex
Woodlands Health Ventures and Gruber and McBaine Capital Management
(and certain of each of their
respective affiliates) entered into a share exchange agreement with Intercell (the Share Exchange
Agreement), whereby each such stockholder has agreed, among other things, prior to the effective
date of the Merger, to exchange all shares of, and options or warrants to purchase, the Companys
common stock held by such stockholder into a number of shares of
Intercells common stock equal to
the number of such stockholders shares of, and options or warrants to purchase, the Companys
common stock, multiplied by $6.60 per share and divided by the closing sale price (as converted
into U.S. dollars) of Intercells Common Stock on the Vienna Stock Exchange on the closing date of
such exchange. The consummation of the exchange is conditioned upon, among other things, (1) the
report of an independent auditor addressing the adequacy of the
Companys common stock to be
provided to Intercell in exchange for Intercells Common Stock in the exchange and (2) the
acceptance by the Vienna Commercial Register of Intercells application for an increase of its
share capital. In the event that (i) the report of the independent auditor fails to conclude that
the value of the stockholders shares of, and options or
warrants to purchase, the Companys common
stock is at least as high as the value of the shares of
Intercells Common Stock or (ii) the Vienna
Commercial Register does not accept the registration of Intercells capital increase within 15 days
following the closing date of the exchange, then each stockholder party to the Share Exchange
Agreement will be paid cash equal to the number of such stockholders shares of, and options or
warrants to purchase, the Companys common stock, multiplied by $6.60 per share.
- 11 -
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our results of operations, financial condition and
liquidity and capital resources should be read in conjunction with our unaudited consolidated
financial statements and related notes contained in this Quarterly Report on Form 10-Q, as well as
the audited financial statements and related notes for the fiscal year ended December 31, 2007 and
Managements Discussion and Analysis of Financial Condition and Results of Operations, contained
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
Overview
We are a biopharmaceutical company focused on the discovery, development and commercialization
of vaccines and immune system stimulants delivered to the skin via a novel, needle-free technology
called transcutaneous immunization (TCI). TCI exploits the unique benefits of a major group of
antigen-presenting cells found in the outer layers of the skin (Langerhans cells) to generate an
enhanced immune response. TCI has the potential to enhance the efficacy of existing vaccines,
enable new vaccines that are viable only through transcutaneous administration and expand the
global vaccine market. We are developing two distinct product applications: (1) a needle-free
vaccine patch and (2) an immunostimulant, or IS, patch. We currently have four product candidates
in development: one to prevent travelers diarrhea and three targeting influenza.
On May 12, 2008, we entered into a merger agreement with Intercell and its wholly-owned
subsidiary whereby our company has agreed to be acquired by Intercell, through its wholly-owned
subsidiary, Zebra Merger Sub, Inc. Under the merger agreement, Intercell has agreed to pay $6.60 in
cash for each share of our common stock other than shares held by Intercell or its subsidiaries
immediately prior to the merger, including shares held by certain stockholders who are party to
a share exchange agreement with Intercell. The transaction is expected to close before the end of
the third quarter of 2008. Under the merger agreement, we may be obligated to pay a termination fee
in the amount of $6,000,000 in specified circumstances in connection with the termination of the
merger agreement, including if we enter into an agreement with a party other than Intercell with
respect to an acquisition of our company or a specified amount of our voting stock or assets within
12 months after termination of the merger agreement.
We expect Intercells acquisition of our company to be consummated before the end of the
third quarter of 2008. However, we have prepared this quarterly report and the forward-looking
statements contained in this quarterly report as if we were going to remain an independent company.
If the merger is consummated, many of the forward-looking statements contained in this quarterly
report would no longer be applicable.
Our four product candidates are (1) a needle-free travelers diarrhea vaccine patch; (2) an IS
patch intended to stimulate an immune response to a H5N1 influenza vaccine using a one-dose or
two-dose regimen, thereby extending vaccine supply in the event of an influenza pandemic; (3) a
needle-free vaccine patch for seasonal flu; and (4) an IS patch intended to boost the immune
response of the elderly to the standard flu vaccine. None of our product candidates has been
approved for commercial sale by the U.S. Food and Drug Administration (FDA) or any comparable
foreign agencies.
As of March 31, 2008, we had an accumulated deficit of $135.5 million. We expect that
advancing the clinical program for the needle-free travelers diarrhea vaccine patch into Phase 3
trials; continuing the clinical development of the IS patch to extend the supply of pandemic flu
vaccines and the IS patch for elderly receiving flu vaccines; exploring the use of new flu antigens
for the needle-free flu vaccine patch; increasing manufacturing capabilities for product
candidates; and expanding TCI research and development activities would require substantial
expenditures over the next several years.
We anticipate that advancing the TCI platform in 2008 and 2009 will be focused on conducting
additional development for the product candidates in clinical development, particularly given the
goal of an end-of-Phase 2 meeting with the FDA in 2008 prior to conducting a pivotal Phase 3 study
in Latin America for the needle-free travelers diarrhea vaccine in 2009.
- 12 -
Our results of operations may vary significantly from period to period depending on, among
other factors:
|
|
|
our pending acquisition by Intercell and the ability to close the transaction;
|
|
|
|
|
the implementation of our corporate strategy;
|
|
|
|
|
our future financial performance and projected expenditures;
|
|
|
|
|
entering into future collaborations with pharmaceutical, biopharmaceutical and biotechnology
companies and academic institutions or to obtain funding from government agencies;
|
|
|
|
|
timing of a potential Phase 3 clinical trial for our travelers diarrhea vaccine
|
|
|
|
|
our product research and development activities, including the timing and progress of our clinical
trials, and projected expenditures;
|
|
|
|
|
our technologys potential efficacy, advantages over current approaches to vaccination and broad
applicability to infectious diseases;
|
|
|
|
|
our ability to receive regulatory approvals to develop and commercialize our product candidates;
|
|
|
|
|
our ability to increase our manufacturing capabilities for our product candidates;
|
|
|
|
|
our ability to develop or obtain funding for our immunostimulant patch for pandemic flu applications;
|
|
|
|
|
our projected markets and growth in markets;
|
|
|
|
|
our product formulations and patient needs and potential funding sources;
|
|
|
|
|
our staffing needs; and
|
|
|
|
|
our plans for sales and marketing.
|
Management Review of First Quarter of 2008
The following is a summary of key events that occurred during the first quarter of 2008:
Program Update
Needle-free travelers diarrhea vaccine
In February 2008, we announced interim results of a Phase 2 study that showed that a two-dose
regimen for our travelers diarrhea vaccine patch yielded a robust immune response when the second
dose was self-applied by subjects outside of a clinical setting. Four groups of forty subjects
each were evaluated: two groups received both doses of the vaccine from a clinician (one group on
the arm twice, the other on the arm and then thigh); and two other groups of volunteers
administered the second vaccine patch themselves on the thigh either observed by the clinician or
at home unobserved. All groups had robust responses to the vaccine, and a statistical analysis of
immune parameters following vaccination showed no significant differences between treatment groups
at measured time points. These results confirm our belief that our travelers diarrhea vaccine
patch can be effectively used by subjects without a health care provider present, removing the need
for a second trip to a travel clinic. Our market research has shown that self-application of the
second dose further enhances the market potential of this product. As with past studies of the
vaccine, no serious vaccine-related adverse events were reported.
- 13 -
Based on the results from this trial, as well as preceding studies, we believe that if Phase 2
work for the travelers diarrhea vaccine is completed in 2008, a Phase 3 efficacy study in
travelers to Guatemala and Mexico may commence during summer of 2009, when the travelers diarrhea
season in Latin America is at its peak. We have met with our scientific advisors to review our data
and develop the design of our Phase 3 program. Giving consideration to the results for our Phase 2
field trial, which showed protection against travelers diarrhea of any cause, our endpoints will
target ETEC travelers diarrhea or travelers diarrhea from any cause. We intend to meet with the
FDA and European regulatory authorities during 2008 to review these plans for our Phase 3 program
in order to seek regulatory approval in both the United States and European Union. Before
commencing a Phase 3 trial, we anticipate that there would be at least one more Phase 2 trial to
confirm that the patches from our recently installed commercial patch manufacturing line yield
acceptable immunogenicity results. We expect results from this Phase 2 trial in the second half of
2008.
The remaining development program and potential commercialization of our travelers diarrhea
vaccine will require substantial additional cash to fund expenses. In particular, we will need
additional funding prior to the commencement of our Phase 3 clinical trial of our needle-free
travelers diarrhea vaccine, and, based on our current estimates, we expect a Phase 3 program to
cost in the range of $30 to $45 million in third-party expenses.
IS patch for pandemic flu program
In January 2007, the Department of Health and Human Services, or HHS, awarded us a five-year,
cost-plus reimbursement contract to fund our development of a dose-sparing patch for use with a
pandemic flu vaccine. If the product is developed through licensure, the total cost reimbursed by
HHS, plus a fixed fee, is estimated to be $128 million. During the first stage contract, HHS
allotted approximately $14.5 million for us to assess the safety and adjuvant effect of the IS
patch in an initial clinical trial and to develop plans on how we would produce 150 million IS
patches in a six-month period, as required under the contract. In March 2008, we announced the
interim results from the 500-subject Phase 1/2 trial to assess the safety and adjuvant effect of
the IS patch. The trial met a key endpoint, demonstrating a clinically relevant adjuvant effect
when our IS patch was used with a single dose of the 45-microgram H5N1 vaccine. The trial found
that a single 45-microgram dose of an H5N1 influenza vaccine, coupled with a single 50-microgram IS
patch, was sufficient to provide an immune response considered protective in 73 percent of those
tested, a statistically significant improvement over those who received the H5N1 influenza vaccine
alone. No treatment-related serious adverse events were reported.
This is one of the first trials to demonstrate that a single dose of pandemic influenza
vaccine may meet the level of protection suggested in U.S. Food and Drug Administration guidance,
which recommends that a pandemic vaccine achieve immune response levels considered protective in 70
percent or more of vaccine recipients. During an influenza pandemic, we expect that public health
officials will face two large hurdles. The first is the possibility of limited vaccine stocks. The
second is the logistic difficulty of administering two vaccinations over a period of several weeks
to all individuals in the face of a pandemic. Our data from our Phase 1/2 trial indicates that a
single dose of vaccine in combination with our IS patch could provide a significant level of
protection, achieve protective levels more rapidly, and may increase compliance.
We shared the data with HHS, and in April 2008, we received approval from HHS to expand our
program to develop our IS patch for use with an injected H5N1 influenza vaccine. Guided by data
from the Phase 1/2 study, we expect we will begin a Phase 2 dose-ranging study designed to identify
the optimum dose of antigen and adjuvant that can be used in a one-dose or two-dose regimen to
enhance the immune response to a H5N1 influenza vaccine. We are currently working with HHS to
refine the budget and the design for the new Phase 2 trial going forward.
Other programs
In April 2008, we announced that we had signed an agreement with Merck & Co., Inc. to conduct
proof-of-principle preclinical studies evaluating the use of our IS patch with Mercks vaccines.
Merck has first option to negotiate an exclusive license. These preclinical proof-of-principle
studies will be conducted using an undisclosed Merck vaccine.
- 14 -
In April 2008, we also announced that we had received a cost-reimbursement grant for up to
$943,856 from the U.S. Army Medical Research and Material Command to perform preclinical work on a
patch-based version of the anthrax vaccine. Under the one-year grant, we will use anthrax vaccine
antigen, applying Iomais technology in an effort to formulate a dry version of antigen that can be
combined with one of our adjuvants on a needle-free patch. We will then evaluate the stability of
the patch to determine whether it can be stored and shipped at room temperature. The current
anthrax vaccine licensed in the United States is given as a six-shot regimen over an 18-month
course and must be refrigerated, complicating stockpiling efforts.
