<PAGE>
As filed with the United States Securities and Exchange Commission on
October 25, 2000
Registration No. 333-47706
-------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DENDREON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 2834 22-3203193
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
3005 First Avenue
Seattle, Washington 98121
(206) 256-4545
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
Christopher S. Henney, Ph.D., D.Sc.
President and Chief Executive Officer
3005 First Avenue
Seattle, Washington 98121
(206) 256-4545
(Name, address, including zip code and telephone number, including area code
of agent for service)
---------------
Copies to:
Julie M. Robinson, Esq. Rodd M. Schreiber, Esq.
Cooley Godward LLP Skadden, Arps, Slate, Meagher & Flom
4365 Executive Drive, Suite 1100 (Illinois)
San Diego, California 92121-2128 333 West Wacker Drive
Tel: (858) 550-6000 Chicago, Illinois 60606
Fax: (858) 463-3555 Tel: (312) 407-0700
Fax: (312) 407-0411
---------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+Dendreon may not sell these securities until the registration statement filed +
+with the Securities and Exchange Commission is effective. This prospectus is +
+not an offer to sell these securities and it is not soliciting an offer to +
+buy these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION - OCTOBER 25, 2000
PROSPECTUS
--------------------------------------------------------------------------------
2,500,000 Shares
[LOGO OF DENDREON CORPORATION]
Common Stock
--------------------------------------------------------------------------------
Dendreon Corporation is offering 2,500,000 shares of its common stock.
Dendreon's common stock is quoted in the Nasdaq National Market under the
symbol "DNDN". On October 24, 2000, the last reported sale price in the Nasdaq
National Market was $16.69 per share.
Dendreon discovers and develops immunologically based therapeutic products for
the treatment of cancer.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price.................................. $ $
Underwriting discounts and commissions................. $ $
Proceeds, before expenses, to Dendreon................. $ $
</TABLE>
See "Risk Factors" on pages 8 to 15 for factors that should be considered
beforeinvesting in the shares of Dendreon.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
--------------------------------------------------------------------------------
The underwriters may purchase up to 375,000 additional shares from Dendreon to
cover over-allotments.
Prudential Vector Healthcare
a unit of Prudential Securities
SG Cowen
Pacific Growth Equities, Inc.
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................................................... 4
Risk Factors............................................................ 8
Forward-Looking Statements.............................................. 16
Use of Proceeds......................................................... 17
Dividend Policy......................................................... 17
Price Range of Common Stock............................................. 17
Dilution................................................................ 18
Capitalization.......................................................... 19
Selected Financial Data................................................. 20
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 21
Business................................................................ 26
Management.............................................................. 44
Certain Relationships and Related Transactions.......................... 53
Principal Stockholders.................................................. 55
Description of Capital Stock............................................ 57
Shares Eligible for Future Sale......................................... 60
Underwriting............................................................ 62
Legal Matters........................................................... 64
Experts................................................................. 64
Where You Can Find Additional Information............................... 64
Index to Financial Statements........................................... F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in the prospectus.
This summary does not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully.
Dendreon
We discover and develop therapeutic vaccines that stimulate a patient's
immunity for the treatment of cancer. We combine our expertise in immunology
with our methods for modifying tumor antigens, the targets of the immune
system, and our technology for cell separation to develop therapeutic vaccines
that stimulate cancer-fighting cells. Our most advanced product candidate,
Provenge(TM), is a therapeutic vaccine for the treatment of prostate cancer. We
have completed initial safety and efficacy testing for Provenge and it has
entered the next stage of testing, commonly referred to as Phase III clinical
trials. In January and April 2000, we began two Phase III clinical trials that
are designed to demonstrate Provenge's efficacy and, if successful, support an
application for regulatory approval of Provenge by the Food and Drug
Administration. In addition, we are conducting two initial efficacy trials,
commonly known as Phase II clinical trials, of Mylovenge(TM), our therapeutic
vaccine for some cancers of the blood, including multiple myeloma. We have
three additional therapeutic vaccines in preclinical development for the
treatment of common malignancies, including breast, colorectal, lung and
ovarian/uterine cancers. We also intend to pursue the application of our
technologies in the fields of autoimmune diseases, allergies and infectious
diseases. We plan to retain commercialization rights for our products in the
United States and partner our products in other parts of the world. We are
collaborating with Kirin Brewery Co., Ltd. for the marketing and development of
our products in Asia. In addition, we are collaborating with The R.W. Johnson
Pharmaceutical Research Institute, a member of the Johnson & Johnson family of
companies, for the study of the feasibility of their and our technologies as
immunotherapy products for the treatment of breast, ovarian and colorectal
cancers. We consummated our initial public offering in June 2000.
Cancer and Cancer Therapy
The American Cancer Society estimates that doctors will diagnose
approximately 1.2 million new cases of cancer in the United States in 2000.
Cancer, the second leading cause of death in the United States, will result in
an estimated 552,000 deaths in 2000. Cancer costs are estimated at $107 billion
annually, including health care expenditures and lost productivity from illness
and death. Spending on cancer therapeutic drugs was $7.4 billion in the United
States in 1998. Cancer is characterized by abnormal cells that proliferate
uncontrollably and spread throughout the body, forming collections of tumor
cells called metastases. To be effective, cancer therapy must eliminate the
cancer both at its site of origin and at sites of metastases. Current
treatments for cancer include surgery, radiation, hormone therapy and
chemotherapy. Treatments known as immunotherapy are designed to stimulate the
body's natural mechanism for fighting diseases. We believe immunotherapy may
overcome many of the limitations of current cancer therapies by enabling the
immune system to recognize and destroy cancerous cells. Immunotherapy may be
particularly useful for the treatment of residual disease, the small tumor
masses, including metastases, which may remain following conventional therapy.
Our Therapeutic Cancer Vaccine Approach
The immune system protects against disease by recognizing specific chemical
structures known as antigens. In the presence of antigens associated with
diseased cells, a specialized class of cells known as dendritic cells are
activated to take up and process the antigen. These activated dendritic cells
then sensitize another class of cells known as lymphocytes, which seek out and
eliminate diseased cells. Tumors, however, create an environment that
suppresses the maturation of dendritic cells, preventing their activation. Our
vaccines are based on our ability to manipulate dendritic cells. Our
proprietary devices for cell separation allow us to isolate dendritic cells
from the blood and activate them to process tumor antigens. Our proprietary
approach for antigen modification, called Antigen Delivery Cassette(TM)
technology, allows us to engineer, or modify, the structure of tumor antigens
and add proprietary elements that augment the uptake and processing of the
antigen by dendritic cells, thereby increasing the potency of the immune
response.
4
<PAGE>
Benefits of Our Approach
Our therapeutic vaccines may offer novel treatment alternatives for cancers
that currently are not adequately addressed. Benefits of our therapeutic
vaccines may include:
. Vigorous stimulation of cancer-fighting cells: The results of our
clinical trials to date have demonstrated that our vaccines have the
potential to stimulate the body's own defenses to fight cancer.
