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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Mark One
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ______
____________
Commission File Number: 000-30681
DENDREON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-3203193
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3005 FIRST AVENUE, SEATTLE, WASHINGTON 98121
(Address of principal executive offices)
(206) 256-4545
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
The number of shares of the registrant's common stock, $.001 par value,
outstanding as of October 31, 2000 was 21,669,694.
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DENDREON CORPORATION
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Balance Sheet as of December 31, 1999 and September 30, 2000
(unaudited) 3
b) Condensed Statement of Operations for the Three and Nine Months Ended
September 30, 1999 and 2000 (unaudited) 4
c) Condensed Statement of Cash Flows for the Nine Months Ended September
30, 1999 and 2000 (unaudited) 5
d) Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 7
Item 3. Qualitative and Quantitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DENDREON CORPORATION
CONDENSED BALANCE SHEET
(in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
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(unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $ 27,539 $ 7,085
Short-term investments 14,450 6,728
Accounts receivable 235 833
Other current assets 2,293 556
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Total current assets 44,517 15,202
Property and equipment, net 1,630 1,499
Deposits and other assets 917 674
Long-term investments 13,909 --
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Total assets 60,973 17,375
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 805 377
Accrued liabilities 1,094 757
Accrued compensation 1,074 505
Deferred revenue 2,314 2,434
Current portion of long term debt 1,379 1,033
Current portion of capital lease obligations 537 358
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Total current liabilities 7,203 5,464
Deferred revenue, less current portion 3,404 3,543
Long term debt, less current portion 826 1,967
Capital lease obligations, less current portion 1,099 832
Commitments
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 13,722,936 and
10,000,000 shares authorized, 12,108,369 and no shares
issued and outstanding at December 31, 1999 and September
30, 2000, respectively. -- 12
Common stock, $0.001 par value; 19,910,000 and 80,000,000
shares authorized, 1,111,058 and 21,669,722 shares issued
and outstanding at December 31, 1999 and September 30, 2000,
respectively. 22 1
Additional paid-in capital 115,316 58,838
Deferred stock-based compensation (3,094) (1,715)
Accumulated deficit (63,803) (51,567)
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Total stockholders' equity 48,441 5,569
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Total liabilities and stockholders' equity $ 60,973 $ 17,375
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DENDREON CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Collaborative and license revenue $ 1,112 $ 783 $ 3,059 $ 2,250
Grant and other revenue 206 51 543 196
--------- --------- --------- ---------
Total revenue 1,318 834 3,602 2,446
Operating expenses:
Research and development 4,544 2,664 11,865 8,055
General and administrative 1,954 1,290 4,850 4,005
--------- --------- --------- ---------
Total operating expenses 6,498 3,954 16,715 12,060
--------- --------- --------- ---------
Loss from operations (5,180) (3,120) (13,113) (9,614)
Interest and other income 949 105 1,444 248
Interest expense (155) (99) (467) (182)
--------- --------- --------- ---------
Interest and other income, net 794 6 977 66
--------- --------- --------- ---------
Loss before income taxes (4,386) (3,114) (12,136) (9,548)
Provision for income taxes -- -- 100 --
--------- --------- --------- ---------
Net loss (4,386) (3,114) (12,236) (9,548)
Deemed dividend upon issuance of convertible
preferred stock -- -- (4,110) --
--------- --------- --------- ---------
Net loss attributable to common stockholders $ (4,386) $ (3,114) $ (16,346) $ (9,548)
========= ========= ========= =========
Basic and diluted net loss per share $ (0.20) $ (2.94) $ (1.77) $ (10.81)
========= ========= ========= =========
Shares used in computation of basic and
diluted net loss per share 21,610 1,059 9,209 883
========= ========= ========= =========
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DENDREON CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (12,236) $ (9,548)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 437 339
Non-cash stock based compensation expense 1,758 613
Non-cash interest expense 67 15
Changes in assets and liabilities
Accounts receivable 598 3
Other current assets (1,737) (385)
Deposits and other assets (310) (214)
Deferred revenue (259) (1,047)
Accounts payable 428 (300)
Accrued liabilities and compensation 906 30
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Net cash used by operating activities (10,348) (10,494)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (44,313) 3,047
Maturities of short-term investments 36,591 --
Purchase of long-term investments (13,871) --
Purchase of property and equipment (606) (613)
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Net cash provided (used) by investing activities (22,199) 2,434
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from equipment financing arrangement 688 603
Proceeds from (payments on) long-term debt (795) 3,000
Payments on capital lease obligations (242) (152)
Proceeds from initial public offering and private placement of common stock 48,889 --
Proceeds from sale of preferred stock 4,109 12,620
Proceeds from exercise of stock options 352 191
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Net cash provided by financing activities 53,001 16,262
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Net increase in cash and cash equivalents 20,454 8,202
Cash and cash equivalents at beginning of year 7,085 6,883
------------ ------------
Cash and cash equivalents at end of period $ 27,539 $ 15,085
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DENDREON CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BUSINESS AND BASIS OF PRESENTATION
Dendreon Corporation (the Company) is engaged in the research and
development of immunologically-based therapeutic products for the treatment of
cancer. The Company combines its expertise in immunology and antigen engineering
with its proprietary cell separation technologies to develop therapeutic
vaccines that stimulate cancer-fighting cells. For further information, refer to
the financial statements and footnotes thereto for the year ended December 31,
1999 included in the Company's registration statement on Form S-1 filed with the
Securities and Exchange Commission on October 11, 2000, as amended.
