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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 JUNE 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. [ ] Yes [X] No
The number of shares of the registrant's common stock, $.001 par value,
outstanding as of July 31, 2000 was 21,659,536.
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DENDREON CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
---------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
a) Condensed Balance Sheet as of December 31, 1999 and June 30, 2000 3
(unaudited).
b) Condensed Statement of Operations for the Three and Six Months 4
Ended June 30, 1999 and 2000 (unaudited)
c) Condensed Statement of Cash Flows for the Six Months Ended 5
June 30, 1999 and 2000 (unaudited)
d) Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 7
Operations
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 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX 20
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2.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DENDREON CORPORATION
CONDENSED BALANCE SHEET
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
--------------- --------------
(unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 7,085 $ 52,222
Short-term investments 6,728 3,756
Accounts receivable (net allowance of $0 in 1999 and June 30, 2000) 833 714
Other current assets 556 1,941
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Total current assets 15,202 58,633
Property and equipment, net 1,499 1,741
Deposits and other assets 674 893
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Total Assets 17,375 61,267
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 377 283
Accrued liabilities 757 1,610
Accrued compensation 505 492
Deferred revenue 2,434 2,464
Current portion of long term debt 1,033 1,334
Current portion of capital lease obligations 358 479
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Total current liabilities 5,464 6,662
Deferred revenue, less current portion 3,543 3,763
Long term debt, less current portion 1,967 1,219
Capital lease obligations, less current portion 832 1,047
Commitments
Shareholders' equity:
Convertible preferred stock, $0.001 par value; 13,722,936 and
10,000,000 shares authorized, 12,108,369 and 0 shares issued and
outstanding at December 31, 1999 and June 30, 2000, respectively,
aggregate liquidation preference of $54,306 at December 31, 1999 12 0
Common stock, $0.001 par value; 19,910,000 and 80,000,000 shares
authorized, 1,111,058 and 21,146,844 shares issued and
outstanding at December 31, 1999 and June 30, 2000, respectively 1 22
Additional paid in capital 58,838 111,715
Deferred stock-based compensation (1,715) (3,744)
Accumulated deficit (51,567) (59,417)
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Total stockholders' equity 5,569 48,576
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Total Liability and Stockholders' Equity $ 17,375 $ 61,267
============== =============
</TABLE>
3.
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DENDREON CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Collaborative and license revenue $ 805 $ 972 $ 1,467 $ 1,850
Grant revenue 121 133 145 435
----------- ----------- ----------- -----------
Total revenue 926 1,105 1,612 2,285
Operating expenses:
Research and development 2,776 3,801 5,391 7,321
General and administrative 1,465 1,510 2,715 2,897
----------- ----------- ----------- -----------
Total operating expenses 4,241 5,311 8,106 10,218
----------- ----------- ----------- -----------
Loss from operations (3,315) (4,206) (6,494) (7,933)
Interest income 52 279 142 497
Interest expense (57) (158) (82) (314)
----------- ----------- ----------- -----------
Interest income (expense), net (5) 121 60 183
----------- ----------- ----------- -----------
Loss before income taxes (3,320) (4,085) (6,434) (7,750)
Provision for income taxes 0 100 0 100
----------- ----------- ----------- -----------
Net loss (3,320) (4,185) (6,434) (7,850)
Deemed dividend upon issuance of convertible
preferred stock 0 0 0 (4,110)
----------- ----------- ----------- -----------
Net loss attributable to common stockholders $ (3,320) $ (4,185) $ (6,434) $ (11,960)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (3.73) $ (0.88) $ (8.09) $ (3.97)
=========== =========== =========== ===========
Shares used in computation of basic and diluted
net loss per share 890 4,769 795 3,009
</TABLE>
4.
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DENDREON CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1999 2000
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (6,434) $ (7,850)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization expense 212 317
Non-cash stock based compensation expense 391 1,107
Non-cash interest expense 0 46
Changes in current assets and liabilities
Accounts receivable (181) 119
Other current assets (218) (1,293)
Deposits and other assets (240) (265)
Deferred revenue (648) 250
Accounts payable 67 (94)
Accrued liabilities and compensation (109) 840
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Net cash used by operating activities (7,160) (6,823)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments 2,053 (15,266)
Maturities of short-term investments 0 18,239
Purchase of property and equipment (510) (559)
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Net cash provided by investing activities 1,543 2,414
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Reclassified to current 0 0
Proceeds from equipment financing arrangement 386 486
Payments on long term debt 0 (447)
Payments on capital lease obligations (89) (150)
Proceeds from initial public offering and private placement 0 45,299
Proceeds from sale of preferred stock options 0 4,109
Proceeds from exercise of stock options 188 249
-------------- --------------
Net cash provided by financing activities 485 49,546
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,132) 45,137
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,883 7,085
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,751 $ 52,222
============== ==============
</TABLE>
5.
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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, as amended, and its prospectus dated June 16, 2000.
BASIS OF PRESENTATION
The accompanying unaudited 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 six-
month periods ended June 30, 2000 are not necessarily indicative of future
results that may be expected for the year ending December 31, 2000.