. Minimal side effects: Our vaccines specifically target cancerous cells,
and the results of our clinical trials have shown them to be well
tolerated by patients.
. Applicability to a wide variety of cancers: Our ability to identify and
modify antigens and our technologies for isolating cells from blood
enable us to create proprietary vaccines for the potential treatment of
a wide variety of cancers.
. Single vaccine can treat multiple cancers: We identify novel antigens
that are shared by multiple types of cancer. We believe this approach
will allow us to develop single vaccines for the treatment of several
different tumors.
. Access broad patient population: We select antigens that are present on
a significant percentage of cancer patients' tumors. For example, our
prostate cancer vaccine antigen is found on approximately 95% of
prostate cancers.
. Cost-effective manufacturing process: We have developed a manufacturing
process that employs our proprietary cell separation systems that can
produce vaccines on a cost-effective basis.
. Simple, convenient therapy: Our vaccines are delivered as 30-minute
infusions in an outpatient procedure. Patients complete a course of
treatment in one month.
Our Therapeutic Vaccines
We are conducting two Phase III clinical trials for our lead product,
Provenge, for the treatment of patients with advanced prostate cancer.
Currently over one million men have prostate cancer in the United States, with
180,000 new cases and 32,000 deaths estimated in 2000. There is currently no
treatment that increases long-term survival of patients with advanced prostate
cancer. We have completed three safety and dose-determining trials, commonly
referred to as Phase I clinical trials, for Provenge. Additionally, we have
completed two Phase II clinical trials, which suggest that Provenge will be
safe and may be effective in treating patients with advanced prostate cancer
that is resistant to standard treatment with hormones. Based upon historical
data, we would have expected that 50% of untreated patients at a similar stage
of disease as the patients in our trials would have experienced disease
progression at 12 weeks, 75% at 30 weeks, and 90% at one year. In our trials,
patients experienced a significant decrease in the rate of progression of the
disease: 53% had stabilized at 28 weeks, and 26% were stable for greater than
one year. In addition, less than two percent of Provenge infusions were
associated with significant side effects.
We are conducting two Phase II clinical trials of our therapeutic cancer
vaccine, Mylovenge, in patients with multiple myeloma, a cancer of the blood,
and amyloidosis, a complication of multiple myeloma. It is estimated that in
2000, 13,600 individuals in the United States will be diagnosed with multiple
myeloma and over 11,000 individuals will die from the disease. Amyloidosis,
which eventually results in death from organ failure, afflicts approximately
2,500 individuals in the United States annually. In our trials, 31 of 58
patients, or 53%, experienced major tumor reductions or disease stabilization
lasting more than six months. In one of these studies, four of 15 patients
treated with Mylovenge, whose cancers were resistant to massive doses of
chemotherapy, experienced a complete disappearance of multiple myeloma. In the
other trial, 17 of 43 patients treated with Mylovenge experienced minor tumor
reductions or disease stabilization lasting six months or longer. The results
of these trials provide preliminary evidence that Mylovenge is safe and may be
effective in treating multiple myeloma.
We have three vaccine products, APC8024, APC80NY and APC80TR, in preclinical
development for the treatment of breast, lung, colorectal and ovarian/uterine
cancers. We expect to enter clinical trials in 2000 with APC8024 for the
treatment of breast, ovarian and colorectal cancers. In addition, we have two
antibody products in preclinical development, including Danton (DN1924) for the
treatment of numerous blood-borne tumors, and Dantes (DN1921) for the treatment
of autoimmune diseases.
5
<PAGE>
The Offering
Shares offered by Dendreon............ 2,500,000 shares
Total shares outstanding after this
offering.............................. 24,163,604 shares
Use of 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. We may also use a portion of
the net proceeds to acquire
complementary technologies or products.
Nasdaq National Market symbol......... DNDN
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of August 31, 2000. However, it
does not include, as of August 31, 2000, the following:
. 1,165,395 shares of common stock available for future issuance under our
equity incentive plan and 1,595,108 shares of common stock issuable on
exercise of outstanding stock options;
. 1,485,000 shares reserved for issuance under our 2000 Employee Stock
Purchase Plan;
. 532,543 shares of common stock issuable on exercise of outstanding
warrants; and
. up to 375,000 shares that the underwriters may purchase if they exercise
their over-allotment option in full.
Unless otherwise noted, the information in this prospectus assumes the
underwriters have not exercised their over-allotment option.
About Us
We were incorporated in Delaware in August 1992. Our principal executive
offices are located at 3005 First Avenue, Seattle, Washington 98121, and our
telephone number is (206) 256-4545. Dendreon(TM), the Dendreon logo,
Mylovenge(TM), Provenge(TM), Antigen Delivery Cassette(TM) and DACS(R) are
trademarks of Dendreon. This prospectus also includes trademarks and tradenames
of other companies.
6
<PAGE>
Summary Financial Information
You should read the summary financial data in conjunction with our financial
statements and the related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus. The financial results for the six months ended June 30, 2000 are
unaudited. The pro forma balance sheet data below gives effect to the receipt
of the net proceeds from the sale of 385,732 shares of our common stock on July
7, 2000 at $10.00 per share in connection with the underwriters' exercise of
the over-allotment option for our initial public offering. The pro forma as
adjusted balance sheet data presented below gives effect to the receipt of the
net proceeds from the sale of 2,500,000 shares of our common stock in this
offering at an assumed public offering price of $16.69 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
Six
Months Ended
Year Ended December 31, June 30,
--------------------------- ----------------
1997 1998 1999 1999 2000
------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenue.................. $ 793 $ 866 $ 3,719 $ 1,612 $ 2,285
Total operating expenses....... 8,184 10,957 16,332 8,106 10,218
Loss from operations........... (7,391) (10,091) (12,613) (6,494) (7,933)
Net loss....................... (7,163) (10,373) (12,518) (6,434) (7,850)
Net loss attributable to common
stockholders.................. (7,163) (10,373) (12,803) (6,434) (11,960)
Basic and diluted net loss per
common share.................. (21.37) (16.48) (13.54) (8.09) (3.97)
Shares used in computation of
basic and diluted net loss per
common share.................. 335 630 946 795 3,009
Pro forma basic and diluted net
loss per share................ $ (1.07) $ (0.75)
Shares used in computation of
pro forma basic and diluted
net loss per share (1)........ 11,963 16,008
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................... $55,978 $59,565 $98,281
Working capital................................. 51,971 55,558 94,274
Total assets.................................... 61,267 64,854 103,570
Long-term obligations, less current portion..... 2,266 2,266 2,266
Total stockholders' equity...................... 48,576 52,163 90,879
</TABLE>
--------
(1) See Note 8 of notes to financial statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per share.
7
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information set forth in this prospectus, before purchasing shares
of our common stock. Each of these risks could harm our business, operating
results and financial condition, as well as decrease the value of an
investment in our common stock. This investment involves a high degree of
risk.