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements reflect, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for each period presented in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Operating results for the three-month
and nine-month periods ended September 30, 2000 are not necessarily indicative
of future results that may be expected for the year ending December 31, 2000.
NOTE 2 - STOCK SPLIT, INITIAL PUBLIC OFFERING AND FOLLOW-ON OFFERING
On June 13, 2000, the Company completed a 1.1-for-1 split of its common
stock. The number of shares of common stock and applicable per share information
presented in the accompanying condensed financial statements have been restated
to reflect the stock split.
On June 21, 2000, the Company completed an initial public offering of
4,500,000 shares of common stock at $10.00 per share. In July 2000, the
underwriters of the Company's initial public offering exercised their over
allotment option and purchased an additional 385,732 shares of common stock at
the $10.00 per share initial public offering price. The completion of the
Company's offering resulted in the sale of an aggregate of 4,885,732 shares of
common stock for total gross proceeds of $48.9 million, which resulted in net
proceeds to the Company of approximately $43.9 million, after deducting
underwriting discounts and commissions and offering expenses of approximately
$5.0 million.
The Company also sold 500,000 shares of common stock at the initial public
offering price to Kirin Brewery Co., Ltd., in a private placement concurrent
with the closing of the initial public offering.
On November 1, 2000, the Company completed a follow-on public offering of
2,500,000 shares of its common stock at $15.625 per share. The offering resulted
in total gross proceeds of $39.1 million, which resulted in net proceeds to the
Company of approximately $36.4 million, after deducting underwriting discounts,
commissions and estimated offering expenses of approximately $2.7 million. The
underwriters have an over-allotment option to purchase an additional 375,000
shares.
NOTE 3 - NET LOSS PER SHARE
In accordance with FAS 128, the Company has determined the basic and
diluted net loss per share using the weighted-average number of shares of common
stock outstanding during the period. The Company has excluded all convertible
preferred stock, stock warrants and outstanding stock options from the
calculation of diluted net loss per common share, because all such securities
are antidilutive for the periods presented. Pro forma basic and diluted net loss
per share of common stock is calculated after assuming the conversion of
preferred stock to common stock
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from the original date of issuance, which occurred upon the completion of the
Company's initial public offering on June 21, 2000.
The following table presents the calculation of pro forma basic and diluted
net loss per share:
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Pro forma basic and diluted net loss per share $ (0.20) $ (0.26) $ (0.91) $ (0.86)
======= ======= ======= =======
Shares used in computing pro forma basic and
diluted net loss per share (000's) 21,610 11,783 17,876 11,065
======= ======= ======= =======
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NOTE 4 - SUBSEQUENT EVENTS
In October 2000, we entered into a Research Collaboration and License
Agreement with The R.W. Johnson Pharmaceutical Research Institute, a division of
Ortho-McNeil Pharmaceutical, Inc. and a member of the Johnson & Johnson family
of companies. The agreement provides for studies of R.W. Johnson technology and
of our technology to determine their respective feasibility as immunotherapy
products for the treatment of tumors which express a defined antigen present on
breast, ovarian and colorectal cancers. The research plan, covering a defined
territory and field, will be performed jointly by us and R.W. Johnson. It will
involve at least two Phase I clinical trials of human subjects.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This report contains forward-looking statements that involve risk and
uncertainties. The statements contained in this report that are not purely
historical are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. These forward-looking statements concern
matters that involve risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements. Words
such as "believe," "expects," "likely," "may" and "plans" are intended to
identify forward-looking statements, although not all forward-looking statements
contain these words.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date hereof to conform such statements to actual results or to changes
in our expectations.
Readers are urged to carefully review and consider the various disclosures
made by us which attempt to advise interested parties of the factors which
affect our business, including without limitation "Factors That May Affect
Results of Operations and Financial Condition" set forth in this Form 10-Q, and
the audited financial statements and the notes thereto and disclosures made
under the captions, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", "Risk Factors", "Consolidated Financial Statements"
and "Notes to Consolidated Financial Statements", included in our Registration
Statement on Form S-1, as amended, filed with the Securities Exchange
Commission, SEC File No. 333-47706.
Overview
Since our inception in 1992, our activities have primarily been associated
with the development and testing of our cancer vaccines. Our business activities
have included:
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. product research and development;
. development of our proprietary cell separation technology;
. development of our proprietary Antigen Delivery Cassette technology;
. regulatory and clinical affairs;
. establishing manufacturing capabilities; and
. intellectual property prosecution.