FINANCIAL OPERATIONS REVIEW
Revenues
Since the award of the HHS contract in January 2007, our principal source of revenue has been
from reimbursement of expenses incurred under that contract. During the first stage of the
contract, HHS allotted approximately $14.5 million for us to assess the safety and adjuvant effect
of the IS patch in a Phase 1/2 clinical trial and to develop plans on how we would produce 150
million IS patches in a six-month period, as required under the contract. Accordingly, for the
first three months of 2008, we recognized government contract revenues of approximately $1.8
million under our HHS contract. As of March 31, 2008, we had recognized total revenue under the
HHS contract of approximately $12.5 million, of which approximately $11.7 million had been billed
and approximately $10.6 million had been paid. We shared the data from the Phase 1/2 trial with
HHS, and in April 2008, we received approval from HHS to expand our program to develop our IS patch
for use with an injected H5N1 influenza vaccine. We are currently working with HHS to refine the
clinical development plan and budget for the new Phase 2 trial going forward.
Research and development expenses
Our research and development expenses consist primarily of:
|
|
|
salaries and related expenses for personnel;
|
|
|
|
|
fees paid to consultants and clinical research organizations in conjunction with their monitoring,
acquiring and evaluating data in conjunction with our clinical trials;
|
|
|
|
|
consulting fees paid to third parties in connection with other aspects of our product development efforts;
|
|
|
|
|
fees paid to research organizations in conjunction with preclinical animal studies;
|
|
|
|
|
costs of materials used in research and development;
|
|
|
|
|
depreciation of facilities and equipment used to develop our product candidates; and
|
|
|
|
|
milestone payments, license fees, and royalty payments for technology licenses.
|
We expense both internal and external research and development costs as incurred, other than
those capital expenditures that have alternative future uses, such as the build-out of our
manufacturing facility. Due to the risks inherent in the clinical trial process and the early stage
of development of our product candidates, we do not currently track our internal research and
development costs by program and cannot state precisely the costs incurred for each of our research
and development programs. However, the following table shows, for the periods presented, our
estimate of the total costs that have been incurred for our lead product candidates: from January
1, 2003 to March 31, 2008:
- 15 -
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Candidate
|
|
Three months ended March 31,
|
|
|
Cumulative Since
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
January 1, 2003
|
|
Needle-free travelers diarrhea vaccine patch
|
|
$
|
2,609
|
|
|
$
|
4,148
|
|
|
$
|
41,261
|
|
IS patch for pandemic flu
|
|
|
2,064
|
|
|
|
1,599
|
|
|
|
17,249
|
|
Needle-free flu vaccine patch
|
|
|
557
|
|
|
|
1,874
|
|
|
|
18,820
|
|
IS patch for elderly receiving flu vaccines
|
|
|
93
|
|
|
|
568
|
|
|
|
17,085
|
|
Other programs
|
|
|
836
|
|
|
|
671
|
|
|
|
15,598
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
6,159
|
|
|
$
|
8,860
|
|
|
$
|
110,013
|
|
We expect research and development costs for developing these product candidates will continue
to be substantial and that they will increase as the current portfolio of product candidates is
advanced through clinical trials and other product candidates move into preclinical studies and
clinical trials.
General and administrative expense
General and administrative expense consists primarily of compensation for employees in
executive and operational functions, including finance and accounting, business development, and
corporate development. Other significant costs include facilities costs and professional fees for
accounting and legal services. Since the completion of our initial public offering, our general and
administrative expenses have increased due to increased costs for insurance, professional fees,
public company reporting requirements, and investor relations costs associated with operating as a
publicly-traded company. In addition, there likely will be further increases going forward related
to the hiring of additional personnel.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
(in thousands, except percentages)
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
Revenues
|
|
$
|
1,844
|
|
|
$
|
1,588
|
|
|
$
|
256
|
|
|
|
16.1
|
%
|
Costs & Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & development
|
|
|
6,159
|
|
|
|
8,860
|
|
|
|
(2,701
|
)
|
|
|
(30.5
|
)%
|
General & administrative
|
|
|
2,165
|
|
|
|
2,122
|
|
|
|
43
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs & expenses
|
|
|
8,324
|
|
|
|
10,982
|
|
|
|
(2,658
|
)
|
|
|
(24.2
|
)%
|
|
Other income, net
|
|
|
15
|
|
|
|
172
|
|
|
|
(157
|
)
|
|
|
(91.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,465
|
)
|
|
$
|
(9,222
|
)
|
|
$
|
2,757
|
|
|
|
(29.9
|
)%
|
Revenues.
We recognized revenues of approximately $1.8 million under our HHS contract for the
three-month period ended March 31, 2008 and approximately $1.6 million for the three-month period
ended March 31, 2007.
Research and Development Expenses.
The $2.7 million decrease in research expenditures was
driven by four major factors associated with supporting our clinical and product development
programs: (1) decrease in clinical trial activity under the HHS contract in 2008, (2) decrease in
animal studies as a result of two toxicology studies and a ferret immunogenicity study in the first
quarter of 2007 associated with the HHS contract, (3) lower purchases of manufacturing supplies,
and (4) decrease in contract manufacturing costs as a result of services performed in the first
quarter of 2007 associated with the manufacturing of antigen that was used in the HHS contract
clinical trial.
General and Administrative Expenses
The $43,000 increase in general and administrative
expenses was principally due to slightly higher payroll costs.
- 16 -
Interest Income (Expense) and Other Net.
The net interest and other income reflects the
interest received on our cash and marketable securities, offset by interest expense on financing to
purchase equipment and leasehold improvements. The $157,000 decrease in net interest and other
income was a result of a lower cash balance and lower interest rates in the first quarter of 2008
as compared to 2007.
Net Loss.
The decrease in our net loss for the three-month period ended March 31, 2008 was
principally a result of lower research and development costs.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred annual operating losses since inception, and, as of March 31, 2008, we had an
accumulated deficit of $135.5 million. We expect that advancing the clinical program for the
needle-free travelers diarrhea vaccine patch into Phase 3 trials; continuing the clinical
development of the IS patch to extend the supply of pandemic flu vaccines and the IS patch for
elderly receiving flu vaccines; exploring the use of new flu antigens for the needle-free flu
vaccine patch; increasing manufacturing capabilities for product candidates; and expanding TCI
research and development activities would require substantial expenditures over the next several
years. Since our inception, we have financed our operations primarily through the sale of equity
securities, interest income earned on cash, cash equivalents, and short-term investment balances,
and debt. We have also generated limited revenues during this time from our HHS contract,
collaborative partners, and research grants.
As of March 31, 2008 we had approximately $9.8 million in unrestricted cash, cash equivalents,
and marketable securities. We invest in cash equivalents and U.S. government and agency
obligations. Our investment objectives are, primarily, to assure liquidity and preservation of
capital and, secondarily, to obtain investment income. All of our marketable securities are
classified as available-for-sale. These securities are carried at fair value, plus any accrued
interest. We have used cash primarily to finance our research operations, including clinical
trials. In the first quarter of 2008, these costs were offset by reimbursements under our HHS
contract. For the first quarter of 2008, we recognized government contract revenues of
approximately $1.8 million under our HHS contract. As of March 31, 2008, we had recognized total
revenue under the HHS contract of approximately $12.5 million, of which approximately $11.7 million
had been billed and approximately $10.6 million had been paid.
We believe that our current working capital and reimbursement of expenses under our existing
government grants and contracts would be sufficient to fund our operating expenses and capital
requirements into the third quarter of 2008. As part of the merger agreement that we entered into
with Intercell in May 2008, Intercell has agreed to lend us, at our option, up to an aggregate
principal amount of $5,000,000 in immediately available funds, in two installments of up to
$2,500,000 each. Provided that the merger has not been effectuated and the merger agreement has
not terminated in accordance with its terms, the first installment will be made available to us on
August 1, 2008 and the second installment will be made available on September 2, 2008. The loans
are not revolving in nature and no loan may be reborrowed once it has been repaid. The principal on
the loan from Intercell becomes due and payable upon the termination of the merger agreement.
In the event that this interim financing alternative with Intercell is not available to us and
that we have not consummated the merger, we will need to raise additional money and may seek to do
so by: (1) out-licensing technologies or product candidates to one or more corporate partners, (2)
completing an outright sale of assets or our company, (3) securing debt financing, and/or (4)
selling additional equity securities. Our ability to successfully enter into any such arrangements
is uncertain, and, if funds are not available, or not available on terms acceptable to us, we may
be required to revise our planned clinical trials, other development activities, capital
expenditure requirements, and the scale of our operations. We expect to attempt to raise additional
funds in advance of depleting our existing cash balances; however, we may not be able to raise
funds or raise amounts sufficient to meet the long-term needs of the business. Satisfying long-term
needs will require the successful commercialization of our product candidates and, at this time, we
cannot reliably estimate if or when that will occur.
- 17 -
The future cash requirements of our business include, but are not limited to, supporting our
clinical trial efforts and continuing our other research and development programs. We have entered
into various agreements with institutions and clinical research organizations to conduct and
monitor our current clinical studies. Under these agreements, subject to the enrollment of subjects
and performance by the applicable institution of certain services, we have estimated our
commitments to be $12.2 million over the term of currently ongoing studies. Through March 31, 2008,
approximately $9.7 million of this amount has been expensed as research and development expenses
and $9.0 million has been paid related to these clinical studies. We also estimate that we have
remaining commitments of approximately $320,000 related to the close-out of trials that are
substantially complete. The timing of our expense recognition and future payments related to these
agreements are subject to the enrollment of subjects and performance by the applicable institutions
of certain services. As we expand our clinical studies, we plan to enter into additional
agreements.
The following table summarizes sources and uses of cash and cash equivalents for the
three-month periods ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
Net cash used in operating activities
|
|
$
|
(4,752
|
)
|
|
$
|
(10,126
|
)
|
|
$
|
5,374
|
|
Net cash (used in) provided by investing
activities
|
|
|
(582
|
)
|
|
|
954
|
|
|
|
(1,536
|
)
|
Net cash (used in) provided by financing
activities
|
|
|
(344
|
)
|
|
|
29,912
|
|
|
|
(30,256
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
|
(5,678
|
)
|
|
|
20,740
|
|
|
|
(26,418
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
9,822
|
|
|
$
|
34,587
|
|
|
$
|
(24,765
|
)
|
|
|
|
|
|
|
|
|
|
|
Operating Activities.
Net cash used in operating activities was $4.8 million for the three
months ended March 31, 2008, compared to $10.1 million for the same period in 2007. During the
first three months of 2008, our net loss of $6.5 million was reduced by a $2.2 million decrease in
accounts receivable resulting from the receipt of payments from HHS for outstanding invoices under
our contract and non-cash charges of $1.0 million related to stock-based compensation and
depreciation and amortization, partially offset by a decrease of $1.2 million in accounts payable
resulting from our payment of subcontractor charges under our HHS contract. During the first three
months of 2007, our net loss of $9.2 million was increased by a $1.6 million increase in accounts
receivable from HHS and a $651,000 increase in prepaid expenses, partially offset by non-cash
charges of $922,000 related to stock-based compensation and depreciation and amortization.
Investing Activities
. Net cash used in investing activities was $582,000 for the three months
ended March 31, 2008, compared to net cash provided by investing activities of $954,000 for the
same period in 2007. Cash used in investing activities represents the amount used to purchase
property, plant and equipment and marketable securities, net of proceeds from the sale and maturity
of marketable securities. During the first three months of 2008 and 2007, purchases of property,
plant and equipment were $586,000 and $555,000, respectively, and proceeds from the maturity of
marketable securities were $0 and $1.5 million, respectively.
Financing Activities
. Net cash used in financing activities was $344,000 for the three months
ended March 31, 2008, compared with net cash provided by financing activities of $29.9 million for
the same period in 2007. During the first three months of 2008 and 2007, repayments of debt were
$348,000 and $492,000, respectively. In March 2007, we raised $30.2 million in net proceeds from
the sale, in a private placement, of common stock and warrants.