Risks Related To Our Business
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.
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;
. to continue the research and development of our therapeutic vaccines;
and
. to commercialize our vaccines.
We believe that the net proceeds of this offering, 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.
8
<PAGE>
We may not be able to obtain additional financing on favorable terms or at
all. If we are unable to raise additional funds when we need them, we may be
required to delay, reduce or eliminate some or all of our development programs
and some or all of our clinical trials. We also may be forced to license to
others technologies that we would prefer to develop internally. If we raise
additional funds by issuing equity securities, further dilution to stockholders
may result, and new investors could have rights superior to holders of shares
issued in this offering.
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, Mylovenge 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. 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
9
<PAGE>
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.
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
10
<PAGE>
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.
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 sources of supply for these products. While these
vendors have produced
11
<PAGE>
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
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 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.
12
<PAGE>
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., 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 financial position would suffer.
13
<PAGE>
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.
Risks Relating To This Offering
Market volatility may affect our stock price and the value of your
investment may be subject to sudden decreases.
The trading price for our common stock has been and we expect it to
continue to be volatile. The price at which our common stock trades depends
upon a number of factors, including our historical and anticipated operating
results and general market and economic conditions, which are beyond our
control. Factors such as fluctuations in our financial and operating results,
the results of preclinical and clinical trials, announcements of technological
innovations or new commercial products by us or our competitors, developments
concerning proprietary rights and publicity regarding actual or potential
performance of products under development by us or our competitors could also
cause the market price of our common stock to fluctuate substantially. In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations. These broad market fluctuations may lower the market
price of our common stock. Moreover, during periods of stock market price
volatility, share prices of many biotechnology companies have often fluctuated
in a manner not necessarily related to the companies' operating performance.
Accordingly, our common stock may be subject to greater price volatility than
the stock market as a whole.
Future sales of our common or preferred stock may lower the market price of
our common stock.
Sales of a substantial number of shares of our common stock or preferred
stock in the public market following this offering or the perception that such
sales could occur could cause the market price of our common stock to decline
or limit our future ability to raise capital through an offering of equity
securities. The
14
<PAGE>
number of shares of our common stock available for sale by our existing
stockholders in the public market is limited by restrictions under federal
securities law and under lock-up agreements that our stockholders entered into
with the underwriters in connection with our initial public offering. In
connection with this offering, our officers and directors beneficially owning
9,561,040 of our shares have agreed to enter into lock-up agreements pursuant
to which they agree not to offer or sell any shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of
our common stock for 90 days after the date of this prospectus without the
prior written consent of Prudential Securities Incorporated on behalf of the
underwriters. In addition, in connection with our initial public offering,
substantially all of our stockholders at that time entered into lock-up
agreements pursuant to which they agreed not to offer or sell any shares of
our common stock or any securities convertible into or exchangeable or
exercisable for any shares of our common stock through December 13, 2000,
without the prior written consent of Prudential Securities Incorporated on
behalf of the underwriters in our initial public offering. Prudential
Securities Incorporated may, at any time and without notice, waive any of the
terms of these lock-up agreements.
If you purchase our common stock in this offering, you will incur immediate
and substantial dilution in the book value of your shares.
You will experience an immediate and substantial dilution of $12.91 per
share in the pro forma net tangible book value per share of our common stock
relative to the assumed public offering price of $16.69 per share. After
giving effect to this offering, our pro forma net tangible book value as of
June 30, 2000, would have been $3.78 per share. In addition, this dilution
will be increased to the extent that holders of outstanding options and
warrants to purchase our common stock at prices below our net tangible book
value per share after this offering exercise those options or warrants.
Anti-takeover provisions in our charter documents and under Delaware could
make an acquisition of us, which may be beneficial to our stockholders,
more difficult.
Provisions of our certificate of incorporation and bylaws will make it more
difficult for a third party to acquire us on terms not approved by our board
of directors and may have the effect of deterring hostile takeover attempts.
For example, our certificate of incorporation authorizes our board of
directors to issue up to 10,000,000 shares of preferred stock and to fix the
price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of our common stock will be subject
to, and may be harmed by, the rights of the holders of any preferred stock
that may be issued by us in the future. The issuance of preferred stock could
reduce the voting power of the holders of our common stock and the likelihood
that common stockholders will receive payments upon liquidation. We are also
subject to provisions of Delaware law that could have the effect of delaying,
deferring or preventing a change in control of our company. One of these
provisions prevents us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless specified conditions are satisfied.
These and other impediments to a third-party acquisition or change of control
could limit the price investors are willing to pay in the future for shares of
our common stock.
Executive officers, directors and principal stockholders will continue to
have substantial control over us after the offering, which could delay or
prevent a change in our corporate control favored by our other
stockholders.
Following this offering, executive officers, directors and principal
stockholders will beneficially own 39.1% of our outstanding common stock, or
38.5% if the underwriters' over-allotment option is exercised in full.
Accordingly, these stockholders, individually and as a group, may be able to
control us and direct our officers and business, including any determination
with respect to a change in control, future issuances of our common stock or
other securities, declarations of dividends on our common stock and the
election of our board of directors.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting the financial condition of our business. Forward-looking
statements involve risks and uncertainties. There are important factors that
could cause actual results to be substantially different from the results
expressed or implied by these forward-looking statements, including, among
other things:
. general economic and business conditions, both nationally and in our
markets;
. our expectations and estimates concerning future financial performance
and financing plans;
. the impact of competition and technological change;
. our relationships with our corporate collaborators;
. our ability to enter into future collaboration agreements;
. our ability to achieve positive results in clinical trials;
. our ability to develop safe and efficacious vaccines;
. anticipated trends in our business;
. existing and future regulations affecting our business; and
. other risk factors set forth under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Dendreon, our business or our management, are
intended to identify forward-looking statements. We do not intend to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information contained in
this prospectus is accurate as of any date other than the date on the front
cover of this prospectus.
16
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of common stock in this offering will be
approximately $38.7 million, or $45.0 million if the underwriters exercise
their over-allotment option in full, assuming a public offering price of $16.69
per share and after deducting underwriting discounts and commissions and
estimated offering expenses.
We intend to use the net proceeds of this offering 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. We may also use a portion of the net proceeds to acquire complementary
technologies or products. We have not determined the amount of net proceeds
that we will use for each of these purposes.
We have discussions on an ongoing basis regarding potential acquisitions and
licensing opportunities that are complementary to our business. Although we may
use a portion of the net proceeds for this purpose, we currently have no
agreements or commitments in this regard. We reserve the right, at the sole
discretion of our board of directors, to reallocate our use of proceeds in
response to these and other factors.
Pending such uses, we may invest the net proceeds temporarily in short-term,
investment-grade, interest-bearing securities or guaranteed obligations of
United States government.