We have incurred significant losses since our inception. As of September
30, 2000, our accumulated deficit was $63.8 million. We have incurred net losses
since inception as a result of research and development and general and
administrative expenses in support of our operations. We anticipate incurring
net losses over at least the next several years as we complete our clinical
trials, apply for regulatory approvals, continue development of our technology
and expand our operations.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenue. Revenue increased approximately 58%, from $834,000 for the three
months ended September 30, 1999 to $1.3 million for the three months ended
September 30, 2000. Revenue for the three months ended September 30, 1999,
consisted of $783,000 from collaborative and license agreements and $51,000 from
grant revenue. Revenue for the three months ended September 30, 2000 consisted
of $1.1 million from collaborative and license agreements, $150,000 from product
sales and $56,000 from grant revenue. The period over period increase was
primarily due to a $329,000 increase in revenue related to agreements we entered
into with Kirin Brewery Co., Ltd. ("Kirin").
Research and Development Expenses. Research and development expenses
increased approximately 69%, from $2.7 million for the three months ended
September 30, 1999, to $4.5 million for the three months ended September 30,
2000. The increase of $1.8 million in research and development expenses resulted
primarily from increases of $567,000 in clinical trial expenses, $514,000 in
personnel-related costs, $296,000 in non-cash stock-based compensation, and a
$182,000 increase in supplies. Our research and development expenses consist
primarily of salaries and other personnel related costs, product development
expenses, facility costs, supplies and depreciation.
General and Administrative Expenses. General and administrative expenses
increased approximately 51%, from $1.3 million for the three months ended
September 30, 1999, to $2.0 million for the three months ended September 30,
2000. The increase of $700,000 in general and administrative expenses resulted
primarily from an increase of $622,000 in personnel-related costs. Our general
and administrative expenses consist primarily of personnel costs for finance,
human resources, business development, legal, facilities, information
technologies and general management, as well as facility costs and professional
fees, such as legal and accounting.
Interest Income. Interest income increased approximately 804%, from
$105,000 for the three months ended September 30, 1999, to $949,000 for the
three months ended September 30, 2000. The increase in 2000 was attributable to
higher average balances of cash, cash equivalents, short-term and long-term
investments.
Interest Expense. Interest expense increased approximately 57%, from
$99,000 for the three months ended September 30, 1999, to $155,000 for the three
months ended September 30, 2000. The increase in 2000 was attributable to
interest expense associated with a loan we obtained in June 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenue. Revenue increased approximately 47%, from $2.4 million for the
nine months ended September 30, 1999, to $3.6 million for the nine months ended
September 30, 2000. The period over period increase was due to a $809,000
increase in revenue related to agreements we entered into with Kirin, a $197,000
increase in grant revenue and a $150,000 increase in product sales.
Research and Development Expenses. Research and development expenses
increased approximately 47%, from $8.1 million for the nine months ended
September 30, 1999, to $11.8 million for the nine months ended September 30,
2000. The increase of $3.7 million in the period ended September 30, 2000 in
research and development
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expenses resulted primarily from increases of $1.1 million in personnel-related
costs, $850,000 in supplies, $826,000 in clinical trial expenses and $786,000 in
non-cash stock-based compensation.
General and Administrative Expenses. General and administrative expenses
increased approximately 21%, from $4.0 million for the nine months ended
September 30, 1999, to $4.9 million for the nine months ended September 30,
2000. The increase in general and administrative expenses in the period ended
September 30, 2000 was primarily due to increases of $486,000 in personnel-
related costs and $359,000 in non-cash stock-based compensation expense.
Interest Income. Interest income increased approximately 482%, from
$248,000 for the nine months ended September 30, 1999, to $1.4 million for the
nine months ended September 30, 2000. The increase in 2000 was attributable to
higher average balances of cash, cash equivalents, short-term and long-term
investments.
Interest Expense. Interest expense increased approximately 157%, from
$182,000 for the nine months ended September 30, 1999 to $467,000 for the nine
months ended September 30, 2000. The increase in 2000 was attributable to
interest expense associated with a loan we obtained in June 1999.
Income Tax Expense. Income tax expense was $100,000 for the nine months
ended September 30, 2000 and related to a withholding tax assessed by Japan on
certain payments the Company received from Kirin. Due to operating losses and
the inability to recognize the benefits therefrom, there was no provision for
income taxes for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, short-term and long-term investments were $55.9
million at September 30, 2000. We have financed our operations since inception
through our initial public offering, the private placement of equity securities,
revenue from collaborative arrangements, grant revenue, interest income earned
on cash and cash equivalents, equipment lease line financings and loan
facilities. Since January 1, 2000, we received net proceeds of $9.1 million from
private financing activities and $43.9 million from our initial public offering,
including the exercise of the over-allotment option. On November 1, 2000, the
Company received net proceeds of $36.4 million from a follow-on public offering
of its common stock. In 1999, we received net proceeds of $13.1 million from
private financing activities. In 1998, we received net proceeds of $4.7 million
from private financing activities. To date, inflation has not had a material
effect on our business.