- 18 -
The following summarizes our long-term contractual obligations as of March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
(1)
|
|
$
|
3,977
|
|
|
$
|
1,400
|
|
|
$
|
1,830
|
|
|
$
|
693
|
|
|
$
|
54
|
|
Operating Lease Obligations
|
|
|
6,545
|
|
|
|
1,205
|
|
|
|
2,495
|
|
|
|
2,621
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,522
|
|
|
$
|
2,605
|
|
|
$
|
4,325
|
|
|
$
|
3,314
|
|
|
$
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes interest payable in the period.
|
Under our existing license agreements, we could be required to pay up to a total of $800,000
for each product candidate in milestone payments through product approval, in addition to sales
milestones, and royalties on commercial sales, if any occur.
Under the merger agreement that we entered into with Intercell in May 2008, we may be
obligated to pay a termination fee in the amount of $6,000,000 in specified circumstances in
connection with the termination of the merger agreement, including if we enter into an agreement
with a party other than Intercell with respect to an acquisition of our company or a specified
amount of our voting stock or assets within 12 months after termination of the merger agreement.
Future capital uses and requirements of our business depend on numerous forward-looking
factors. These factors include but are not limited to the following:
|
|
|
our pending acquisition by Intercell and the ability to close the transaction;
|
|
|
|
|
the progress and costs of preclinical development and laboratory testing and clinical trials;
|
|
|
|
|
the time and costs involved in obtaining regulatory approvals;
|
|
|
|
|
delays that may be caused by evolving requirements of regulatory agencies;
|
|
|
|
|
our ability to establish, enforce, and maintain collaborations required for product commercialization;
|
|
|
|
|
the number of product candidates we pursue;
|
|
|
|
|
the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims;
|
|
|
|
|
our plans to establish sales, marketing, and/or manufacturing capabilities;
|
|
|
|
|
the acquisition of technologies, products, and other business opportunities that require financial
commitments; and
|
|
|
|
|
our revenues, if any, from successful development and commercialization of our products.
|
- 19 -
Off-Balance Sheet Arrangements
As of March 31, 2008, we did not have any relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance or special purpose
entities, which would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. In addition, we do not engage in
trading activities involving non-exchange traded contracts. Therefore, we are not materially
exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in
these relationships.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on
our financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities, and
expenses and related disclosure of contingent assets and liabilities. We review our estimates on an
ongoing basis. We base our estimates on historical experience and on various other assumptions that
we believe to be reasonable under the circumstances. Actual results may differ from these estimates
under different assumptions or conditions. While our significant accounting policies are described
in more detail in the notes to our financial statements included in this report, we believe the
following accounting policies to be critical to the judgments and estimates used in the preparation
of our financial statements.
Revenue Recognition
.
We recognize revenue when all terms and conditions of the agreements have
been met, including persuasive evidence of an arrangement, services have been rendered, price is
fixed or determinable, and collectability is reasonably assured. For reimbursable cost contracts
and research grants, we recognize revenue as costs are incurred once the funding is authorized.
Funding of government contracts and grants beyond the U.S. governments current fiscal year is
subject to annual congressional appropriations, and we cannot recognize revenue for subsequent
years until the period in which such funding is duly authorized. Provisions for estimated losses on
contracts and grants are made in the period such losses are determined.
Research and Development Costs
. We expense our research and development costs as incurred;
however, equipment and facilities that are acquired or constructed for research and development
activities that have alternative future uses (in research and development projects or otherwise)
are capitalized and depreciated as tangible assets.
Stock-Based Compensation
.
Effective January 1, 2006, we adopted the fair value recognition
provisions of FASB Statement No. 123(R), Share-Based Payment (Statement 123(R)), using the
modified-prospective-transition method. We use the Black-Scholes-Merton formula to estimate the
value of stock options granted to employees. Equity instruments issued to nonemployees are
accounted for under the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18,
Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in
conjunction with, Selling, Goods and Services. Accordingly, the estimated fair value of the equity
instrument is recorded on the earlier of the performance commitment date or the date the services
required are completed.
Cautionary Statement Regarding Forward-Looking Statements
This report on Form 10-Q contains forward-looking statements. All statements contained in this
report other than statements of historical fact are forward-looking statements. Forward-looking
statements include statements regarding our future financial position, business strategy, budgets,
projected costs, plans and objectives of management for future operations. The words may,
continue, estimate, intend, plan, will, believe, project, expect, seek,
anticipate and similar expressions may identify forward-looking statements, but the absence of
these words does not necessarily mean that a statement is not forward-looking.
- 20 -
The forward-looking statements in this report are subject to risks and uncertainties that may
cause actual results to differ materially. These risks and uncertainties include those described in
Item 1A. Risk Factors. In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this report may not occur as contemplated, and actual results could
differ materially from those anticipated or implied by the forward-looking statements.
You should not unduly rely on these forward-looking statements, which speak only as of the
date of this report. Unless required by law, we undertake no obligation to publicly update or
revise any forward-looking statements to reflect new information or future events or otherwise. You
should, however, review the factors and risks we describe in the reports we file from time to time
with the U.S. Securities and Exchange Commission (SEC) after the date of this report.
Factors That May Impact Future Results
Our future operating results may differ materially from the results described in this report
due to the risks and uncertainties related to our business and our industry, including those
discussed below. In addition, these factors represent risks and uncertainties that could cause
actual results to differ materially from those implied by forward-looking statements in this
report. The risks described below are not the only risks we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial may also
materially and adversely affect our business, financial condition or results of operations.
Risks Relating To The Proposed Merger
If the proposed merger with Intercell is not consummated, our business and stock price could be
adversely affected.
On May 12, 2008, we entered into an Agreement and Plan of Merger with Intercell and Zebra
Merger Sub, Inc., a wholly-owned subsidiary of Intercell, whereby we have agreed to be acquired by
Intercell. Under the merger agreement, Zebra Merger Sub, Inc. will be merged with and into Iomai,
with Iomai continuing after the merger as the surviving corporation and as a wholly-owned
subsidiary of Intercell. Among other things, the merger agreement contains detailed representations
and warranties made by us to Intercell, covenants regarding the conduct of our business pending
completion of the merger, consents and approvals required for and conditions to the completion of
the merger, our ability to consider other acquisition proposals and terms of interim financing that
may be provided to us by Intercell. If the merger is completed, at the effective time of the
merger, each outstanding share of our common stock, other than shares held by Intercell and it
subsidiaries immediately prior to the effective time of the merger (including shares held by
certain stockholders who are party to share exchange agreements with Intercell), will be converted
into the right to receive $6.60 in cash. The consummation of the transactions contemplated by the
merger agreement is subject to regulatory clearances and the approval of our stockholders. We
expect our acquisition by Intercell to be consummated before the end of the third quarter of 2008.
If the proposed merger is not consummated, we may be subject to a number of material risks and our
business and stock price could be adversely affected as follows:
|
|
|
we have incurred and expect to continue to incur significant expenses related to the
proposed merger with Intercell. These merger-related expenses include legal and other
professional fees. If the proposed merger does not close, we expect these fees, payable by
us, to total approximately $1.3 million.
|
|
|
|
|
we could be obligated to pay Intercell a $6,000,000 termination fee in connection with
the termination of the merger agreement, depending on the reason for the termination.
|
|
|
|
|
our customers, prospective customers and investors in general may view the failure to
consummate the merger as a poor reflection on our business or prospects;
|
|
|
|
|
certain of our manufacturers and other business partners may seek to change or terminate
their relationships with us as a result of the proposed merger;
|
- 21 -
|
|
|
as a result of the proposed merger, current and prospective employees could experience
uncertainty about their future roles within Intercell. This uncertainty may adversely
affect our ability to attract and retain our employees, who may seek other employment
opportunities;
|
|
|
|
|
our management team may have been distracted from day to day operations as a result of
the proposed merger with Intercell; and
|
|
|
|
|
the market price of our common stock may decline to the extent that the current market
price reflects a market assumption that the proposed merger will be completed.
|
Risks Relating To Our Business
We are a biopharmaceutical company with a limited operating history and have generated no revenue
from product sales. As a development stage company, we face many risks inherent in our business. If
we do not overcome these risks, our business will not succeed.
Biopharmaceutical product development is a highly speculative undertaking and involves a
substantial degree of risk. We commenced operations in May 1997, and since that time we have been
engaged in research and development activities in connection with our product candidates. We have
never generated any revenue from product sales. All of our current product candidates are at an
early stage of development, and we do not expect to realize revenue from product sales for several
more years, if at all. In addition, we are not currently receiving any significant funding for our
research and development programs from third parties through collaborations or grants, except for
our HHS contract to develop a dose-sparing IS patch for use in the event of a pandemic flu
outbreak. We are seeking to create a business based upon new technology that is intended to change
existing practices of vaccine delivery. As such, we are subject to all the risks incident to the
creation of new products and may encounter unforeseen expenses, difficulties, complications and
delays and other unknown factors. You also should consider that we will need to:
|
|
|
obtain sufficient capital to support our efforts to develop our
technology and commercialize our product candidates;
|
|
|
|
|
complete and continue to enhance the product characteristics and
development of our product candidates; and
|
|
|
|
|
attempt to transition from a development stage company to a company
capable of supporting commercial activities.
|
We have a history of operating losses and may never be profitable.
We have incurred substantial losses since our inception, and we expect to continue to incur
substantial losses for the foreseeable future. Our net loss for the three months ended March 31,
2008 was $6.5 million. As of March 31, 2008, we had an accumulated deficit of approximately $135.5
million. These losses have resulted principally from costs incurred in our research and development
programs and from our general and administrative costs. We expect to incur additional operating
losses in the future, and we expect these losses to increase significantly, whether or not we
generate revenue, as we expand our product development and clinical trial efforts. These losses
have had, and are expected to continue to have, an adverse impact on our working capital, total
assets and stockholders equity.
To date, we have generated no revenue from product sales or royalties. We do not expect to
achieve any revenue from product sales or royalties unless and until we receive regulatory approval
and begin commercialization of our product candidates. We are not certain of when, if ever, that
will occur.
Even if the regulatory authorities approve any of our product candidates and we commercialize these
candidates, we may never be profitable. Even if we achieve profitability for a particular period,
we may not be able to sustain or increase profitability.
- 22 -
We will need additional funding, and we cannot guarantee that we will find adequate sources of
capital in the future.
As of March 31, 2008, we had approximately $9.8 million in unrestricted cash, cash equivalents
and marketable securities. We have incurred negative cash flows from operations since inception and
have expended, and expect to continue to expend, substantial funds to conduct our research and
development programs. In January 2007, we were awarded a five-year, $128 million contract by HHS to
fund our development of a dose-sparing patch for use with a pandemic flu vaccine. During the first
stage of the contract, HHS has allotted approximately $14.5 million to reimburse us for our
activities under that contract. As of March 31, 2008, we had recognized total revenue under the HHS
contract of approximately $12.5 million, of which approximately $11.7 million had been billed and
approximately $10.6 million had been paid. We currently expect to bill the government for the full
$14.5 million authorized under the initial stage of the contract. We believe that our current
working capital and reimbursement of expenses under our existing government grants and contracts
will be sufficient to fund our operating expenses and capital requirements into the third quarter
of 2008, although we cannot assure you that we will not require additional funds before then as our
operating plan may change as a result of many factors currently unknown to us. As part of the
merger agreement that we entered into with Intercell in May 2008, Intercell has agreed to lend us,
at our option, up to an aggregate principal amount of $5,000,000 in immediately available funds, in
two installments of up to $2,500,000 each. Provided that the proposed merger has not been
effectuated and the merger agreement has not terminated in accordance with its terms, the first
installment will be made available to us on August 1, 2008 and the second installment will be made
available on September 2, 2008. The loans are not revolving in nature and no loan may be
reborrowed once it has been repaid. The principal on the loan from Intercell becomes due and
payable upon the termination of the merger agreement.