DIVIDEND POLICY
We have not declared or paid and do not anticipate declaring or paying any
dividends on our common stock in the foreseeable future. Any future
determination as to the declaration and payment of dividends will be at the
discretion of our board of directors and will depend on then existing
conditions, including our financial condition, result of operations,
contractual restrictions, capital requirements, business prospects, and any
other factors our board of directors deems relevant.
PRICE RANGE OF COMMON STOCK
Our common stock is quoted in the Nasdaq National Market under the symbol
"DNDN." Public trading of our common stock commenced on June 16, 2000, the date
of our initial public offering. Prior to that time, there was no public market
for our common stock. The table below sets forth the high and low closing price
for our common stock as reported by the Nasdaq National Market for the periods
indicated:
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Year Ended December 31, 2000:
Second Quarter (from June 16, 2000)....................... $16.563 $ 9.688
Third Quarter............................................. 26.625 12.250
Fourth Quarter (through October 24, 2000)................. 22.625 16.688
</TABLE>
The closing price of our common stock on the Nasdaq National Market on
October 24, 2000 was $16.69 per share. As of August 31, 2000, there were
21,663,604 shares of our common stock outstanding that were held of record by
approximately 202 stockholders. The number of record holders does not include
beneficial owners of our common stock that hold their shares in nominee or
street name.
17
<PAGE>
DILUTION
Purchasers of our common stock in this offering will experience immediate
and substantial dilution in the pro forma net tangible book value of our common
stock from the public offering price. As of June 30, 2000, we had a pro forma
net tangible book value of $52.2 million, or $2.42 per share of common stock.
Pro forma net tangible book value per share represents the amount of our
tangible assets less our total liabilities, divided by the number of our shares
of common stock outstanding as of June 30, 2000 plus 385,732 shares of common
stock issued on July 7, 2000 in connection with the underwriters' exercise of
the over-allotment option for our initial public offering. After giving effect
to the sale of 2,500,000 shares of common stock offered by us at an assumed
public offering price of $16.69 per share and after the deduction of
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value as of June 30, 2000 would have
been $90.9 million, or $3.78 per share. This represents an immediate increase
in the pro forma net tangible book value of $1.36 per share to existing
stockholders and an immediate dilution of $12.91 per share to new investors
purchasing common stock in this offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price................................. $16.69
------
Pro forma net tangible book value as of June 30, 2000....... $2.42
Increase attributable to new investors in the offering...... 1.36
-----
Pro forma net tangible book value after this offering......... 3.78
------
Dilution in pro forma net tangible book value to new
investors.................................................... $12.91
======
</TABLE>
This discussion and the table above are as of June 30, 2000 and exclude:
. 1,723,685 shares of common stock issuable on exercise of outstanding
stock options at a weighted average exercise price of $1.27 per share;
and
. 532,543 shares of common stock issuable on exercise of outstanding
warrants at a weighted average exercise price of $3.72 per share.
The issuance of common stock in connection with the exercise of these
options and warrants will result in further dilution to new investors. See
"Management--Employee Benefit Plans" and Note 6 of the notes to financial
statements.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000:
. on an actual basis;
. on a pro forma basis to reflect the net proceeds of $3,587,000 from the
sale on July 7, 2000 of 385,732 shares of our common stock in connection
with the underwriters' exercise of the over-allotment option for our
initial public offering; and
. on a pro forma as adjusted basis to reflect the receipt of the net
proceeds from the sale of 2,500,000 shares of common stock in this
offering at an assumed public offering price of $16.69 per share, after
deducting underwriting discounts and commissions and our estimated
offering expenses.
<TABLE>
<CAPTION>
June 30, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Cash, cash equivalents and short-term
investments................................... $ 55,978 $ 59,565 $ 98,281
======== ======== ========
Long-term obligations, less current portion.... $ 2,266 $ 2,266 $ 2,266
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000
shares authorized, no shares issued or
outstanding, ............................... -- -- --
Common stock, $.001 par value, 80,000,000
shares authorized, 21,146,799 shares issued
and outstanding; 21,532,531 shares issued
and outstanding, pro forma;
24,032,531 shares issued and outstanding,
pro forma as adjusted....................... 21 22 24
Additional paid-in capital................... 111,716 115,302 154,016
Deferred stock-based compensation............ (3,744) (3,744) (3,744)
Accumulated deficit.......................... (59,417) (59,417) (59,417)
-------- -------- --------
Total stockholders' equity..................... 48,576 52,163 90,879
-------- -------- --------
Total capitalization........................... $ 50,842 $ 54,429 $ 93,145
======== ======== ========
</TABLE>
The outstanding share information in the table is as of June 30, 2000 and
excludes:
. 1,167,895 shares of common stock available for future issuance under our
equity incentive plan and 1,723,685 shares of common stock issuable on
exercise of outstanding stock options at a weighted average exercise
price of $1.27 per share;
. 1,485,000 shares reserved for issuance under our 2000 Employee Stock
Purchase Plan; and
. 532,543 shares of common stock issuable on exercise of outstanding
warrants at a weighted average exercise price of $3.72 per share.
19
<PAGE>
SELECTED FINANCIAL DATA
You should read the selected financial data set forth below in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our financial statements and the related notes appearing
elsewhere in this prospectus. The statement of operations data set forth below
for the years ended December 31, 1997, 1998 and 1999 and the balance sheet data
as of December 31, 1998 and 1999 have been derived from our audited financial
statements included elsewhere in this prospectus, which have been audited by
Ernst & Young LLP, independent auditors. The statement of operations data for
the years ended December 31, 1995 and 1996 and the balance sheet data as of
December 31, 1995, 1996 and 1997 have been derived from our audited financial
statements not included in this prospectus, which have been audited by Ernst &
Young LLP, independent auditors. The statement of operations data for the six
months ended June 30, 1999 and 2000 and the balance sheet data as of June 30,
2000 have been derived from unaudited financial statements included in this
prospectus. The unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the information contained in them. The historical
results do not necessarily indicate the results you should expect in any future
period and the results in interim periods are not necessarily indicative of
results that may be expected for the entire year.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenue........... $ 641 $ 474 $ 793 $ 866 $ 3,719 $ 1,612 $ 2,285
Operating expenses:
Research and
development.......... 4,082 5,093 5,290 8,064 10,222 5,391 7,321
General and
administrative....... 1,749 2,209 2,894 2,893 6,110 2,715 2,897
------- ------- ------- -------- -------- ------- --------
Total operating
expenses............... 5,831 7,302 8,184 10,957 16,332 8,106 10,218
------- ------- ------- -------- -------- ------- --------
Loss from operations.... (5,190) (6,828) (7,391) (10,091) (12,613) (6,494) (7,933)
Interest income......... 17 226 267 361 414 142 497
Interest expense........ (898) (114) (47) (41) (351) (82) (314)
Other income (loss),
net.................... -- -- 8 (2) 32 -- --
------- ------- ------- -------- -------- ------- --------
Interest and other
income (expense), net.. (881) 112 228 318 95 60 183
------- ------- ------- -------- -------- ------- --------
Loss before income
taxes.................. (6,071) (6,716) (7,163) (9,773) (12,518) (6,434) (7,750)
Provision for income
taxes.................. -- -- -- 600 -- -- 100
------- ------- ------- -------- -------- ------- --------
Net loss................ (6,071) (6,716) (7,163) (10,373) (12,518) (6,434) (7,850)
Deemed dividend upon
issuance of convertible
preferred stock........ -- -- -- -- (285) -- (4,110)
------- ------- ------- -------- -------- ------- --------
Net loss attributable to
common stockholders.... $(6,071) $(6,716) $(7,163) $(10,373) $(12,803) $(6,434) $(11,960)
======= ======= ======= ======== ======== ======= ========
Basic and diluted net
loss per common share.. $(58.03) $(58.47) $(21.37) $ (16.48) $ (13.54) $ (8.09) $ (3.97)
======= ======= ======= ======== ======== ======= ========
Shares used in
computation of basic
and diluted net loss
per common share....... 105 115 335 630 946 795 3,009
======= ======= ======= ======== ======== ======= ========
Pro forma basic and
diluted net loss per
share.................. $ (1.07) $ (0.75)
======== ========
Pro forma shares used in
computation of basic
and diluted net loss
per share (1).......... 11,963 16,008
======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, June
-------------------------------------- 30,
1995 1996 1997 1998 1999 2000
------- ------ ------ ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
short-term investments........ $ 116 $3,397 $8,223 $ 9,930 $13,813 $55,978
Working capital................ (4,711) 2,692 7,471 6,465 9,738 51,971
Total assets................... 1,429 4,840 9,910 12,038 17,375 61,267
Long-term obligations, less
current portion............... 496 171 -- 531 2,799 2,266
Total stockholders' equity
(deficit)..................... (4,209) 3,598 8,306 2,779 5,569 48,576
</TABLE>
-------
(1) See Note 8 of notes to financial statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the "Selected Financial Data" and the accompanying financial statements and the
related notes appearing elsewhere in this prospectus.