Since our inception, investing activities, other than purchases and
maturities of short-term and long-term investments, have consisted primarily of
purchases of property and equipment. At September 30, 2000, our investment in
equipment and leasehold improvements was $4.4 million. We have an agreement with
a financing company under which we have financed purchases of $2.2 million of
leasehold improvements, laboratory, computer and office equipment. The lease
terms are 48 months and bear interest at rates ranging from 10.8% to 12.0% per
year. We also have a tenant improvement allowance of $3.5 million from the
lessor of our Seattle, Washington facility. As of September 30, 2000, we had
committed to the expenditure of $2.6 million for laboratory and manufacturing
space at this facility. The improvement allowance bears interest at the rate of
12.5% per year and is repaid monthly over the length of the original lease.
Net cash used in operating activities for the nine months ended September
30, 2000 was $10.3 million. During the nine months ended September 30, 1999, the
Company used $10.5 million of net cash in its operating activities. Expenditures
in both periods were a result of increased research and development expenses and
general and administrative expenses in support of our operations.
In June 1999, we obtained a loan in the amount of $3.0 million from a
financial lender. The loan bears interest at an annual rate of 13.3%. We made
monthly interest payments on this loan for the first six months and will make
principal and interest payments for 24 months thereafter.
Pursuant to our collaborative license agreement with Kirin, in February
2000 we exercised our right to require Kirin to purchase $5.0 million of our
common stock upon the closing of our initial public offering. Accordingly,
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Kirin purchased 500,000 shares of our common stock in a private placement
concurrent with the closing of the initial public offering at the initial public
offering price.
With the completion of our follow-on offering on November 1, 2000, we
anticipate that our cash on hand and cash generated from our collaborative
arrangements will be sufficient to enable us to meet our anticipated
expenditures for at least the next 24 months, including, among other things:
. supporting our clinical trial efforts;
. continuing internal research and development;
. development of sales and marketing capabilities; and
. development of manufacturing capabilities.
However, we may need additional financing prior to that time. Additional
financing may not be available on favorable terms or at all. If we are unable to
raise additional funds should we need them, we may be required to delay, reduce
or eliminate some of our development programs and some of our clinical trials.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133, which will be effective for the Company for fiscal years and quarters
beginning after June 15, 2000, requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. Management believes that the impact of
SFAS No. 133 will not have a material impact on the Company's financial
position, results of operations and cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue, provides guidance for disclosures related
to revenue recognition policies and will be effective for our quarter ending
December 31, 2000. We do not expect that SAB 101 will have a material impact on
our financial position or results of operations.
FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
We have a history of operating losses; we expect to continue to incur
losses and we may never be profitable.
As of September 30, 2000, we had an accumulated deficit of $63.8 million.
These losses have resulted principally from costs incurred in our research and
development programs and from our general and administrative costs. We have
derived no significant revenues from product sales or royalties. We do not
expect to achieve significant product sales or royalty revenue for a number of
years, and are not able to predict when we might do so. We expect to incur
additional operating losses in the future. These losses may increase
significantly as we expand development and clinical trial efforts.
Our ability to achieve long-term profitability is dependent upon obtaining
regulatory approvals for our products and successfully commercializing our
products alone or with third parties. However, our operations may not be
profitable even if any of our products under development are commercialized.
We may require additional funding, and our future access to capital is
uncertain.
It is expensive to develop cancer vaccines and conduct clinical trials for
vaccines. We plan to continue to simultaneously conduct clinical trials and
preclinical research for many different cancer and autoimmune disease vaccines,
which is costly. Our future revenues may not be sufficient to support the
expenses of our operations and
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the conduct of our clinical trials and preclinical research. We may need to
raise additional capital to:
. fund operations;
. continue the research and development of our therapeutic vaccines; and
. commercialize our vaccines.
With the completion of our follow-on offering on November 1, 2000, we
anticipate that our cash on hand and cash generated from our collaborative
arrangements will be sufficient to meet our projected operating and capital
requirements for at least the next 24 months. However, we may need additional
financing within this time frame depending on a number of factors, including the
following:
. our degree of success in commercializing cancer vaccine products;
. the amount of milestone payments we receive from our collaborators;
. the rate of progress and cost of our research and development and
clinical trial activities;
. the costs of preparing, filing, prosecuting, maintaining and enforcing
patent claims and other intellectual property rights;
. emergence of competing technologies and other adverse market
developments;
. changes in or terminations of our existing collaboration and licensing
arrangements; and
. the cost of manufacturing scale-up and development of marketing
operations, if we undertake those activities.
We may not be able to obtain additional financing on favorable terms or at
all. If we are unable to raise additional funds should we need them, we may be
required to delay, reduce or eliminate some of our development programs and some
of our clinical trials. If we raise additional funds by issuing equity
securities, further dilution to stockholders may result.
We are subject to extensive regulation, which can be costly, time consuming
and subject us to unanticipated delays; even if we obtain regulatory
approval for some of our products, those products may still face regulatory
difficulties.