In budgeting for our activities, we have relied on a number of assumptions, including
assumptions that we will continue to expend funds in preparation for the Phase 3 trials for our
travelers diarrhea vaccine, that we will not receive any proceeds from potential partnerships,
that we will not receive any funds under the HHS contract beyond the $14.5 million allocated for
the initial stage of that contract as we are currently working with HHS to refine the budget and
the design for the new Phase 2 trial going forward, that government will pay our invoices timely,
that we will continue to evaluate preclinical candidates for potential development, that we will
not engage in further in-licensing activities, that we will be able to retain our key personnel,
and that we will not incur any significant contingent liabilities any of which might change in
light of developments. Also, we did not account for our proposed acquisition by Intercell in
budgeting for our activities given the recent nature of the potential transaction.
In particular, we will need to access additional funding prior to the commencement of our
pivotal Phase 3 clinical trial of our needle-free travelers diarrhea vaccine, for which we expect
preparations to begin in late 2008 and, based on our current estimates, we expect our Phase 3
program to cost in the range of $30 to $45 million in third-party expenses. We also may seek
additional capital due to favorable market conditions or strategic considerations even if we
believe we have sufficient funds for our current or future operating plans. We have based this
estimate on assumptions that may prove to be wrong. Our future capital requirements will depend on
many factors, including:
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our pending acquisition by Intercell and the ability to close the transaction;
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the number, size and complexity of our clinical trials;
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our progress in developing our product candidates;
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the timing of and costs involved in obtaining regulatory approvals;
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costs of manufacturing our product candidates;
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costs to maintain, expand and protect our intellectual property portfolio; and
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costs to develop our sales and marketing capability.
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We expect to access additional funds in advance of when we exhaust our cash resources, which,
if we raise additional funds by issuing equity securities, will result in further dilution to our
stockholders. Any equity securities issued also may provide for rights, preferences or privileges
senior to those of holders of our common stock. If we raise additional funds by issuing debt
securities, these debt securities would have rights, preferences and privileges senior to those of
holders of our common stock, and the terms of the debt securities issued could impose significant
restrictions on our operations. If we raise additional funds through collaborations and licensing
arrangements, we might be required to relinquish significant rights to our technology, product
candidates or products that we might otherwise seek to develop or commercialize ourselves, or to
grant licenses on terms that are not favorable to us.
We do not know whether additional financing will be available on commercially acceptable terms
when needed. If adequate funds are not available or are not available on commercially acceptable
terms, we may need to downsize or halt our operations and may be unable to continue developing our
product candidates.
We will need to demonstrate the safety and efficacy of our needle-free travelers diarrhea vaccine
in one or more Phase 3 clinical trials in order to obtain approval by the FDA and other regulatory
authorities, and there can be no assurance that our needle-free travelers diarrhea vaccine will
achieve positive results in further clinical testing.
Positive results in early clinical trials of a vaccine candidate may not be replicated in
later clinical trials. A number of companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in late-stage clinical trials even after achieving promising
results in earlier-stage development.
Although our recently completed Phase 2 field trial of our needle-free travelers diarrhea
vaccine showed that our vaccine resulted in a 75% reduction in moderate-to-severe diarrhea from any
cause, the planned Phase 3 efficacy trial, which we plan to conduct during the summer of 2009 when
the travelers diarrhea season in Latin America is at its peak, may not achieve similar positive
results. A number of factors could contribute to a lack of positive results in our planned Phase 3
clinical trial. For example, the incidence of diarrhea or causative organisms could be different in
a particular year than we predict or if our subjects do not travel during the peak travelers
diarrhea season, the performance of our patch system may not replicate results observed in prior
trials, and we may not meet our recruitment targets because of changes in travel patterns. Our
current rationale for selecting the endpoints for our travelers diarrhea vaccine is based on
existing clinical trial results and our understanding of the mechanism of action of this product
candidate. However, our understanding of the product candidates mechanism of action may be
incomplete or incorrect, or the mechanism may not be clinically relevant to preventing travelers
diarrhea. In such cases, our product candidate may prove to be ineffective in the Phase 3 efficacy
clinical trial.
We presently intend to seek regulatory approval for our needle-free travelers diarrhea
vaccine in both the United States and the European Union, so we expect to meet with the FDA and
European regulatory authorities during 2008 to review our plans for the Phase 3 trials for this
product candidate. At this time, we are evaluating various possible primary endpoints. We can
give no assurances, however, that the FDA, European Medicines Agency (EMEA), or any other
regulatory body will not require different primary endpoints or additional efficacy endpoints for
registration. Moreover, given that we currently plan to follow only travelers to Guatemala and
Mexico in the efficacy trial, the FDA, EMEA and other regulatory authorities may not allow us to
claim prevention of travelers diarrhea on a global basis without additional sites in other endemic
areas. If the FDA or EMEA requires different or any additional efficacy endpoints, we may be
required to conduct larger or longer Phase 3 clinical trials than currently planned to achieve a
statistically significant result to enable approval of our needle-free travelers diarrhea vaccine
or accept a narrow label indication.
Prior to our end-of-Phase 2 meeting with the FDA, we plan to conduct at least one more Phase 2
trial to confirm that the patches from our recently installed commercial patch manufacturing line
yield acceptable immunogenicity results. We expect results from this Phase 2 trial in the second
half of 2008. If the results of this trial do not confirm data from our prior studies, or if, after
our end-of-Phase 2 meeting, the FDA requires us to conduct additional Phase 2 clinical trials of
our needle-free travelers diarrhea vaccine prior to initiating our Phase 3 efficacy trial, we will
incur significant additional development costs, and the initiation of our Phase 3 program may be
delayed or cancelled.
- 24 -
Our current plan for the second dose of our travelers diarrhea vaccine is for it to be
self-applied two weeks after the first immunization by a clinician, so that full vaccination
requires only one visit to a doctors office. This strategy is based on the interim results of our
160-subject Phase 2 study, which we announced in February 2008. Four groups were evaluated: two
groups received both doses of the vaccine from a medical professional and two other groups of
volunteers administered the second vaccine patch themselves. All groups had robust responses to the
vaccine, and a statistical analysis of immune parameters following vaccination showed no
significant differences between treatment groups at measured time points. While we believe that our
travelers diarrhea vaccine may be amenable to self-administration based on these results, the FDA
or other regulatory authorities may not concur with our analysis. Whether any approved product
would be self-administered would depend on many factors, including the outcome of any future
studies evaluating self-administration and the views of regulatory agencies.
If we do not receive positive results in our Phase 3 clinical program for our needle-free
travelers diarrhea vaccine, we may not be able to obtain regulatory approval or commercialize this
product and our development of our needle-free travelers diarrhea vaccine may be delayed or
cancelled.
The success of some programs may depend on licensing biologics from, and entering into
collaboration arrangements with, third parties. We cannot be certain that our licensing or
collaboration efforts will succeed or that we will realize any revenue from them.
The success of our business strategy is, in part, dependent on our ability to enter into
multiple licensing and collaboration arrangements and to manage effectively the numerous
relationships that will result. For example, we currently do not intend to manufacture any product
components other than heat labile toxin (LT) adjuvant and formulated patches. Therefore, we will
need to negotiate agreements to acquire biologics, such as the flu antigens contained in our
needle-free flu vaccine patch development candidate, and other product components from third
parties in order to develop some of our vaccine candidates (other than our needle-free travelers
diarrhea vaccine patch and IS patch). We are seeking a collaboration with respect to our
needle-free flu patch.
We also have been seeking potential collaborations for our needle-free travelers diarrhea
vaccine. The remaining development program and potential commercialization of our travelers
diarrhea vaccine will require substantial additional cash to fund expenses. In particular, we will
need additional funding prior to the commencement of our Phase 3 clinical trial of our needle-free
travelers diarrhea vaccine, and, based on our current estimates, we expect our Phase 3 program to
cost in the range of $30 to $45 million in third-party expenses.
Licensing arrangements and strategic relationships in our industry can be very complex,
particularly with respect to intellectual property rights. Disputes may arise in the future
regarding ownership rights to technology developed by or with other parties. These and other
possible disagreements between us and third parties with respect to our licenses or our strategic
relationships could lead to delays in the research, development, manufacture and commercialization
of our product candidates. These disputes could also result in litigation or arbitration, both of
which are time-consuming and expensive. These third parties also may pursue alternative
technologies or product candidates either on their own or in strategic relationships with others in
direct competition with us.
- 25 -
We may not be able to manufacture our product candidates in commercial quantities, which would
prevent us from initiating Phase 3 trials and commercializing our product candidates.
To date, our product candidates have been manufactured in small quantities by us and third
party manufacturers for preclinical studies and clinical trials. As we prepare our facility for
Phase 3 and commercial manufacturing, this may require scale up of our fermentation, downstream
processing and patch manufacturing as compared to our current levels. For example, we have recently
installed manufacturing equipment capable of producing initial commercial quantities of our vaccine
patches. While we have completed initial engineering runs on this upgraded equipment, we have
limited experience manufacturing patches on this upgraded equipment and this may cause delays in
manufacturing clinical materials for future studies. We also made some modifications to our
manufacturing facility during the first quarter of 2008 in order to ready it for production of
Phase 3 materials. We are now in the process of having to requalify the manufacturing facilitys
major systems before we are able to make any Phase 3 materials. In addition, we are conducting
risk-based pre-process validation studies to identify and test critical control parameters for our
travelers diarrhea product candidate and our manufacturing process. We intend to share the results
from these experiments with the FDA at our end-of-Phase 2 meeting, so we can agree on the
approaches for validating the manufacturing process and process controls. These projects may
result in unanticipated delays and cost more than expected due to a number of factors, including
complying with current Good Manufacturing Practices, or cGMP, regulations for clinical and
commercial production, such as qualification and validation of this equipment, and this could
result in the delay of initiation of our planned Phase 3 trials and commercial launch of products.
Presently, we plan to conduct at least one more Phase 2 trial for our needle-free travelers
diarrhea vaccine to confirm that the patches from this recently installed commercial patch
manufacturing line yield acceptable immunogenicity results. We expect results from this Phase 2
trial in the third quarter of 2008. If the results of this trial do not confirm data from our
prior studies, we may incur significant additional development costs and initialization of our
Phase 3 program may be delayed or cancelled.
If any of our product candidates is approved by the FDA or other regulatory agencies for
commercial sale, we will need to manufacture it in larger quantities. We or our third party
manufacturers may not be able to successfully increase the manufacturing capacity for any of our
product candidates in a timely or economic manner, or at all. If we are unable to successfully
increase the manufacturing capacity for a product candidate, the regulatory approval or commercial
launch of that product candidate may be delayed or there may be a shortage in the supply of the
product candidate. Our product candidates require precise, high quality manufacturing that is
subject to cGMP. Our failure or the failure of our third party manufacturers to achieve and
maintain these high manufacturing standards and comply with the cGMP, including the incidence of
manufacturing errors, could result in injury or death, product recalls or withdrawals, delays or
failures in product testing or delivery, cost overruns or other problems that could seriously harm
our business. In addition, our manufacturing facilities will be subject to unannounced inspections
by the FDA, and significant scale-up of manufacturing may require additional validation studies,
which the FDA must review and approve.
- 26 -
Our IS patch for pandemic flu program relies on government health organizations for funding
clinical development and for ultimately procuring the product, if approved.
We are currently relying upon the United States government to fund our IS patch for pandemic
flu. In January 2007, we entered into a five-year, $128 million cost-reimbursement contract with
the HHS to develop a dose-sparing patch for use in the event of an influenza pandemic where the
HHS will fund our costs for research, development and capital and will pay a fixed fee. Currently,
HHS has allocated $14.5 million through the first stage of the contract for us to assess the safety
and adjuvant effect of the IS patch in an initial clinical trial and to develop plans on how we
would produce 150 million IS patches in a six-month period, as required under the contract. In
March 2008, we announced the interim results from the 500-subject Phase 1/2 trial to assess the
safety and adjuvant effect of the IS patch. We have shared the data with HHS, and in April 2008, we
received approval from HHS to expand our program to develop our IS patch for use with an injected
H5N1 influenza vaccine. Guided by data from the Phase 1/2 study, we will begin a Phase 2
dose-ranging study designed to identify the optimum dose of antigen and adjuvant that can be used
in a one-dose or two-dose regimen to enhance the immune response to a H5N1 influenza vaccine. We
are currently working with HHS to refine the budget and the design for the new Phase 2 trial going
forward and we cannot be assured of the total amount allotted for the second stage of this project
until we receive official notification from HHS.