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 recognized revenues of
$8.8 million since inception. 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.
Kirin Brewery Co., Ltd ("Kirin") is our collaborator for the marketing and
development of our vaccines in Asia. Under our agreements with Kirin, we have
received $10.1 million in license fees, option fees and funding to support our
collaborative research efforts, of which we have recognized $5.0 million
through June 30, 2000.
Results of Operations
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 our agreements 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 ended June 30, 2000 in research and development
expenses resulted primarily from an increase of $693,000 in personnel related
costs, a $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 ended 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.
21
<PAGE>
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 was related to a withholding tax assessed by Japan on certain
payments we 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.
Years Ended December 31, 1999 and 1998
Revenue. Revenue increased approximately 329%, from $866,000 in 1998 to $3.7
million in 1999. Revenue in 1998 consisted of $629,000 from collaborative and
license agreements and $237,000 of grant revenue. The year to year increase was
primarily due to a $3.0 million increase in revenue related to agreements we
entered into with Kirin. Revenue in 1999 consisted of $3.5 million from
collaborative and license agreements and $261,000 of grant revenue.
Research and Development Expenses. Research and development expenses
increased approximately 27%, from $8.1 million in 1998 to $10.2 million in
1999. Of the $2.1 million increase in research and development expenses from
1998 to 1999, $1.9 million was due to facilities and depreciation expense,
$354,000 was due to non-cash stock-based compensation, $280,000 was due to
supplies and $112,000 was due to product development expenses, including fees
paid to third parties associated with conducting clinical trials offset by a
decrease in salaries and personnel related costs of $469,000.
General and Administrative Expenses. General and administrative expenses
increased approximately 111%, from $2.9 million in 1998 to $6.1 million in
1999. Of the $3.2 million increase in general and administrative expenses from
1998 to 1999, $1.3 million was due to facilities and depreciation expenses,
$1.1 million was due to salaries and other personnel related expenses, $523,000
was due to professional fees and $341,000 was due to non-cash based stock
compensation.
Interest Income. Interest income increased approximately 15%, from $361,000
in 1998 to $414,000 in 1999. This was attributable to higher average balances
of cash, cash equivalents and short-term investments.
Interest Expense. Interest expense increased approximately 756%, from
$41,000 in 1998 to $351,000 in 1999. This was attributable to interest expense
associated with a loan we obtained in June 1999.
Income Tax Expense. Income tax expense was $600,000 in 1998 and relates to a
withholding tax assessed by Japan on certain payments received from Kirin. Due
to operating losses and the inability to recognize the benefits therefrom,
there was no provision for income taxes in 1999.
Years Ended December 31, 1998 and 1997
Revenue. Revenue increased approximately 9% from $793,000 in 1997 to
$866,000 in 1998. This increase was due to $100,000 in revenue related to the
collaborative license agreement entered into with Kirin in 1998.
Research and Development Expenses. Research and development expenses
increased approximately 52%, from $5.3 million in 1997 to $8.1 million in 1998.
Of the $2.8 million increase in research and development expenses from 1997 to
1998, $1.8 million was due to salaries and other personnel related costs,
$429,000 was due to product development expenses, including fees paid to third
parties associated with conducting clinical trials, $110,000 was due facilities
and depreciation expenses and $97,000 was due to non-cash stock-based
compensation.
General and Administrative Expenses. General and administrative expenses
were $2.9 million in 1997 and 1998.
22
<PAGE>
Interest Income. Interest income increased approximately 35%, from $267,000
in 1997 to $361,000 in 1998. This was attributable to higher average balances
of cash, cash equivalents and short-term investments.
Interest Expense. Interest expense decreased approximately 13%, from $47,000
in 1997 to $41,000 in 1998.
Income Tax Expense. Income tax expense was $600,000 in 1998 and relates to a
withholding tax assessed by Japan on certain payments received from Kirin. Due
to operating losses and the inability to recognize the benefits therefrom,
there was no provision for income taxes in 1999.
Revenue Recognition
We recognize revenue from research and development collaboration agreements
as earned upon achievement of the performance requirements of the agreements.
Payments that are received related to future performance are deferred and
recognized as revenue as the performance requirements are achieved. We defer
non-refundable, upfront payments received in connection with collaborative
research and development agreements and recognize them on a straight-line basis
over the relevant periods specified in the agreement, generally the research
term. We recognize revenue related to grant agreements as we incur related
research and development expenses. As of June 30, 2000, we had deferred
revenues of approximately $6.2 million.