All of our potential products, cell processing and manufacturing
activities, are subject to comprehensive regulation by the FDA in the United
States and by comparable authorities in other countries. The process of
obtaining FDA and other required regulatory approvals, including foreign
approvals, is expensive and often takes many years and can vary substantially
based upon the type, complexity and novelty of the products involved.
Provenge(TM), Mylovenge(TM) and our other products are novel; therefore,
regulatory agencies lack experience with them which may lengthen the regulatory
review process, increase our development costs and delay or prevent
commercialization of Provenge, Mylovenge and our other products. No cancer
vaccine using dendritic cell technologies has been approved for marketing.
Consequently, there is no precedent for the successful commercialization of
products based on our technologies. In addition, we have had only limited
experience in filing and pursuing applications necessary to gain regulatory
approvals, which may impede our ability to obtain timely FDA approvals, if at
all. We have not yet sought FDA approval for any vaccine product. We will not be
able to commercialize any of our potential products until we obtain FDA
approval, and so any delay in obtaining, or inability to obtain, FDA approval
would harm our business.
If we violate regulatory requirements at any stage, whether before or after
marketing approval is obtained, we may be fined, forced to remove a product from
the market and experience other adverse consequences including delay, which
could materially harm our financial results. Additionally, we may not be able to
obtain the labeling claims necessary or desirable for the promotion of our
products. We may also be required to undertake post-marketing trials. In
addition, if we or others identify side effects after any of our vaccines are on
the market, or if manufacturing problems occur, regulatory approval may be
withdrawn and reformulation of our vaccines, additional clinical trials, changes
in labeling of our vaccines, and additional marketing applications may be
required.
An investigational new drug application must become effective before human
clinical trials may commence.
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The investigational new drug application is automatically effective 30 days
after receipt by the FDA, unless before that time the FDA requests an extension
to review the application, or raises concerns or questions about the conduct of
the trials as outlined in the application. In the latter case, the sponsor of
the application and the FDA must resolve any outstanding concerns before
clinical trials can proceed. However, the submission of an investigational new
drug application may not result in the FDA authorizing us to commence clinical
trials in any given case.
Preclinical studies involve laboratory evaluation of product
characteristics and animal studies to assess the efficacy and safety of the
product. The FDA regulates preclinical studies under a series of regulations
called the current Good Laboratory Practices regulations. If the sponsor
violates these regulations the FDA, in some cases, may invalidate the studies
and require that the sponsor replicate those studies.
We may take longer to complete our clinical trials than we project, or we
may not be able to complete them at all.
Although for planning purposes we project the commencement, continuation
and completion of our clinical trials, a number of factors, including scheduling
conflicts with participating clinicians and clinical institutions, and
difficulties in identifying and enrolling patients who meet trial eligibility
criteria, may cause significant delays. We may not commence or complete clinical
trials involving any of our products as projected or may not conduct them
successfully.
We rely on academic institutions or clinical research organizations to
conduct, supervise or monitor some or all aspects of clinical trials involving
our products. We will have less control over the timing and other aspects of
these clinical trials than if we conducted them entirely on our own. If we fail
to commence or complete, or experience delays in, any of our planned clinical
trials, our stock price and our ability to conduct our business as currently
planned could be harmed.
If testing of a particular product does not yield successful results, then
we will be unable to commercialize that product.
Our research and development programs are at an early stage. We must
demonstrate our products' safety and efficacy in humans through extensive
preclinical and clinical testing. We may experience numerous unforeseen events
during, or as a result of, the testing process that could delay or prevent
commercialization of our products, including the following:
. safety and efficacy results attained in early human clinical trials,
as in our prostate cancer and multiple myeloma trials, may not be
indicative of results that are obtained in later clinical trials;
. the results of preclinical studies may be inconclusive, or they may
not be indicative of results that will be obtained in human clinical
trials;
. after reviewing test results, we or our collaborators may abandon
projects that we might previously have believed to be promising;
. we, our collaborators or regulators, may suspend or terminate clinical
trials if the participating subjects or patients are being exposed to
unacceptable health risks; and
. the effects our potential products have may not be the desired effects
or may include undesirable side effects or other characteristics that
preclude regulatory approval or limit their commercial use if
approved.
Clinical testing is very expensive, can take many years, and the outcome is
uncertain. A minimum of 15 months will elapse before we learn the results of our
prostate cancer vaccine trial. The data collected from our clinical trials may
not be sufficient to support approval by the FDA of Provenge, our prostate
cancer vaccine, or any of our other vaccine products. The clinical trials of
Provenge, Mylovenge, our multiple myeloma vaccine, and our other products under
development may not be completed on schedule and the FDA may not ultimately
approve any of our product candidates for commercial sale. If we fail to
adequately demonstrate the safety and efficacy of a cancer vaccine under
development, this would delay or prevent regulatory approval of the vaccine,
which could prevent us from achieving profitability.