In our performance under the HHS contract, we are highly dependent on timely and adequate
performance of our subcontractors, including Solvay Pharmaceuticals, which is supplying us with
injectable pandemic flu vaccine and regulatory support for our clinical trials. If the performance
of our subcontractors is not adequate or timely, our performance under our HHS contract may be
delayed, and we therefore may not be able to satisfy the contracts requirements, which could cause
us to be in breach under those contracts and cause those contracts to be terminated. We cannot
assure you that one or more of these subcontractors will not be delayed in performing, or fail to
perform their obligations under these contracts in compliance with applicable legal requirements.
Although the government has advised us that funding under our HHS contract has been
appropriated for this program outside of the annual appropriations process, government funding is
still subject to changing priorities within the government and other political risks, particularly
in an election year. As a result, the receipt by us of funds from the United States government to
fund our research and development of our IS patch for pandemic flu beyond the $14.5 million already
allotted and the new Phase 2 trial being planned cannot be assured. In addition, we expect that
United States and foreign governments would be the entities procuring any pandemic flu products, if
approved, and not individual consumers. While there has recently been increased public awareness of
the risks of pandemic flu, government health organizations may not devote significant resources to
the prevention of an outbreak and may not seek to procure pandemic flu products from us. The
acceptance of our product candidate for pandemic flu may depend on whether government health
organizations adopt a dose-sparing strategy to prevent pandemic flu and whether a competing
technology for dose sparing is adopted. If a dose-sparing strategy is not endorsed or a competing
technology for dose sparing is adopted, our product candidate will not yield any revenues.
The development and clinical testing of our IS patch for pandemic flu product candidate will
likely take several years. Even if our IS patch for pandemic flu obtains regulatory approval, by
that time the threat of a pandemic flu outbreak may be reduced or government health organizations
may have adequate stockpiles of flu vaccine or have adopted other technologies or strategies to
prevent or limit outbreaks.
Even if our IS patch for pandemic flu gains regulatory approval and governmental health
organizations choose to stockpile the product, we may be not be able to produce enough of the
product to fulfill public health and safety needs.
- 27 -
U.S. government agencies have special contracting requirements, which create additional risks.
We have entered into a contract with HHS, which is a U.S. government agency. Currently, HHS
has allocated $14.5 million through the first stage of the contract for us to assess the safety and
adjuvant effect of the IS patch in an initial clinical trial and to develop plans on how we would
produce 150 million IS patches in a six-month period, as required under the contract. We are
currently working with HHS to refine the budget and the design for the new Phase 2 trial going
forward. In contracting with government agencies, we are subject to various U.S. government agency
contract requirements. Future revenues from HHS and other U.S. government agencies will depend, in
part, on our ability to meet U.S. government agency contract requirements, certain of which we may
not be able to satisfy.
U.S. government contracts typically contain unfavorable termination provisions allowing the
U.S. government to terminate the contract at any time and are subject to audit and modification by
the government at its sole discretion, which subjects us to additional risks. These risks include
the ability of the U.S. government to unilaterally:
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suspend or prevent us for a set period of time from receiving new contracts or extending
existing contracts based on violations or suspected violations of laws or regulations;
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terminate our existing contracts;
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reduce the scope and value of our existing contracts;
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audit and object to our contract-related costs and fees, including allocated indirect costs;
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control and potentially prohibit the export of our products; and
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change certain terms and conditions in our contracts.
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The U.S. government may terminate any of its contracts with us either for its convenience or
if we default by failing to perform in accordance with the contract schedule and terms. Termination
for convenience provisions generally enable us to recover only our costs incurred or committed and
profit on the work completed prior to termination, and settlement expenses incurred in the
termination for convenience process. Termination for default provisions do not permit these
recoveries and may make us liable for excess costs incurred by the U.S. government in procuring
undelivered items from another source.
As a U.S. government contractor, we are required to comply with applicable laws, regulations
and standards relating to our accounting practices and are subject to periodic audits and reviews.
As part of any such audit or review, the U.S. government may review the adequacy of, and our
compliance with, our internal control systems and policies, including those relating to our
purchasing, property, estimating, compensation and management information systems. Based on the
results of its audits, the U.S. government may adjust our contract-related costs and fees,
including allocated indirect costs. If our costs are challenged, reimbursement may fail to cover
the expenses we incur discharging our role under the contract. In addition, if an audit or review
uncovers any improper or illegal activity, we may be subject to civil and criminal penalties and
administrative sanctions, including termination of our contracts, forfeiture of profits, suspension
of payments, fines and suspension or prohibition from doing business with the U.S. government. We
could also suffer serious harm to our reputation if allegations of impropriety were made against
us. Although adjustments arising from government audits and reviews have not seriously harmed our
business in the past, future audits and reviews could cause adverse effects. In addition, under
U.S. government purchasing regulations, some of our costs, including most financing costs,
amortization of intangible assets, portions of our research and development costs, and some
marketing expenses, may not be reimbursable or allowed under our contracts. Further, as a U.S.
government contractor, we are subject to an increased risk of investigations, criminal prosecution,
civil fraud, whistleblower lawsuits and other legal actions and liabilities to which purely private
sector companies are not.
- 28 -
Our technology is unproven and presents challenges for our product development efforts.
Our TCI technology represents a novel approach to stimulating the bodys immune system. There
is no precedent for the successful commercialization of product candidates based on our technology.
Developing biopharmaceuticals based on new technologies presents inherent risks of failure,
including:
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research could demonstrate that the scientific basis of our technology
is incorrect or less sound than we had believed;
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unexpected research results could reveal side effects or other
unsatisfactory conditions that either will add cost to development of
our product candidates or jeopardize our ability to complete the
necessary clinical trials; and
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time and effort required to solve technical problems could
sufficiently delay the development of product candidates such that any
competitive advantage that we may enjoy is lost.
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All of our product candidates currently in development rely on LT, a naturally occurring
bacterial toxin, as an adjuvant. LT has been shown to cause undesirable side effects when delivered
through conventional mechanisms such as injection, intranasal and oral delivery methods. LT cannot
be administered orally as an adjuvant and was linked to an increase in the risk of Bells palsy, a
temporary paralysis of the facial muscles, when used in a nasal flu vaccine that was on the market
in Europe during the 2000/2001 flu season. If we find that LT is not safe when administered to
subjects to the skin using our TCI technology, we will not be able to use LT in our products. This
would have a material adverse effect on our product development efforts.
Successful commercialization of our TCI technology will require integration of multiple
dynamic and evolving components, such as antigens, adjuvants and a delivery mechanism, into
finished product candidates. This complexity will likely increase the number of technical problems
that we can expect to confront in the clinical and product development processes and, therefore,
add to the cost and time required to commercialize each product candidate.
We rely on third parties to conduct our clinical trials, and those third-parties may not perform
satisfactorily, including failing to meet established deadlines for the completion of such trials.
We do not have the ability to independently conduct clinical trials for our vaccine
candidates, and we rely on third parties such as contract research organizations, medical
institutions and clinical investigators to enroll qualified subjects and conduct our clinical
trials. Our reliance on these third parties for clinical development activities reduces our control
over these activities. Furthermore, these third parties may also have relationships with other
entities, some of which may be our competitors. If these third parties do not successfully carry
out their contractual duties or meet expected deadlines, our efforts to obtain regulatory approvals
for and commercialize our vaccine candidates may be delayed or prevented.
We rely on third parties to provide us with materials necessary to manufacture our product
candidates that may not be available on commercially reasonable terms, or at all, which may delay
the development, regulatory approval and commercialization of our product candidates.
We purchase from third-party suppliers the materials necessary to produce the bulk LT and
final patches for our travelers diarrhea vaccine and IS patches for our clinical trials. Suppliers
may not sell these materials to us at the times we need them or on commercially reasonable terms.
Moreover, we currently do not have any agreements for the commercial production of these materials.
If we are unable to obtain these materials for our clinical trials, then product testing and
potential regulatory approval of our product candidates could be delayed, significantly affecting
our ability to develop our product candidates. If we are unable to purchase these materials after
regulatory approval has been obtained for our product candidates for any reason, including due to
regulatory requirements or actions, adverse financial developments at or affecting the supplier, or
labor shortages or disputes, the commercial launch of our product candidates would be delayed or
there would be a shortage in supply, which would materially affect our ability to generate revenues
from the sale of our product candidates.
- 29 -
In some cases, we expect these materials to be specifically cited in our future marketing
applications with regulatory authorities, so that they must be obtained from that specific source
unless and until the applicable authority approved another supplier. In addition, there may only be
one available source for a particular component or chemical. Our suppliers also may be subject to
FDA regulations or the regulations of other governmental agencies outside the United States
regarding manufacturing practices. As such, their facilities could be subject to ongoing
inspections, and minor changes in manufacturing processes for these materials may require
additional regulatory approvals, either of which could cause delay or a shortage in supply. We may
be unable to manufacture our products in a timely manner or at all if these third party suppliers
were to cease or interrupt production or otherwise fail to supply these materials to us, either of
which could cause us to incur significant additional costs and lose revenue.
We rely on a limited number of manufacturers for our skin preparation systems, and our business
will be seriously harmed if these manufacturers are not able to satisfy our demand and alternative
sources are not available.
We do not have an in-house manufacturing capability for our skin preparation systems (SPS) and
depend completely on a small number of third-parties for the manufacture of our SPS. We do not
have long-term agreements with any of these third parties, and if they are unable or unwilling to
perform for any reason, we may not be able to locate alternative acceptable manufacturers or enter
into favorable agreements with them. Any inability to acquire sufficient quantities of our SPS in a
timely manner from these third parties could delay clinical trials and prevent us from developing
our product candidates in a cost-effective manner or on a timely basis. In addition, manufacturers
of our SPS are subject to certain international manufacturing standards and we do not have control
over compliance with these regulations by our manufacturers. If one of our contract manufacturers
fails to maintain compliance, the production of our product candidates could be interrupted,
resulting in delays and additional costs. In addition, if the facilities of such manufacturers do
not pass a pre-approval plant inspection, the FDA will not grant pre-market approval of our
products.
The skin preparation systems used in connection with our product candidates may make our products
less attractive to consumers.
We have observed in our product development efforts that the delivery of antigens and
adjuvants to Langerhans cells through the skin is significantly improved by prepping the skin to
disrupt the outer dead layer of skin, known as the stratum corneum. Based on animal studies, we
believe that the method and level of skin preparation may differ from one product candidate to
another because of the different physical properties of the active ingredients. Therefore, more
than one SPS may be required for our different products to be effective. In recent clinical studies
for our needle-free travelers diarrhea and flu vaccine patches, we have tested simple abrasive
materials to disrupt the stratum corneum and are now working to design and test improved
embodiments of these materials for use in our future clinical trials of our product candidates. We
believe our SPS will be simple to perform and will not involve discomfort to the subject. However,
to the degree that our SPS is not perceived to be simple to perform or involve discomfort to the
consumer, it could reduce the attractiveness of our products since alternative vaccines or
treatments are available for many of the indications that our product candidates under development
seek to address.
As part of our product development efforts, we may make significant changes to our product
candidates. These changes may not yield the benefits that we expect.
We have made changes in the design or application of our product candidates in response to
preclinical studies and clinical trial results and technological changes, and we may make
additional changes in the future before we are able to commercialize our products. These and other
changes to our product candidates may not yield the benefits that we expect and may result in
complications and additional expenses that delay the development of our product candidates. In
addition, changes to our product candidates may not be covered by our existing patents and patent
applications, and may not qualify for patent protection, which could have a material adverse effect
on our ability to commercialize our product candidates. See the risk factor entitled If we are
unable to protect our intellectual property, we may not be able to operate our business
profitably.