Net Operating Loss Carryforwards
At December 31, 1999, we had net operating loss carryforwards of
approximately $28.5 million to offset any future federal and state taxable
income. If not utilized, the tax net operating loss carryforwards will expire
at various dates beginning in 2009 through 2012. We also had research and
development tax credit carryforwards at December 31, 1999, of approximately
$1.2 million for federal income tax purposes. Utilization of the net operating
losses and credits may be subject to a substantial annual limitation due to the
change in the ownership provisions of the Internal Revenue Code of 1986, as
amended, and similar state provisions. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
Stock-Based Compensation Expense
Stock-based compensation expense consists of the amortization of deferred
stock-based compensation resulting from the grant of stock options at exercise
prices subsequently deemed to be less than the fair value of the common stock
on the grant date. We recorded total deferred stock-based compensation of
$589,000 in 1998, $2.1 million in 1999 and $3.1 million for the six months
ended June 30, 2000. We initially recorded these amounts as a component of
stockholders' equity and are amortizing them by charges to operations over the
vesting period of the options using the graded vesting method. We recorded
amortization of deferred stock-based compensation of $149,000 in 1998, $844,000
in 1999 and $1.1 million for the six months ended June 30, 2000. Including the
deferred stock-based compensation associated with options granted during the
six months ended June 30, 2000, we expect amortization of deferred stock-based
compensation expense to be $2.4 million in 2000, $1.4 million in 2001, $749,000
in 2002, $277,000 in 2003 and $15,000 in 2004.
Deemed Dividend Upon Issuance of Convertible Preferred Stock
We recorded a deemed dividend of $285,000 in 1999 and $4.1 million for the
six months ended June 30, 2000 for the issuance of Series E convertible
preferred stock. The incremental fair value determined on the date of issuance
for each closing of Series E convertible preferred stock is deemed to be the
equivalent of a preferred stock dividend. We recorded the deemed dividend at
the date of issuance by offsetting charges and credits to additional paid-in
capital, without any effect on total stockholders' equity. The amount increased
the loss attributable to common stockholders in the calculation of basic net
loss per share for 1999 and for the six months ended June 30, 2000.
23
<PAGE>
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments were $56.0 million at June
30, 2000 and $13.8 million at December 31, 1999. 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 July 2000. 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 $4.3 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, we used $7.2
million of net cash in our 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 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. On June 21, 2000, we sold Kirin 500,000 shares of our common stock in a
private placement at $10.00 per share.
We anticipate that the net proceeds from this offering, 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 when we need them, we may be required to delay,
reduce or eliminate some or all of our development programs and some or all of
our clinical trials. We also may be forced to license technologies to others
that we would prefer to develop internally.
Year 2000 Compliance
The impact of the Year 2000 on our technology systems to date has been
insignificant. We have obtained documentation from third party vendors as to
their Year 2000 compliance testing and recommendations. To date, we have not
experienced any significant impact on our operations as a result of Year 2000
issues with our
24
<PAGE>
third party vendors. The total cost of our Year 2000 remediation effort has not
been material and is not expected to be material in future periods.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101). SAB 101 is based upon existing accounting rules and provided specific
guidance on how those accounting rules should be applied and specifically
addresses revenue recognition for non-refundable technology access fees in the
biotechnology industry. SAB 101 is effective for fiscal years beginning after
December 15, 1999. We do not expect that SAB 101 will have a material impact on
our financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which will be
effective for the year ending 2001. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. We
believe the adoption of SFAS 133 will not have a material effect on our
financial statements, since we currently do not hold derivative instruments or
engage in hedging activities.
Quantitative and Qualitative 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 loan and
capital lease obligations are all at fixed interest rates and therefore have
minimal exposure to changes in interest rates.
25
<PAGE>
BUSINESS
Overview
We discover and develop therapeutic vaccines that stimulate a patient's
immunity for the treatment of cancer. Our most advanced product candidate,
Provenge, is a therapeutic vaccine for the treatment of prostate cancer, and is
in Phase III clinical trials. We are also conducting Phase II clinical trials
for Mylovenge, our therapeutic vaccine for the treatment of multiple myeloma.
We have three additional therapeutic vaccines in preclinical development for
the treatment of common malignancies, including breast, colorectal, lung and
ovarian/uterine cancers. We combine our expertise in immunology and antigen
engineering, or modification, with our proprietary cell separation technologies
to develop therapeutic vaccines that stimulate cancer-fighting cells, a process
called cell-mediated immunity. We believe this is the key to eliminating
cancer. We also intend to pursue the application of our technologies in the
fields of autoimmune diseases, allergies and infectious diseases.
Industry Background
Prevalence of Cancer in the United States
The American Cancer Society estimates that doctors will diagnose
approximately 1.2 million new cases of cancer in the United States in 2000.
Cancer, the second leading cause of death in the United States, will result in
an estimated 552,000 deaths in 2000. Several of the most common cancers and
selected information regarding them are presented as follows:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Type of Cancer Prevalence(1) New Cases(1) Deaths(1)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Breast................................. 1,081,000 184,000 41,000
Prostate............................... 1,002,000 180,000 32,000
Colorectal............................. 425,000 130,000 56,000
Lung................................... 187,000 164,000 157,000
B-cell Malignancies(2)................. N/A 76,000 39,000
Ovarian/Uterine........................ N/A 72,000 25,000
Bladder................................ N/A 53,000 12,000
Pancreatic............................. N/A 28,000 28,000
</TABLE>
--------------------------------------------------------------------------------
(1) Projections for 2000 from the American Cancer Society and industry
sources for the United States.
(2) Cancers of the blood, known as B-cell malignancies, include multiple
myeloma, Non-Hodgkin lymphoma and Hodgkin's lymphoma.
N/A is not available.
Current Cancer Therapies
Cancer is characterized by abnormal cells that proliferate uncontrollably
and metastasize, or spread, throughout the body, producing deposits of tumor
cells, called metastases. These proliferating cells form masses called tumors.
As the tumors grow, they cause tissue and organ failure and ultimately death.
To be effective, therapy must eliminate the cancer both at its site of
origin and at sites of metastases. Metastatic disease is often responsible for
the relapse and ultimate death of patients with cancer. Current treatments for
cancer include surgery, radiation, hormone therapy and chemotherapy. Surgery
and radiation therapy treat cancer at its origin but are limited because
certain tissues cannot be removed surgically and/or do not tolerate radiation.
Moreover, cancers frequently spread prior to detection, and surgery and
radiation cannot control metastases. Chemotherapy and hormone therapy are used
to treat tumor metastases. However, these therapies cause severe damage to
normal tissue. Additionally, chemotherapy and hormone therapy may shrink tumors
but rarely eliminate them completely.
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<PAGE>
Treatments known as immunotherapy stimulate the body's natural mechanism for
fighting disease and may overcome many of the limitations of current cancer
therapies. Immunotherapy may be particularly useful for the treatment of
residual disease.
The Immune System
Tumor Antigens. The immune system, the body's natural defense against
disease, is composed of a variety of specialized cells. These cells recognize
specific chemical structures, called antigens, that are found on disease-
causing agents. Antigens trigger an immune response, characterized by the
proliferation of immune system cells and the eventual removal of antigen from
the body.