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We rely on third parties to perform a variety of functions and have limited
manufacturing and cell processing capabilities, which could limit our
ability to commercialize our products.
We rely in part on collaborators and other third parties to perform for us
or assist us with a variety of important functions, including research and
development, manufacturing and clinical trials management. We also license
technology from others to enhance or supplement our technologies. We have never
manufactured our cancer vaccines and other products on a commercial scale, and
we may not be able to manufacture our products at a cost or in quantities
necessary to make them commercially viable. We intend to rely on third party
contract manufacturers to produce large quantities of materials needed for
clinical trials and product commercialization. Third party manufacturers may not
be able to meet our needs with respect to timing, quantity or quality. If we are
unable to contract for a sufficient supply of needed materials on acceptable
terms, or if we should encounter delays or difficulties in our relationships
with manufacturers, our clinical testing may be delayed, thereby delaying the
submission of products for regulatory approval or the market introduction and
subsequent sales of our products. Any such delay may lower our revenues and
potential profitability.
Moreover, we and any third-party manufacturers that we may use must
continually adhere to current Good Manufacturing Practices, or cGMP, regulations
enforced by the FDA through its facilities inspection program.
If our facilities or the facilities of these manufacturers cannot pass a
pre-approval plant inspection, the FDA premarket approval of our vaccines will
not be granted. In complying with cGMP and foreign regulatory requirements, we
and any of our third-party manufacturers will be obligated to expend time, money
and effort in production, record-keeping and quality control to assure that our
products meet applicable specifications and other requirements. If we or any of
our third-party manufacturers fail to comply with these requirements, we may be
subject to regulatory action.
We have constructed two facilities for cell processing, the manufacture of
antigens and final formulation of our cancer vaccines. We also use three, third-
party cell processing centers and expect to begin using a fourth facility in the
fourth quarter of 2000. These six facilities may not be sufficient to meet our
ongoing needs for our prostate and multiple myeloma clinical trials.
Additionally, if we decide to manufacture our products in commercial quantities
ourselves, we will require substantial additional funds and will be required to
hire and train significant numbers of employees, construct additional facilities
and comply with applicable regulations for these facilities, which are
extensive. We may not be able to develop production facilities that both meet
regulatory requirements and are sufficient for all clinical trials or commercial
use.
If we lose or are unable to secure collaborators, or if our collaborators,
including Kirin, do not apply adequate resources to their collaboration
with us, our product development and potential for profitability may
suffer.
We intend to enter into collaborations for one or more of the research,
development, manufacturing, marketing and other commercialization activities
relating to some of our products under development. We have entered into a
collaboration with Kirin relating to the development and commercialization of
our products based on our dendritic cell technologies in Asia. As our
collaborator, Kirin funds testing, makes regulatory filings and may manufacture
and market our products in Asia. The amount and timing of resources applied by
Kirin or other potential collaborators to our joint efforts are not within our
control.
If any collaborator breaches or terminates its agreement with us, or fails
to conduct its collaborative activities in a timely manner, the
commercialization of our products under development could be slowed down or
blocked completely. It is possible that Kirin or other potential collaborators
will change their strategic focus, pursue alternative technologies or develop
alternative products, either on their own or in collaboration with others, as a
means for developing treatments for the diseases targeted by our collaborative
programs. The effectiveness of our collaborators in marketing our products will
also affect our revenues and earnings.
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Our collaborations with Kirin may not continue or be successful and we may
not receive any further research funding, milestone or royalty payments. We
intend to continue to enter into new collaborative agreements in the future.
However, we may not be able to successfully negotiate any additional
collaborative arrangements. If established, these relationships may not be
scientifically or commercially successful. Any additional collaborations would
likely subject us to some or all of the risks described above with respect to
our collaboration with Kirin. Disputes may arise between us and Kirin, and other
potential collaborators, as to a variety of matters, including financial or
other obligations under our agreements. These disputes may be both expensive and
time-consuming and may result in delays in the development and commercialization
of products.
We are dependent on single-source vendors for some of our components.
We currently depend on single-source vendors for some components of our
vaccine manufacturing process, cell separation devices and buoyant density
solution, including sterilization and packaging. There are, in general,
relatively few alternative supply sources for these products. While these
vendors have produced our products with acceptable quality, quantity and cost in
the past, they may be unable or unwilling to meet our future demands.
Establishing additional or replacement suppliers for these products could take a
substantial amount of time. If we have to switch to a replacement vendor, the
manufacture and delivery of our products could be interrupted for an extended
period.
If we are unable to protect our proprietary rights, we may not be able to
compete effectively or operate profitably.
Our success is dependent in part on obtaining, maintaining and enforcing
our patents and other proprietary rights and our ability to avoid infringing the
proprietary rights of others. Patent law relating to the scope of claims in the
biotechnology field in which we operate is still evolving and, consequently,
patent positions in our industry may not be as strong as in other more well-
established fields. Accordingly, the United States Patent and Trademark Office
may not issue patents from the patent applications owned by or licensed to us.
If issued, the patents may not give us an advantage over competitors with
similar technology.