NOTE 2 - STOCK SPLIT AND INITIAL PUBLIC OFFERING
On June 13, 2000, the Company completed a 1.1-for-1 stock 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 re-stated
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 recent 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
$4.7 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.
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 from the original date of issuance, which
occurred upon the completion of the Company's initial public offering on June
21, 2000.
6.
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The following table presents the calculation of pro forma basic and diluted
net loss per share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
1999 2000 1999 2000
-------- -------- -------- --------
Pro forma basic and diluted net loss per share $ (0.31) $ (0.25) $ (0.60) $ (0.75)
======== ======== ======== ========
Shares used in computing pro forma basic and
diluted net loss per share (000's) 10,800 16,758 10,706 16,008
======== ======== ======== ========
</TABLE>
NOTE 4 - EMPLOYEE STOCK PURCHASE PLAN
In connection with the initial public offering, the Company's board of
directors approved an employee stock purchase plan (the Plan). The Plan was
approved by the stockholders by unanimous written consent of the Company's
stockholders in lieu of an annual meeting as of May 1, 2000. Under the Plan,
employees may purchase shares of common stock at a discount from fair market
value. There are 300,000 shares of common stock currently reserved for issuance
under the Plan. The Plan is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. The compensation committee administers the Plan, including determining
the frequency and duration of individual offerings under the Plan and the dates
when stock may be purchased. Eligible employees participate voluntarily and may
withdraw from any offering at any time up to 10 days before stock is purchased.
Participation terminates automatically upon termination of employment. The
purchase price per share of common stock in an offering is 85% of the lesser of
its fair value at the beginning of the offering period or on the applicable
purchase date and may be paid only through payroll deductions. The Plan
terminates on November 15, 2009. As of June 30, 2000, no shares of common stock
had been issued under the Plan.
NOTE 5 - SUBSEQUENT EVENTS
In July 2000, the Company entered into a supply and marketing agreement with
Charter Medical, Ltd., a manufacturer and marketer of proprietary medical
devices, for the distribution of the Company's DACS(R)SC medical device. Under
the terms of the agreement, Charter Medical has been granted exclusive worldwide
distribution rights for the DACS(R)SC stem cell enrichment device, a system
designed and manufactured by the Company and for which the Company received Pre
Market Approval (PMA) from the FDA in 1999.
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
7.
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the notes thereto and disclosures made under the captions, "Management
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. 333-31920.
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:
. 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 June 30, 2000,
our accumulated deficit was $59.4 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 JUNE 30, 2000 AND 1999
Revenue. Revenue increased approximately 19%, from $926,000 for the three
months ended June 30, 1999 to $1.1 million for the three months ended June 30,
2000. Revenue for the three months ended June 30, 1999 consisted of $805,000
from collaborative and license agreements and $121,000 from grant revenue.
Revenue for the three months ended June 30, 2000 consisted of $972,000 from
collaborative and license agreements and $133,000 from grant revenue. The period
over period increase was primarily due to a $215,000 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 37%, from $2.8 million for the three months ended June
30, 1999, to $3.8 million for the three months ended June 30, 2000. The increase
of $1.0 million in research and development expenses resulted primarily from
$387,000 in personnel related costs, $225,000 in non-cash stock-based
compensation, $215,000 in clinical trial expenses and a $164,000 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 were
$1.5 million for the three months ended June 30, 1999, and June 30, 2000. 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 436%, from $52,000
for the three months ended June 30, 1999, to $279,000 for the three months ended
June 30, 2000. The increase in 2000 was attributable to higher average balances
of cash, cash equivalents and short-term investments.
Interest Expense. Interest expense increased approximately 177%, from $57,000
for the three months ended June 30, 1999, to $158,000 for the three months ended
June 30, 2000. The increase in 2000 was attributable to interest expense
associated with a loan we obtained in June 1999.
8.
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SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Revenue. Revenue increased approximately 42%, from $1.6 million for the six
months ended June 30, 1999, to $2.3 million for the six months ended June 30,
2000. The period over period increase was primarily due to a $645,000 increase
in revenue related to agreements we entered into with Kirin.
Research and Development Expenses. Research and development expenses
increased approximately 36%, from $5.4 million for the six months ended June 30,
1999, to $7.3 million for the six months ended June 30, 2000. The increase of
$1.9 million in the period ending June 30, 2000 in research and development
expenses resulted primarily from $693,000 in personnel related costs, $675,000
increase in supplies, $403,000 in non-cash stock-based compensation and $261,000
in clinical trial expenses.
General and Administrative Expenses. General and administrative expenses
increased approximately 7%, from $2.7 million for the six months ended June 30,
1999, to $2.9 million for the six months ended June 30, 2000. The increase in
general and administrative expenses in the period ending June 30, 2000 was
primarily due to the increase in non-cash stock-based compensation expense.
Interest Income. Interest income increased approximately 250%, from $142,000
for the six months ended June 30, 1999, to $497,000 for the six months ended
June 30, 2000. The increase in 2000 was attributable to higher average balances
of cash, cash equivalents and short-term investments.