Dendritic Cells. A specialized class of immune system cells, called
dendritic cells, starts the immune response. Dendritic cells bind and take up
antigen from their surroundings and process the antigen into fragments that are
recognized by specific classes of immune cells, called lymphocytes. During this
antigen processing, dendritic cells mature enabling them to present the
processed antigen to lymphocytes. Lymphocytes proliferate in response to their
interaction with dendritic cells and eliminate the disease-causing agent. There
are two main categories of lymphocytes: B-lymphocytes, or B-cells, and T-
lymphocytes, or T-cells. Each category of lymphocytes has a different role in
the immune response. T-cells combat disease by killing antigen bearing cells
directly. In this way, T-cells eliminate cancers and virally infected tissue.
T-cell immunity is also known as cell-mediated immunity and commonly is thought
to be the body's key defense against tumors and cells chronically infected by
viruses. In contrast, activation of B-cells leads to the production of specific
antibodies, which are primarily involved in preventing infectious disease.
Cancer Vaccines. The immune system recognizes and generates a strong
response to hundreds of thousands of different antigens introduced from the
environment. Tumors, however, frequently display antigens that are also found
on normal cells. Thus, the immune system may not distinguish between tumors and
normal cells and, therefore, may be unable to mount a strong anti-cancer
response. Tumors may also actively prevent dentritic cells from becoming
mature, thereby preventing full activation of the immune system. Thus, we
believe the key to directing the immune system to fight cancers is to modify,
or engineer, tumor antigens so that they are recognized by the immune system
and to manipulate dendritic cells to stimulate a vigorous cell-mediated
immunity.
Our Therapeutic Cancer Vaccine Approach
We combine our expertise in antigen identification, antigen engineering and
dendritic cell processing to produce immunotherapeutic vaccines. Our ability
both to manipulate dendritic cells and to engineer antigens allows us to
develop vaccines that are designed to generate effective cell-mediated immune
responses. We have vaccines in development for eight common cancers. Our
approach to therapeutic cancer vaccines is to:
. identify antigens on cancer cells which are suitable targets for cancer
therapy;
. create proprietary, genetically engineered, Antigen Delivery
Cassettes(TM) that will be optimally processed by dendritic cells;
. isolate and activate dendritic cells using proprietary methods; and
. create cancer vaccines that combine dendritic cells and engineered
antigens to trigger cell-mediated immunity to destroy tumors.
Antigen Identification
Our objective is to identify antigens associated with as broad a population
of cancers as possible. We obtain antigens from several sources: our internal
discovery programs, public databases of genetic information and licenses from
third parties. Our internal antigen discovery programs begin by identifying
novel genes expressed in specific tissues or in malignant cells. We then
evaluate the expression of these genes in normal
27
<PAGE>
versus diseased tissue. We consider the genes that we find localized in
diseased tissue as candidates for antigen engineering. Likewise, we also
consider genes from external sources that meet these criteria. To date, we have
identified genes for 39 antigens that meet these criteria and have incorporated
five of these antigens into our therapeutic vaccines for eight common cancers.
Antigen Engineering
We engineer antigens to produce proprietary therapeutic vaccines for
multiple cancers as well as other diseases. We designed antigen engineering to
trigger and maximize cell-mediated immunity by augmenting the uptake and
processing of the target antigen by the dendritic cell. We can affect the
quality and quantity of the immune response that is generated by adding,
deleting or modifying selected sequences of the antigen gene, together with
inserting the modified antigen into our Antigen Delivery Cassette.
Our Antigen Delivery Cassette is a protein that has three regions: the
region that enhances antigen binding and entry into dendritic cells; the region
that directs antigen processing along specific pathways for T-cell activation;
and the antigen itself. The Antigen Delivery Cassette targets each engineered
antigen to dendritic cells and provides a common key to unlock the potential to
process antigen.
Antigen Delivery Cassette(TM)
Image:
The title of the image is "Antigen Delivery Cassette". The image consists of
three regions labeled "Antigen," "Antigen Processing Region" and "Dendritic
Cell Binding Region."
The dendritic cell binding region is common to all of our Antigen Delivery
Cassettes and has the capability to recognize the dendritic cell and bind the
cassette to the dendritic cell surface. Binding stimulates the dendritic cell
to engulf the cassette. The antigen processing region then directs dendritic
cells to process antigen along pathways that stimulate cell-medicated immunity.
The antigen region of the Antigen Delivery Cassette thus gains access to
processing by the dendritic cell, which would otherwise be denied to
non-engineered antigen. We believe this process results in a potent cell-
mediated immune response.
Our Antigen Delivery Cassette technology provides us with a foundation on
which new proprietary antigens are built. We have synthesized Antigen Delivery
Cassettes for 14 different tumor targets and have identified more than 25
additional targets potentially suitable for engineering. An example of our
antigen engineering approach is the antigen HER2 used for production of
APC8024, our therapeutic vaccine for the treatment of breast, ovarian,
colorectal and pancreatic cancer. The gene encoding a protein called HER2 is
known to be associated with these cancers. Because HER2 is poorly recognized as
an antigen by the immune system, we created a series of Antigen Delivery
Cassettes, each with a distinct version of the modified HER2 gene sequence. We
then tested each of these cassettes in preclinical models and identified and
incorporated into our vaccine the one that generated the most potent cell-
mediated immune response and was most potent for treating cancer in animals.
Dendritic Cell Processing and Vaccine Production
Our vaccine manufacturing process incorporates two elements: the Antigen
Delivery Cassette and dendritic cells isolated from blood. To obtain dendritic
cells, we first remove white blood cells from a patient's blood
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<PAGE>
through a standard blood collection process called leukapheresis. Dendritic
cells are then separated from other white blood cells using our proprietary
cell separation devices. Our process separates dendritic cells from tumors,
which may suppress dendritic cell function, and thereby allows dendritic cells
to become fully mature and activated.
We incubate the dendritic cells with the appropriate Antigen Delivery
Cassette under controlled conditions in which we have optimized conditions,
including concentration of the Antigen Delivery Cassette and dendritic cell
numbers. After 40 hours, the dendritic cells are optimally activated and are
ready to be used as a vaccine. We subject each vaccine to quality control
testing, including purity, potency and sterility testing. Our process requires
less than three days from white blood cell collection to vaccine
administration.
Vaccine Delivery
Our vaccines are delivered as a 30-minute intravenous infusion given as an
outpatient procedure. A single vaccine infusion is sufficient to stimulate
cell-mediated immunity to the target antigen. Our clinical trials indicate that
maximum stimulation requires three infusions given at two-week intervals.
Patients in our trials typically complete a course of therapy in one month.
Benefits of Our Approach
Our therapeutic vaccine approach may offer novel treatment alternatives for
cancers that are inadequately addressed. Benefits of our therapeutic vaccines
may include:
. Vigorous stimulation of cell-mediated immunity: The results of our
clinical trials to date have demonstrated that our vaccines have the
potential to produce cell-mediated immunity, the body's key defense
against cancer. For example, in our Phase I and Phase II prostate cancer
trials, Provenge stimulated cell-mediated immunity in all 70 patients
tested. In these trials, we observed a significant correlation between
the strength of the cell-mediated immunity and clinical benefit.