As of September 21, 2000, we owned 60 patents and had licenses to
additional patents. However, the issuance of a patent is not conclusive as to
its validity or enforceability and it is uncertain how much protection, if any,
will be given to our patents if we attempt to enforce them and they are
challenged in court or in other proceedings, such as oppositions, which may be
brought in domestic or foreign jurisdictions to challenge the validity of a
patent. A third party may challenge the validity or enforceability of a patent
after its issuance by the Patent Office. It is possible that a competitor may
successfully challenge our patents or that a challenge will result in limiting
their coverage. Moreover, the cost of litigation to uphold the validity of
patents and to prevent infringement can be substantial. If the outcome of
litigation is adverse to us, third parties may be able to use our patented
invention without payment to us. Moreover, it is possible that competitors may
infringe our patents or successfully avoid them through design innovation. To
stop these activities we may need to file a lawsuit. These lawsuits are
expensive and would consume time and other resources, even if we were successful
in stopping the violation of our patent rights. In addition, there is a risk
that a court would decide that our patents are not valid and that we do not have
the right to stop the other party from using the inventions. There is also the
risk that, even if the validity of our patents were upheld, a court would refuse
to stop the other party on the ground that its activities are not covered by,
that is, do not infringe, our patents.
In addition to the intellectual property rights described above, we also
rely on unpatented technology, trade secrets and confidential information.
Therefore, others may independently develop substantially equivalent information
and techniques or otherwise gain access to or disclose our technology. We may
not be able to effectively protect our rights in unpatented technology, trade
secrets and confidential information. We require each of our employees,
consultants and advisors to execute a confidentiality agreement at the
commencement of an employment or consulting relationship with us. However, these
agreements may not provide effective protection of our information or, in the
event of unauthorized use or disclosure, they may not provide adequate remedies.
The use of our technologies could potentially conflict with the rights of
others.
Our competitors or others may have or acquire patent rights that they could
enforce against us. If they do so,
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then we may be required to alter our products, pay licensing fees or cease
activities. If our products conflict with patent rights of others, third parties
could bring legal actions against us or our collaborators, licensees, suppliers
or customers, claiming damages and seeking to enjoin manufacturing and marketing
of the affected products. If these legal actions are successful, in addition to
any potential liability for damages, we could be required to obtain a license in
order to continue to manufacture or market the affected products. We may not
prevail in any legal action and a required license under the patent may not be
available on acceptable terms or at all.
We may incur substantial costs as a result of litigation or other
proceedings relating to patent and other intellectual property rights.
The cost to us of any litigation or other proceeding relating to
intellectual property rights, even if resolved in our favor, could be
substantial. Some of our competitors may be better able to sustain the costs of
complex patent litigation because they have substantially greater resources. If
there is litigation against us, we may not be able to continue our operations.
Should third parties file patent applications, or be issued patents
claiming technology also claimed by us in pending applications, we may be
required to participate in interference proceedings in the United States Patent
and Trademark Office to determine priority of invention. We may be required to
participate in interference proceedings involving our issued patents and pending
applications. We may be required to cease using the technology or to license
rights from prevailing third parties as a result of an unfavorable outcome in an
interference proceeding. A prevailing party in that case may not offer us a
license on commercially acceptable terms.
We are exposed to potential product liability claims, and insurance against
these claims may not be available to us at a reasonable rate in the future.
Our business exposes us to potential product liability risks, which are
inherent in the testing, manufacturing, marketing and sale of pharmaceutical
products. We have clinical trial coverage and we intend to obtain product
liability coverage in the future. However, insurance coverage may not be
available to us at an acceptable cost, if at all. We may not be able to obtain
insurance coverage that will be adequate to satisfy any liability that may
arise. Regardless of merit or eventual outcome, product liability claims may
result in decreased demand for a product, injury to our reputation, withdrawal
of clinical trial volunteers and loss of revenues. Thus, whether or not we are
insured, a product liability claim or product recall may result in losses that
could be material.
Competition in our industry is intense and many of our competitors have
substantially greater resources than we have.
Competition in the cancer vaccine, infectious disease, autoimmune disease
and allergy fields is intense and is accentuated by the rapid pace of
technological development. Research and discoveries by others may result in
breakthroughs which may render our products obsolete even before they generate
any revenue. There are products currently under development by others that could
compete with the products that we are developing. Many of our competitors have
substantially greater research and development capabilities and manufacturing,
marketing, financial and managerial resources than we do. Our competitors may:
. develop safer or more effective immunotherapeutics and other
therapeutic products;
. reach the market more rapidly, reducing the potential sales of our
products; or
. establish superior proprietary positions.
We understand that companies, including AVI BioPharma, Inc., Cell Genesys,
Inc., NW Biotherapeutics, Inc., Therion Biologics Corporation and Vical
Incorporated may be developing prostate cancer vaccines that could potentially
compete with Provenge, if Provenge is successfully developed. These competitors
may succeed in developing and marketing cancer vaccines that are more effective
than or marketed before Provenge.