- 30 -
We may be required to conduct clinical trials of our IS patch with flu vaccines developed by
different manufacturers, which may lead to added cost and delay in approval and commercialization
of our IS patch.
Approval by the FDA of our IS patch with flu vaccines will be based on clinical data with the
relevant flu vaccines. In order for our IS patch to gain approval from the FDA for use with
multiple commercially available injectable flu vaccines, we may need to conduct multiple clinical
trials of our IS patch with multiple flu vaccines developed by different manufacturers. This may
substantially expand the cost and time required for the clinical trials of our IS patch, which
could delay its potential approval by the FDA and its commercialization.
None of our product candidates has been approved for commercial sale, and we may never receive such
approval.
All of our product candidates are in early pre-commercial stages, and we do not expect our
product candidates to be commercially available for several years, if at all. We expect that each
of our product candidates, consisting of a patch and one or more active ingredients, will be
treated together as a separate investigational product by the FDA, even if any active ingredient is
part of an existing approved product. None of the active ingredients in our product candidates have
been approved by the FDA for commercial sale in any product. Our product candidates are subject to
stringent regulation by regulatory authorities in the United States and in other countries. We
cannot market any product candidate until we have completed our clinical trials and have obtained
the necessary regulatory approvals for that product candidate. We do not know whether regulatory
authorities will grant approval for any of our product candidates.
Conducting clinical trials and obtaining regulatory approvals are uncertain, time consuming
and expensive processes. Our product candidates must complete rigorous preclinical testing and
clinical trials. It will take us many years to complete our testing, and failure could occur at any
stage of testing. For example, in May 2007, we announced that the interim results from a Phase 1
clinical trial comparing our needle-free flu vaccine patch to an injected intramuscular vaccine.
While the trial showed that a needle-free flu vaccine patch stimulated an immune response to each
of the three antigens in a dose-dependent manner, the results showed that the injected vaccine
prompted a greater immune response compared with our patch vaccine. In addition, results of early
trials frequently do not predict results of later trials, and acceptable results in early trials
may not be repeated.
Even if we complete preclinical studies and clinical trials successfully, we may not be able
to obtain regulatory approvals. Data obtained from preclinical studies and clinical studies are
subject to varying interpretations that could delay, limit or prevent regulatory approval, and
failure to observe regulatory requirements or inadequate manufacturing processes are examples of
other problems that could prevent approval. In addition, we may encounter delays or rejections due
to additional government regulation from future legislation, administrative action or changes in
FDA policy.
We intend to meet with the FDA and European regulatory authorities during 2008 to review our
plans for the Phase 3 trial for our needle-free travelers diarrhea vaccine to seek regulatory
approval in both the United States and European Union. At this time, we are evaluating various
possible primary endpoints. We can give no assurances, however, that the FDA, EMEA, or any other
regulatory body will not require a different primary endpoint or additional efficacy endpoints for
registration. Moreover, given that we currently plan to follow only travelers to Guatemala and
Mexico in the efficacy trial, the FDA, EMEA and other regulatory authorities may not allow us to
claim prevention of travelers diarrhea on a global basis without additional sites in other endemic
areas. If the FDA or EMEA requires different or any additional efficacy endpoints, it could limit
the indications for which our travelers diarrhea vaccine might be approved, and an approval for a
limited indication could negatively our ability to market and sell this product candidate. While we
believe that our travelers diarrhea vaccine may be amenable to self-administration based on recent
clinical results, the FDA or other regulatory authorities may not concur with our analysis.
Whether any approved product would be self-administered would depend on many factors, including the
outcome of any future studies evaluating self-administration and the views of regulatory agencies.
In addition, if, after regulatory approval, we would desire to expand the indication or apply for a
different indication, we will be required to file a supplementary application, along with the
necessary clinical data to support any new label claims. In this case, we may incur significant
additional development costs, and we may not be able to obtain regulatory approval or commercialize
this product for the new indication in an acceptable timeframe.
- 31 -
Outside the United States, our ability to market any of our potential products is contingent
upon receiving marketing authorizations from the appropriate regulatory authorities. These foreign
regulatory approval processes include all of the risks associated with the FDA approval process
described above.
If our research and testing is not successful, or if we cannot show that our product
candidates are safe and effective, we will be unable to commercialize our product candidates, and
our business may fail.
Federal regulatory reforms may create additional burdens that would cause us to incur additional
costs and may adversely affect our ability to commercialize our products.
From time to time, legislation is drafted, introduced and passed in Congress that could
significantly change the statutory provisions governing the approval, manufacturing and marketing
of products regulated by the FDA. For example, on September 27, 2007, the Food and Drug
Administration Amendments Act of 2007 (FDAAA) was enacted, giving the FDA enhanced post-market
authority, including the authority to require post-market studies and clinical trials, labeling
changes based on new safety information, and compliance with risk evaluation and mitigation
strategies approved by the FDA. The FDAs post-market authority took effect on March 25, 2008, 180
days after the enactment of the law. Failure to comply with any requirements under the FDAAA may
result in significant penalties. The FDAAA also authorizes significant civil money penalties for
the dissemination of false or misleading direct-to-consumer advertisements and allows the FDA to
require companies to submit direct-to-consumer television drug advertisements for FDA review prior
to public dissemination. Additionally, the new law expands the clinical trial registry so that
sponsors of all clinical trials, except for Phase 1 trials, are required to submit certain clinical
trial information for inclusion in the clinical trial registry data bank. The FDAs exercise of its
new authority could result in delays or increased costs during the period of product development,
clinical trials and regulatory review and approval, increased costs to assure compliance with new
post-approval regulatory requirements, and potential restrictions on the sale of approved products.
In addition to the FDAAA, FDA regulations and guidance are often revised or reinterpreted by the
agency in ways that may significantly affect our business and our products. It is impossible to
predict whether further legislative changes will be enacted, or FDA regulations, guidance or
interpretations will change, and what the impact of such changes, if any, may be.
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If physicians and patients do not accept our products, we may be unable to generate significant
revenue.
Even if any of our vaccine candidates obtain regulatory approval, they still may not gain
market acceptance among physicians, patients and the medical community, which would limit our
ability to generate revenue and would adversely affect our results of operations. Physicians will
not recommend products developed by us or our collaborators until clinical data or other factors
demonstrate the safety and efficacy of our products as compared to other available treatments. Even
if the clinical safety and efficacy of our products is established, physicians may elect not to
recommend these products for a variety of factors, including the reimbursement policies of
government and third-party payors. There are other established treatment options for the diseases
that many of our product candidates target, such as travelers diarrhea and the flu. In order to
successfully launch a product based on our TCI technology, we must educate physicians and patients
about the relative benefits of our products. If our products are not perceived as easy and
convenient to use, for example as compared to an injectable vaccine or antibiotics, or are
perceived to present a greater risk of side effects or are not perceived to be as effective as
other available treatments, physicians and patients might not adopt our products. A failure of our
technology to gain commercial acceptance would have a material adverse effect on our business. We
expect that, if approved for commercialization, our needle-free travelers diarrhea vaccine patch
will be paid for by patients out of pocket. We originally designed our needle-free travelers
diarrhea vaccine patch to protect against only those cases of travelers diarrhea caused by
enterotoxigenic
E. coli
bacteria, or ETEC, and in which the LT toxin is present. We estimate this
to be approximately one-third of all cases of travelers diarrhea. If we do not demonstrate
protection against other forms of travelers diarrhea, this could limit commercial acceptance of
this product. Because our needle-free flu vaccine patch and IS patch candidates are targeted at
preventing or ameliorating the effects of flu infection, if the launch of these products for a
particular flu season fails, we may not receive significant revenues from either product until the
next season, if at all. See the risk factors set forth below entitled Our competitors may have
superior products, manufacturing capability or marketing expertise, Our ability to generate
revenues will be diminished if we fail to obtain acceptable prices or an adequate level of
reimbursement for our products, and We have no experience in sales, marketing and distribution
and will depend on the sales and marketing efforts of third parties.
Our license to use TCI technology from The Walter Reed Army Institute of Research, or WRAIR, is
critical to our success. Under some circumstances, WRAIR may modify or terminate our license or
sublicense the TCI technology to third parties which could adversely affect our business.
We license substantially all of our patented and patentable TCI technology through an
exclusive license from WRAIR, a federal government entity. This license will terminate
automatically on the expiration date of the last to expire patent subject to the license, which,
based on currently issued patents and our assumption that such patents will not be invalidated,
would be February 2019. WRAIR may unilaterally modify or terminate the license if we, among other
things:
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do not expend reasonable efforts and resources to carry out the development and marketing of
the licensed TCI technology and do not manufacture, use, or operate products that use the
TCI technology by December 31, 2011 (subject to extension based upon a showing of reasonable
diligence in developing the technology);
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do not continue to make our TCI-based products available to the public on commercially
reasonable terms after we have developed such products;
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misuse the licensed TCI technology or permit any of our affiliates or sub-licensees to do so;
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fail to pay royalties or meet our other payment or reporting obligations under the license;
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become bankrupt; or
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otherwise materially breach our obligations under the license.
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If we violate the terms of the WRAIR license, or otherwise lose our licensed rights to the TCI
technology, we would likely be unable to continue to develop our products. WRAIR and third parties
may dispute the scope of our rights to the TCI technology under the license. Additionally, WRAIR
may breach the terms of its obligations under the license or fail to prevent infringement or fail
to assist us to prevent infringement by third parties of the patents underlying the licensed TCI
technology. Loss or impairment of the WRAIR license for any reason could materially harm our
financial condition and operating results.
In addition to WRAIRs termination and modification rights described above, our license is
subject to a non-exclusive, non-transferable, royalty-free right of the United States government to
practice the licensed TCI technology for research and other governmental purposes on behalf of the
United States and on behalf of any foreign government or international organization pursuant to any
existing or future treaty or agreement with the United States. WRAIR also reserves the right to
require us to grant sublicenses to third parties if WRAIR determines that:
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such sublicenses are necessary to fulfill public health and safety needs
that we are not reasonably addressing;
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such sublicenses are necessary to meet requirements for public use
specified by applicable United States government regulations with which
we are not reasonably in compliance; or
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we are not manufacturing our products substantially in the United States.
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Although we are currently the only parties licensed to actively develop the TCI technology, we
cannot assure you that WRAIR will not in the future require us to sublicense the TCI technology.
Any action by WRAIR to force us to issue such sublicenses or development activities instituted by
the United States government pursuant to its reserved rights in the TCI technology would erode our
ability to exclusively develop products based on the TCI technology and could materially harm our
financial condition and operating results.
Licenses of technology owned by agencies of the United States government, including the WRAIR
license, require that licenseesin this case, usand our affiliates and sub-licensees agree that
products covered by the license will be manufactured substantially in the United States. This may
restrict our ability to contract for manufacturing facilities, if we attempt to do so, outside the
United States and we may risk losing our rights under the WRAIR license, which could materially
harm our financial condition and operating results.
If we are unable to protect our intellectual property, we may not be able to operate our business
profitably.
We base our TCI technology in large part on innovations for which WRAIR has sought protection
under the United States and certain foreign patent laws. We consider patent protection of our TCI
technology to be critical to our business prospects. As of May 2, 2008, there are four issued and
one allowed United States patents, 43 issued foreign patents and 42 United States and foreign
patent applications relating to TCI and improvements on the technology. The four issued United
States patents will expire between November 2016 and February 2019. The 42 issued foreign patents
will expire between November 2016 and February 2019. Under our license agreement with WRAIR, we
bear financial responsibility for the preparation, filing, prosecution and maintenance of any and
all patents and patent applications licensed. With respect to enforcement, we have the right to
bring actions to enforce patents licensed under the WRAIR license agreement, subject to WRAIRs
continuing right to intervene, and WRAIR maintains the right to bring enforcement actions if we
fail to do so.