Interest Expense. Interest expense increased approximately 283%, from $82,000
for the six months ended June 30, 1999 to $314,000 for the six months ended June
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 six months ended
June 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 six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $56.0 million at June
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. 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 investments, have consisted primarily of purchases of
property and equipment. At June 30, 2000, our investment in equipment and
leasehold improvements was $3.8 million. We have an agreement with a financing
company under which we have financed purchases of $2.0 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 June 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 six months ended June 30, 2000
was $6.8 million. During the six months ended June 30, 1999, the Company used
$7.2 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.
9.
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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, 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.
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 have determined that SAB 101 will not 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 June 30, 2000, we had an accumulated deficit of $59.4 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.
10.
<PAGE>
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 the conduct of our clinical trials and
preclinical research. We will need to raise additional capital to:
. fund operations;
. continue the research and development of our therapeutic vaccines;
and
. commercialize our vaccines.
We believe 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 timeframe 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
11.
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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.
This application must become effective before human clinical trials may
commence. 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 18 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
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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.
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. These five facilities may not be sufficient to
meet our initial 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 cell
separation devices and buoyant density solution, including sterilization and
packaging. There are, in general, relatively few alternative sources of supply
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.
We own 59 patents and have 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, 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
claiming damages and seeking to enjoin
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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 managerial 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. 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 financial position would suffer.
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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 June 30, 2000, we had short-term investments of $3.8 million. Our
short-term investments will decline by an immaterial amount if market interest
rates increase, and therefore, our exposure to interest rate changes has been
immaterial. Declines of interest rates over time will, however, reduce our
interest income from our short-term investments. Our outstanding bank loans and
capital lease obligations are all at fixed interest rates and therefore have
minimal exposure to changes in interest rates.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 21, 2000, the Company sold 500,000 shares of its common stock to
Kirin in a private placement concurrent with the closing of the Company's
initial public offering, at a purchase price of $10.00 per share, for aggregate
gross proceeds to the Company of $5,000,000. The issuance of the securities to
Kirin was intended to be exempt from registration and prospectus delivery
requirements under the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof, due to, among other things, the limited number of persons to whom
the securities were issued, (ii) the distribution of disclosure documents to the
investor, (iii) the fact that the investor had a pre-existing relationship with
the Company, (iv) the fact that the investor represented and warranted to the
company, among other things, that the investor was acquiring the securities for
investment only and not with a view to the resale or distribution thereof, and
(v) the fact that the investor is a large institutional accredited investor.
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.
Upon the closing of the initial public offering in June 2000, all outstanding
shares of our preferred stock were automatically converted, on a one-for-one
basis, into shares of common stock. Warrants to purchase preferred stock
outstanding after the closing of the Company's initial public offering, when and
if exercised, will be exercisable for common stock. Upon the close of the
Company's initial public offering, the Company's Certificate of Incorporation
was amended to authorize 10,000,000 shares of undesignated preferred stock.
From the effective date of the Registration Statement through June 30, 2000,
the Company used approximately $824,000 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(1) By written consent in lieu of an annual meeting of stockholders dated as of
May 1, 2000, the Company's stockholders approved the following actions:
(A) re-elected the board of directors in its entirety;
(B) approved the selection of Ernst & Young LLP as the Company's
independent auditors for fiscal year 2000;
(C) approved the adoption of the 2000 Employee Stock Purchase Plan
effective upon completion of the Company's initial public offering;
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(D) approved the amendment and restatement of Company's 1996 Equity
Incentive Plan as the 2000 Equity Incentive Plan;
(E) approved the indemnification provisions included in the Company's
Amended and Restated Bylaws;
(F) approved the form of Indemnity Agreement to be entered into by the
Company with each of its officers and directors upon completion of the
Company's initial public offering; and
(G) approved the amendment and restatement of the Restated Certificate of
Incorporation to take effect upon completion of the Company's initial
public offering.
Of the consents returned, holders of 863,542 shares of common stock and
12,260,279 shares of preferred stock, representing 63.5% and 93.7% of the
vote when voting as separate classes, respectively, and 90.9% of the vote
when voting together as a single class, approved the above actions. Holders
of 496,685 shares of common stock and 818,798 shares of preferred stock
abstained or withheld from voting.
(2) By written consent effective as of June 13, 2000, 1,219,886 shares of
common stock and 12,852,640 shares of preferred stock, representing 88.6%
and 98.3% of the vote when voting as separate classes, respectively, and
97.3% of the vote when voting together as a single class, approved the
amendment of the Company's Restated Certificate of Incorporation to effect
a 1.1-for-1 stock split of the Company's common stock. Holders of 157,602
shares of common stock and 226,437 shares of preferred stock abstained or
withheld from voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1(1) Restated Certificate of Incorporation (Exhibit 3.2)
3.2(1) Bylaws (Exhibit 3.3)
4.1(1) Specimen Stock Certificate
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. 333-31920),
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 August, 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(1) Restated Certificate of Incorporation (Exhibit 3.2)
3.2(1) Bylaws (Exhibit 3.3)
4.1(1) Specimen Stock Certificate
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. 333-31920), declared
effective on June 16, 2000.
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