We anticipate that we will face increased competition in the future as new
companies enter our markets and as scientific developments surrounding
immunotherapy and other cancer therapies continue to accelerate. If our products
receive marketing approval but cannot compete effectively in the marketplace,
our profitability and
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financial position would suffer.
We must expand our operations to commercialize our products, which we may
not be able to do.
We will need to expand and effectively manage our operations and facilities
to successfully pursue and complete future research, development and
commercialization efforts. To grow we will need to add personnel and expand our
capabilities, which may strain our existing managerial, operational, financial
and other resources. To compete effectively and manage our growth, we must:
. train, manage and motivate a growing employee base;
. accurately forecast demand for our products; and
. expand existing operational, financial and management information
systems.
If we fail to manage our growth effectively, our product development and
commercialization efforts could be curtailed or delayed.
If we lose key management and scientific personnel or cannot recruit
qualified employees, our product development programs and our research and
development efforts will be harmed.
Our success depends, to a significant extent, upon the efforts and
abilities of Christopher S. Henney, Ph.D., D.Sc., our President and Chief
Executive Officer, and David L. Urdal, Ph.D., our Executive Vice President and
Chief Scientific Officer, and other members of senior management. The loss of
the services of one or more of our key employees would delay our product
development programs and our research and development efforts. We do not
maintain key person life insurance on any of our officers, employees or
consultants.
Competition for qualified employees among companies in the biotechnology
and biopharmaceutical industry is intense. Our future success depends upon our
ability to attract, retain and motivate highly skilled employees. In order to
commercialize our products successfully, we may be required to expand
substantially our workforce, particularly in the areas of manufacturing,
clinical trials management, regulatory affairs, business development and sales
and marketing. These activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2000, we had short-term investments of $14.5 million
and long-term investments of $13.9 million. Our short-term and long-term
investments are subject to interest rate risk and will decline in value if
market interest rates increase. Our outstanding bank loans and capital lease
obligations are all at fixed interest rates and therefore have minimal exposure
to changes in interest rates. Changes to market interest rates are not expected
to materially impact our operations.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's Registration Statement (SEC File No. 333-31920) for its
initial public offering (the "Offering") became effective June 16, 2000,
covering an aggregate 5,175,000 shares of its common stock, including the
underwriters' over-allotment option. The offering commenced June 16, 2000, and
on June 21, 2000, the Company issued 4,500,000 shares of its common stock at an
initial public offering price of $10.00 per share. Offering proceeds, net of
underwriting discounts and commissions and offering expenses of approximately
$4.7 million, were approximately $40.3 million. Prudential Vector HealthCare
Group, a unit of Prudential Securities Incorporated, was the managing
underwriter of the Offering, and SG Cowen Securities Corporation and Pacific
Growth Equities, Inc. were the co-managers. In July 2000, the underwriters
exercised their over-allotment option and purchased an additional 385,732 shares
of the Company's common stock at the $10.00 per share initial public offering
price. The completion of the Company's offering resulted in the sale of an
aggregate of 4,885,732 shares of common stock, for total gross proceeds of $48.9
million, which resulted in net proceeds to the Company of approximately $43.9
million, after deducting underwriting discounts and commissions and offering
expenses. None of the net offering proceeds were paid, directly or indirectly,
to: (i) directors or officers of the Company, or their associates; (ii) persons
owning ten percent or more of any class of equity securities of the Company; or
(iii) affiliates of the Company.
From the effective date of the Registration Statement through September 30,
2000, the Company used approximately $4.6 million of the Offering proceeds to
fund clinical trials, research, preclinical and commercialization activities for
our therapeutic vaccine products, to increase our dendritic cell processing and
antigen manufacturing capacity, and for general corporate purposes, including
working capital. The remaining proceeds from the Offering are invested in
commercial paper, money market securities and certificates of deposit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Bylaws (Exhibit 3.3) (2)
4.1 Specimen Stock Certificate (2)
27.1 Financial Data Schedule
(1) Incorporated by reference to designated exhibits to the
Company's Registration Statement on Form S-1 (SEC File No.
333-47706), declared effective on October 26, 2000.
(2) Incorporated by reference to designated exhibits to the
Company's Registration Statement on Form S-1 (SEC File No.
333-31920), declared effective on June 16, 2000.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated this 14th day of November, 2000
DENDREON CORPORATION
By: /s/ Martin A. Simonetti
---------------------------------------------------
Martin A. Simonetti
Vice President, Administration,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer and
Duly Authorized Officer)
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EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Bylaws (Exhibit 3.3) (2)
4.1 Specimen Stock Certificate (2)
27.1 Financial Data Schedule
(1) Incorporated by reference to designated exhibits to the Company's
Registration Statement on Form S-1 (SEC File No. 333-47706), declared
effective on October 26, 2000.
(2) Incorporated by reference to designated exhibits to the Company's
Registration Statement on Form S-1 (SEC File No. 333-31920), declared
effective on June 16, 2000.
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