Our contract with HHS includes certain patent and data rights provisions governing our rights
and those of the U.S. government in respect of patentable processes and inventions and works
subject to copyright, including software, that we may develop under the contract and that are paid
for by HHS. While we do not believe that our performance under the HHS contract will result in
patentable processes or inventions, or works subject to copyright, including software, that we
would need to market our IS patch technology in the future, our performance under the HHS contract
subjects us to the risk that the U.S. government may claim rights or interests in such patentable
processes or inventions or works subject to copyright.
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Patent protection in the field of biopharmaceuticals is highly uncertain and involves complex
legal and scientific questions and has recently been the subject of much litigation. We cannot
control when or if any patent applications will result in issued patents. Even if issued, our
patents may not afford us protection against competitors marketing similar products. Neither the US
Patent and Trademark Office nor the courts have a consistent policy regarding the breadth of claims
allowed or the degree of protection afforded under many biopharmaceutical patents.
The claims of our existing US patents and those that may issue in the future, or those
licensed to us, may not offer significant protection of our TCI technology and other technologies.
Our patents on transcutaneous immunization, in particular, are broad in that they cover the
delivery of antigens and adjuvants to the skin to induce an immune response. While our TCI
technology is covered by issued patents and we are not aware of any challenges, patents with broad
claims tend to be more vulnerable to challenge by other parties than patents with more narrowly
written claims. Patent applications in the United States and many foreign jurisdictions are
typically not published until 18 months following their priority filing date, and in some cases not
at all. In addition, publication of discoveries in scientific literature often lags significantly
behind actual discoveries. Therefore, neither we nor our licensors can be certain that we or they
were the first to make the inventions claimed in our issued patents or pending patent applications,
or that we or they were the first to file for protection of the inventions set forth in these
patent applications. In addition, changes in either patent laws or in interpretations of patent
laws in the United States and other countries may diminish the value of our intellectual property
or narrow the scope of our patent protection. Furthermore, our competitors may independently
develop similar technologies or duplicate technology developed by us in a manner that does not
infringe our patents or other intellectual property.
If we are unable to protect the confidentiality of our proprietary information and know-how, the
value of our technology and products could be adversely affected.
In addition to patented technology, we rely upon unpatented proprietary technology, processes
and know-how. We and our licensors seek to protect this information in part by confidentiality
agreements with employees, consultants and third parties. These agreements may be breached, and
there may not be adequate remedies for any such breach. In addition, our trade secrets may
otherwise become known or be independently developed by competitors. If we are unable to protect
the confidentiality of our proprietary information and know-how, competitors may be able to use
this information to develop products that compete with our products, which could adversely impact
our business.
If the use of our technology conflicts with the intellectual property rights of third parties, we
may incur substantial liabilities, and we may be unable to commercialize products based on this
technology in a profitable manner, if at all.
Our competitors or others may have or acquire patent rights that they could enforce against
us. In addition, we may be subject to claims from others that we are misappropriating their trade
secrets or confidential proprietary information. If our technology conflicts with the intellectual
property rights of others, they could bring legal action against us or our licensors, licensees,
suppliers, customers or collaborators. If a third party claims that we infringe upon its
proprietary rights, any of the following may occur:
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we may become involved in time-consuming and expensive litigation,
even if the claim is without merit;
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we may become liable for substantial damages for past infringement if
a court decides that our technology infringes upon a competitors
patent;
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a court may prohibit us from selling or licensing our product without
a license from the patent holder, which may not be available on
commercially acceptable terms, if at all, or which may require us to
pay substantial royalties or grant cross licenses to our patents; and
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we may have to redesign our product so that it does not infringe upon
others patent rights, which may not be possible or could be very
expensive and time-consuming.
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If any of these events occurs, our business will suffer and the market price of our common
stock will likely decline.
We may be involved in lawsuits to protect or enforce our patents or the patents of our
collaborators or licensors, which could be expensive and time consuming.
Competitors may infringe our patents or the patents of our collaborators or licensors. To
counter infringement or unauthorized use, we may be required to file infringement claims, which can
be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide
that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from
using the technology at issue on the grounds that our patents do not cover the technology in
question. An adverse result in any litigation or proceeding could put one or more of our patents at
risk of being invalidated or interpreted narrowly and could put our patent applications at risk of
not issuing.
Interference proceedings brought by the US Patent and Trademark Office may be necessary to
determine the priority of inventions with respect to our patent applications or those of our
collaborators or licensors. Litigation or interference proceedings may fail and, even if
successful, may result in substantial costs and be a distraction to our management. We may not be
able, alone or with our collaborators and licensors, to prevent misappropriation of our proprietary
rights, particularly in countries where the laws may not protect such rights as fully as in the
United States.
Furthermore, because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In addition, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments. If
securities analysts or investors perceive these results to be negative, it could have a substantial
adverse effect on the price of our common stock.
We depend on our key personnel, the loss of whom may adversely affect our operations. If we fail to
attract and retain the talent required for our business, our business will be materially harmed.
We are a small company with 110 full-time employees as of March 31, 2008, and we depend to a
great extent on principal members of our management and scientific staff. If we lose the services
of any key personnel, in particular, Stanley Erck, our President and Chief Executive Officer, or
Gregory Glenn, our Chief Scientific Officer, it could significantly impede the achievement of our
research and development objectives and could delay our product development programs and approval
and commercialization of our product candidates. We do not currently have any key man life
insurance policies. While we have entered into agreements with certain of our executive officers
relating to severance after a change of control and these officers have agreed to restrictive
covenants relating to non-competition and non-solicitation, we have not entered into employment
agreements with members of our senior management team other than Stanley Erck. Our agreement with
Stanley Erck does not ensure that we will retain his services for any period of time in the future.
Our success depends on our ability to attract and retain highly qualified scientific, technical and
managerial personnel and research partners. Competition among biopharmaceutical and biotechnology
companies for qualified employees is intense, and we may not be able to retain existing personnel
or attract and retain qualified staff in the future. If we fail to hire and retain personnel in key
positions, we will be unable to develop or commercialize our product candidates in a timely manner
Our competitors may have superior products, manufacturing capability or marketing expertise.
Our business may fail because it faces intense competition from major pharmaceutical
companies, specialized biopharmaceutical and biotechnology companies and drug development companies
engaged in the development and production of vaccines, vaccine delivery technologies and other
biopharmaceutical products. Several companies are pursuing programs that target the same markets we
are targeting. In addition to pharmaceutical, biopharmaceutical and biotechnology companies, our
competitors include academic and scientific institutions, government agencies and other public and
private research organizations. Many of our competitors have greater financial and human resources
and more experience. Our competitors may:
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develop products or product candidates earlier than we do;
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form collaborations before we do, or preclude us from forming collaborations with others;
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obtain approvals from the FDA or other regulatory agencies for such products more rapidly than
we do;
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develop and validate manufacturing processes more rapidly than we do;
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obtain patent protection or other intellectual property rights that would limit our ability to
use our technologies or develop our product candidates;
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develop products that are safer or more effective than those we develop or propose to develop; or
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implement more effective approaches to sales and marketing.
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Alternative competitive technologies and products could render our TCI technology and our
product candidates based on this technology obsolete and non-competitive. Presently, there are a
number of companies developing alternative methods to the syringe for delivering vaccines. These
alternative methods include microneedles, electroporations, microporations, jet injectors, nasal
sprays and oral delivery, and several of these delivery mechanisms are in clinical trials.
While there are no vaccines indicated for prevention of ETEC that have been approved for sale
in the United States, we are aware of several companies with ETEC vaccine product candidates that
are in development, which, if approved, would compete against our needle-free travelers diarrhea
vaccine patch. Those companies with potential ETEC vaccine candidates include ACE BioSciences A/S,
Avant Immunotherapeutics, Inc., Cambridge Biostability Ltd., Crucell, N.V., Emergent BioSolutions,
Inc., and Intercell AG. One of our competitors, Crucell announced in 2005 results from a study of
an ETEC vaccine indicating the vaccine may be effective in preventing diarrhea caused by ETEC. In
the absence of vaccines, travelers diarrhea is generally treated, either prophylactically or
following onset, with antibiotics or over-the-counter, or OTC, products that alleviate symptoms.
Some of these OTC products and antibiotics, such as Cipro, are marketed by pharmaceutical companies
with substantial resources and enjoy widespread acceptance among physicians and patients. In
addition, Salix Pharmaceuticals, Inc. has announced that it has completed a Phase 3 study and
initiated another to evaluate the efficacy and safety of an antibiotic specifically designed to be
taken prophylactically for the prevention of travelers diarrhea, and is targeting filing a
marketing application in the first half of 2008.
There are multiple influenza vaccines approved for sale in both the United States and Europe.
In many cases, these products are manufactured and distributed by pharmaceutical companies with
substantial resources, such as Novartis AG, GlaxoSmithKline plc, sanofi-aventis SA, Solvay SA and
MedImmune, Inc. FluMist, a nasal flu vaccine, has received marketing approval from the FDA and
would compete against our needle-free flu vaccine, if it is approved for marketing. We are also
aware of other flu vaccine candidates to be delivered by alternative methods, such as nasal spray
and skin delivery, which, if approved, would compete against our needle-free flu vaccine, if it is
approved for marketing. In addition, we know of multiple flu vaccine candidates that incorporate
adjuvants to enhance immune responses, particularly in the elderly. Some of these adjuvanted flu
vaccines are being developed by pharmaceutical companies with substantial resources, such as
sanofi-aventis, GlaxoSmithKline and Novartis. These adjuvanted vaccines would compete against our
IS patch for the elderly and for pandemic flu applications, if either is approved for marketing.
For example, both GlaxoSmithKline and Novartis were awarded dose-sparing contracts by HHS
totaling $63.3 million and $54.8 million, respectively, in January 2007 to develop pandemic flu
vaccines with their proprietary adjuvant systems. Both GlaxoSmithKline and Novartis have reported
separately initial data indicating that low doses (3.8 ug and 7.5 ug, respectively) of their
respective adjuvanted pandemic flu vaccines have elicited immune responses at levels considered
protective by health authorities, as well as strong immune responses against drifted strains of
pandemic flu that have changed over time. In March 2008, GlaxoSmithKline announced that its H5N1
split antigen pre-pandemic influenza vaccine, which utilizes its proprietary adjuvant along with
3.8 ug of pandemic flu antigen, received a positive opinion from European regulatory authorities on
its marketing authorization application. In addition, sanofi-aventis announced in February 2008
that it had filed for European approval of the first seasonal influenza vaccine delivered by a
intradermal microinjection system, aimed at providing a superior immune response in the elderly.
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Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an
adequate level of reimbursement for our products.
The continuing efforts of government and third-party payors to contain or reduce the costs of
health care through various means may limit our commercial opportunity. For example, in some
foreign markets, pricing and profitability of prescription biopharmaceuticals are subject to
government control. In the United States, we expect that there will continue to be a number of
federal and state proposals to implement similar government controls. In addition, increasing
emphasis on managed care in the United States will continue to put pressure on the pricing of
biopharmaceutical products. Cost control initiatives could decrease the price that we would receive
for any products in the future.
Our ability to commercialize biopharmaceutical product candidates, alone or with third
parties, could be adversely affected by cost control initiatives and also may depend in part on the
extent to which reimbursement for the product candidates will be available from:
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government and health administration authorities;
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private health insurers; and
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other third-party payors.
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Significant uncertainty exists as to the reimbursement status of newly approved health care
products. Third-party payors, including Medicare, are challenging the prices charged for medical
products and services. Government and other third-party payors increasingly attempt to contain
health care costs by limiting both coverage and the level of reimbursement for new
biopharmaceutical products and by refusing, in some cases, to provide coverage for uses of approved
products for disease indications for which the FDA has not granted labeling approval. In the United
States, there have been a number of legislative and regulatory proposals to change the healthcare
system in ways that could affect our ability to market and sell our product candidates profitably.
In particular, in December 2003, President Bush signed into law new Medicare prescription drug
coverage legislation which went into effect on January 1, 2006. Under this legislation, the Centers
for Medicare and Medicaid Services, or CMS, the agency within the Department of Health and Human
Services that administers Medicare and is responsible for reimbursement of the cost of drugs, has
asserted the authority of Medicare to elect not to cover particular drugs if CMS determines that
the drugs are not reasonable and necessary for Medicare beneficiaries or to elect to cover a drug
at a lower rate similar to that of drugs that CMS considers to be therapeutically comparable.
Changes in reimbursement policies or health care cost containment initiatives that limit or
restrict reimbursement for our products may cause our potential revenues to decline. Third party
insurance coverage may not be available to patients for any product candidates we discover and
develop, alone or through our strategic relationships. If government and other third-party payors
do not provide adequate coverage and reimbursement levels for our product candidates, the market
acceptance of these product candidates maybe reduced.
We have no experience in sales, marketing and distribution and will depend on the sales and
marketing efforts of third parties.
We plan to establish marketing arrangements with third parties or major pharmaceutical
companies and do not expect to establish direct sales capability for several years. However, these
types of marketing arrangements might not be available on commercially acceptable terms, or at all.
In the future, to market any of our product candidates directly, we would need to develop a
marketing and sales force with technical expertise and distribution capability. To the extent that
we enter into marketing or distribution arrangements, any revenues we receive will depend upon the
efforts of third parties. We cannot assure you that we will be successful in gaining market
acceptance for any products we may develop.
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Our business exposes us to potential product liability claims.
Our proposed products could be the subject of product liability claims. A failure of our
product candidates to function as anticipated, whether as a result of the design of these products,
unanticipated health consequences or side effects, or misuse or mishandling by third parties of
such products, could result in injury. Claims also could be based on failure to immunize as
anticipated. Tort claims could be substantial in size and could include punitive damages. We cannot
assure you that any warranty disclaimers provided with our proposed products would be successful in
protecting us from product liability exposure. Damages from any such claims could be substantial
and could affect our financial condition.
Our business exposes us to potential product liability risks that are inherent in the testing,
manufacturing and marketing of biopharmaceutical products. We have obtained clinical trial
liability insurance for our clinical trials in the aggregate amount of $10 million. We cannot be
certain that we will be able to maintain adequate insurance for our clinical trials. We also intend
to seek product liability insurance in the future for products approved for marketing, if any.
However, we may not be able to acquire or maintain adequate insurance at a reasonable cost. Any
insurance coverage may not be sufficient to satisfy any liability resulting from product liability
claims. A successful product liability claim or series of claims could have a material adverse
impact on our operations.
We deal with hazardous materials that may cause injury to others and are regulated by environmental
laws that may impose significant costs and restrictions on our business.
Our research and development programs and manufacturing operations involve the controlled use
of potentially harmful biological materials such as toxins from
E. coli
and other hazardous
materials. We cannot completely eliminate the risk of accidental contamination or injury to others
from the use, manufacture, storage, handling or disposal of these materials. In the event of
contamination or injury, we could be held liable for any resulting damages, and any liability could
exceed our resources or any applicable insurance coverage we may have. We are also subject to
federal, state and local laws and regulations governing the use, manufacture, storage, handling or
disposal of hazardous materials and waste products. If we fail to comply with these laws and
regulations or with the conditions attached to our operating licenses, then our operating licenses
could be revoked, we could be subjected to criminal sanctions and substantial liability and we
could be required to suspend, modify or terminate our operations. We may also have to incur
significant costs to comply with future environmental laws and regulations. We do not currently
have a pollution and remediation insurance policy.
Until 2006, we operated as a private company and as a result, we have limited experience attempting
to comply with public company obligations. Attempting to comply with these requirements will
increase our costs and require additional management resources, and we still may fail to comply.
In February 2006, we closed our initial public offering. Previously, as a private company, we
maintained a small finance and accounting staff. While we expect to continue to expand our staff,
we may encounter substantial difficulty attracting qualified staff with requisite experience due to
the high level of competition for experienced financial professionals.
We face increased legal, accounting, administrative and other costs and expenses as a public
company that we did not incur as a private company. Efforts to comply with the Sarbanes Oxley Act
of 2002, as well as other rules of the SEC, the Public Company Accounting Oversight Board and The
Nasdaq Stock Market have significant initial and ongoing legal, audit and financial compliance
costs. As a public company, we are subject to Section 404 of the Sarbanes Oxley Act relating to
internal control over financial reporting and we may fail to comply for the reasons outlined in the
next risk factor.
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If we fail to maintain an effective system of internal control over financial reporting, we may not
be able to accurately report our financial results or prevent fraud. As a result, stockholders
could lose confidence in our financial and other public reporting, which would harm our business
and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable
financial reports and, together with adequate disclosure controls and procedures, are designed to
prevent fraud. If we cannot continue to provide reliable financial reports or prevent fraud, our
operating results could be harmed. Also, to account for our continued growth, as well the
additional reporting obligations under the HHS contract, we have installed a financial system,
which went live on January 1, 2007. Our experience with this new system is limited and could impact
our ability in the future to provide timely financial reports. Management has assessed the
effectiveness of our internal control over financial reporting as of December 31, 2007. There are
inherent limitations in the effectiveness of any internal control over financial reporting,
including the possibility of human error and the circumvention or overriding of controls. As a
result of these inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. Therefore, even those
internal controls determined to be effective can provide only reasonable assurance with respect to
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
Given the status of our efforts, coupled with the fact that guidance from regulatory
authorities in the area of internal controls continues to evolve, uncertainty exists regarding our
ability to comply by applicable deadlines. Any failure to implement required new or improved
controls, or difficulties encountered in their implementation, could harm our operating results or
cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause
investors to lose confidence in our reported financial information, which could have a negative
effect on the trading price of our common stock.
Investment Risks
We expect that our stock price will fluctuate significantly, which may adversely affect holders of
our stock and our ability to raise capital.
The stock market, particularly in recent years, has experienced significant volatility
particularly with respect to pharmaceutical, biopharmaceutical and biotechnology stocks. The
volatility of pharmaceutical, biopharmaceutical and biotechnology stocks often does not relate to
the operating performance of the companies represented by the shares. Factors that could cause
volatility in the market price of our common stock include:
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our proposed acquisition by Intercell;
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the timing and the results from our clinical trial programs;
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developments concerning current or future strategic alliances;
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FDA or international regulatory actions;
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failure of any of our product candidates, if approved, to achieve commercial success;
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announcements of clinical trial results or new product introductions by our competitors;
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market conditions in the pharmaceutical, biopharmaceutical and biotechnology sectors;
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developments concerning intellectual property rights;
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litigation or public concern about the safety of our potential products;
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actual and anticipated fluctuations in our quarterly operating results;
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announcements regarding transactions with third parties;
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deviations in our operating results from the estimates of securities analysts;
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additions or departures of key personnel; and
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third-party reimbursement policies.
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These and other factors may cause the market price and demand for our common stock to
fluctuate substantially. In certain situations, such fluctuations may limit or prevent investors
from readily selling their shares of common stock and may otherwise negatively affect the liquidity
of our common stock and our ability to raise capital.
If the price and volume of our common stock experience extreme fluctuations, then we could face
costly litigation.
In the past, companies that experience volatility in the market price of their securities have
often faced securities class action litigation. Whether or not meritorious, if any of our
stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit.
Such a lawsuit could also divert the time and attention of our management and harm our ability to
grow our business.
Our directors and management exercise significant control over our company.
Our directors and executive officers and their affiliates collectively control approximately
31% of our outstanding common stock. These stockholders, if they act together, may be able to
influence our management and affairs and all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. The concentration of
ownership may have the effect of delaying or preventing a change in control of our company and
might affect the market price of our common stock.
We may not achieve our projected development goals in the time frames we announce and expect.
We set goals for and make public statements regarding timing of the accomplishment of
objectives material to our success, such as the commencement and completion of clinical trials. The
actual timing of these events can vary dramatically due to factors such as delays or failures in
our clinical trials, the uncertainties inherent in the regulatory approval process, transactions
with third parties and delays in achieving manufacturing or marketing arrangements sufficient to
commercialize our products. We can provide no assurance that our clinical trials will be completed,
that we will make regulatory submissions or receive regulatory approvals as planned, that we will
enter into collaborations, or that we will be able to adhere to our current schedule for the launch
of any of our products. If we fail to achieve one or more of these milestones as planned, the
market price of our shares could decline.
Provisions of Delaware law or our charter documents could delay or prevent an acquisition of our
company, even if the acquisition would be beneficial to our stockholders, and could make it more
difficult for you to change management.
Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a
merger, acquisition or other change in control that stockholders may consider favorable, including
transactions in which stockholders might otherwise receive a premium for their shares. This is
because these provisions may prevent or frustrate attempts by stockholders to replace or remove our
current management or members of our board of directors. These provisions include:
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a staggered board of directors;
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a prohibition on stockholder action through written consent;
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a requirement that special meetings of stockholders be called only by the chairman of the board of
directors, the chief executive officer, or the board of directors pursuant to a resolution adopted
by a majority of the total number of authorized directors;
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advance notice requirements for stockholder proposals and nominations; and
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the authority of the board of directors to issue preferred stock with such terms as it may determine.
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As a result, these provisions and others available under Delaware law could limit the price
that investors are willing to pay for shares of our common stock.
Because we do not expect to pay dividends in the foreseeable future, you must rely on stock
appreciation for any return on your investment.
We have paid no cash dividends on any of our capital stock to date, and we currently intend to
retain our future earnings, if any, to fund the development and growth of our business. As a
result, we do not expect to pay any cash dividends in the foreseeable future, and payment of cash
dividends, if any, will also depend on our financial condition, results of operations, capital
requirements and other factors and will be at the discretion of our board of directors.
Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions
against, the payment of dividends. Accordingly, the success of your investment in our common stock
will likely depend entirely upon any future appreciation.
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ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
We currently have in place systems relating to disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Our principal executive
officer and our principal financial officer evaluated the effectiveness of these disclosure
controls and procedures as of March 31, 2008 in connection with the preparation of this report.
They concluded that the controls and procedures were effective and adequate at that time.
Changes in Internal Controls Over Financial Reporting
There have been no significant changes in our internal control over financial reporting during
the three- month period ended March 31, 2008, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1A. Risk Factors
We incorporate by reference the information included under Factors That May Impact Future
Results under Managements Discussion and Analysis of Financial Condition and Results of
Operations in Item 2 of Part I of this report.
ITEM 6. Exhibits
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Exhibit 2.1 (1)
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Agreement and Plan of Merger, dated as of May 12, 2008,
by and among, Intercell AG, Zebra Merger Sub, Inc. and
Iomai Corporation.
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Exhibit 3.1.3 (2)
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Third Amended and Restated Certificate of Incorporation.
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Exhibit 3.2.3 (3)
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Third Amended and Restated Bylaws.
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Exhibit 10.1
(1)
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Amendment No. 3, dated May 12, 2008, to the Employment
Agreement between Iomai Corporation and Stanley Erck
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Exhibit 10.2
(1)
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Form of Amendment to the Change in
Control Agreement, between Iomai Corporation and certain officers.**
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Exhibit 31.1
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Certification of Chief Executive Officer pursuant to
Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended.
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Exhibit 31.2
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Certification of Chief Financial Officer pursuant to
Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended.
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Exhibit 32.1(4)
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Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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**
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Indicates a management contract or compensatory plan.
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(1)
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Previously filed as an exhibit to the Companys Form 8-K filed May 13, 2008 and
incorporated herein by reference thereto.
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(2)
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Previously filed as an exhibit to the Companys Form S-1/A (File No. 333-128765) and
incorporated herein by reference thereto.
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(3)
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Previously filed as an exhibit to the Companys Form 8-K filed March 24, 2006 and
incorporated herein by reference thereto.
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(4)
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This certification is deemed to be furnished but not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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IOMAI CORPORATION
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/s/
Stanley C. Erck
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Stanley C. Erck
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President & Chief Executive Officer
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Dated: May 14, 2008
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