. Minimal side effects: Our vaccines specifically target cancerous cells
and have been very well tolerated. In over 400 doses of our vaccines
given to 180 patients, less than two percent of the infusions resulted
in any significant side effects.
. Applicability to a wide variety of cancers: Our antigen identification,
antigen engineering and dendritic cell technologies enable us to create
proprietary vaccines for the potential treatment of a wide variety of
cancers. Our efforts to date have led to the identification of numerous
product candidates, including our five most advanced therapeutic
vaccines for the treatment of many common cancers.
. Single vaccine can treat multiple cancers: We identify novel antigens
that are shared by multiple types of cancer. We believe this approach
will allow us to develop single vaccines for the treatment of several
different tumors. For example, our vaccines target antigens common to
the following cancers:
<TABLE>
<CAPTION>
Cancers Our Vaccines That Address Multiple Cancers
-------------------------------------------------------------
APC8024 APC80NY APC80TR
----------------------------------------------
<S> <C> <C> <C>
Breast X X X
Prostate X X X
Colorectal X X
Lung X X
Ovarian/Uterine X X
Bladder X
Pancreatic X
</TABLE>
29
<PAGE>
. Access broad patient population: We employ a single, well-characterized,
genetically engineered antigen for each therapeutic vaccine. We select
antigens that are present on a significant percentage of cancer patients'
tumors. For example, our prostate cancer vaccine antigen is found on
approximately 95% of prostate cancers. This approach eliminates the need
to extract an individual patient's tumor as a source of antigen. As a
result, we believe our vaccines are applicable to a broad patient
population.
. Cost-effective cGMP manufacturing process: We have developed a
manufacturing process that employs our proprietary cell separation
systems and produces vaccines on a cost-effective basis. We have
standardized processes that enable us to establish cGMP-compliant cell
processing facilities worldwide, which would be required for wide scale
adoption of our vaccines.
. Simple, convenient therapy: Our treatment protocol employs techniques
that are standard in blood banking and transfusion medicine. Patients
undergo routine white blood cell collection and subsequently receive our
vaccines through a 30-minute, out-patient infusion. Patients in our
trials typically complete a course of treatment in one month.
Strategy
Our goal is to become a leader in the development and commercialization of
therapeutic products that stimulate or heighten a patient's immunity for the
treatment of cancer, autoimmune diseases, allergies and infectious diseases.
Key elements of our strategy include the following:
Maximize Speed to Market of Lead Therapeutic Vaccine. We are focused on
bringing our prostate cancer vaccine, Provenge, to market. We devote
considerable corporate resources to the development of this vaccine.
Build a Large and Diverse Product Portfolio. Our internal development
efforts will continue to focus on utilizing our proprietary antigen
identification and engineering capabilities to expand our cancer vaccine and
therapeutic antibody product portfolio. In addition, we intend to accelerate
the development of a broader product portfolio by licensing or acquiring
complementary technologies, patents and product candidates. We have entered
into an agreement with The R.W. Johnson Pharmaceutical Research Institute, a
member of the Johnson & Johnson family of companies, 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.
Retain Key Commercialization Rights. We intend to retain commercialization
rights to our oncology products in the United States. Due to the concentrated
distribution channels for the United States oncology market, we plan to develop
a direct sales force to market our cancer vaccines in the United States.
Collaborate in Markets Outside of the United States. We believe
collaborations with established pharmaceutical companies will enable us to best
achieve the commercial potential of our products in markets outside the United
States, specifically in Asia and Europe. We have formed an alliance for the
Asian markets with Kirin, a significant marketer of immunological products in
Asia. Kirin has exclusive marketing rights in Asia for Provenge and Mylovenge,
as well as an option to acquire exclusive marketing rights in Asia for our
other dendritic cell products. We also intend to establish a strategic
collaboration for our products in Europe.
Extend Our Technologies into Autoimmune Diseases, Allergies and Infectious
Diseases. Our therapeutic vaccine technology has potential applications in
areas beyond cancer. We intend to pursue the application of our technologies in
the fields of autoimmune diseases, allergies and infectious diseases. In these
areas, we plan to establish strategic collaborations for clinical development
and commercialization.
Leverage Our Proprietary Technologies. To obtain value for our proprietary
cell separation technology beyond our areas of interest, we plan to enter into
arrangements that allow our technology to be used by others in exchange for
fees and royalties. To date, we have entered into agreements with
BioTransplant, Inc., Osiris Therapeutics, Inc. and Charter Medical, Ltd.
30
<PAGE>
Products
The following table summarizes the target indications and status of our
product development programs:
OUR PRODUCTS AND PRODUCTS IN DEVELOPMENT
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Product Target Indication(s) Status(1)
---------------------------- --------------------------------- -----------------------------
<C> <S> <C>
Therapeutic Vaccine Products
Provenge(TM) Prostate cancer Phase III
Mylovenge(TM) Multiple myeloma Phase II
Amyloidosis
Other B-cell malignancies
APC8024 Breast cancer Preclinical; Phase I clinical
Prostate cancer trials expected to
Colorectal cancer commence in 2000
Ovarian/Uterine cancer
Pancreatic cancer
APC80NY Breast cancer Preclinical; Phase I clinical
Prostate cancer trials expected to
Lung cancer commence in 2001
Ovarian/Uterine cancer
Bladder cancer
APC80TR Breast cancer Preclinical
Prostate cancer
Colorectal cancer
Lung cancer
Therapeutic Antibody
Products
Danton(TM) (DN1924) Non-Hodgkin lymphoma Preclinical
Hodgkin's lymphoma
B-cell leukemias
Dantes(TM) (DN1921) Autoimmune diseases, including Preclinical
rheumatoid arthritis
Cell Separation Products
DACS(R)SC Kit Blood stem cell preparation for FDA Approved
transplantation
</TABLE>
(1) Preclinical means that a product is undergoing efficacy and safety
evaluation in disease models in preparation for human clinical trials.
Phase I-III clinical trials denote safety and efficacy tests in humans as
follows:
Phase I: Evaluation of safety and dosing.
Phase II: Evaluation of safety and efficacy.
Phase III: Larger scale evaluation of safety and efficacy.
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<PAGE>
Therapeutic Vaccine Products
Provenge for Prostate Cancer
There is currently no treatment that improves long-term survival of patients
with metastatic prostate cancer. We have completed five Phase I and Phase II
clinical trials of Provenge in 78 patients with metastatic prostate cancer that
is resistant to hormone therapy, the standard treatment for this condition.
These trials suggest that Provenge is safe and may be effective in treating
these patients. We began two separate Phase III clinical trials of Provenge in
January 2000 and April 2000.
Vaccine Description. We are developing Provenge, our most advanced vaccine
product candidate, for treatment of prostate cancer. The antigen component of
Provenge is derived from the gene encoding a marker for prostate cancer,
prostatic acid phosphatase, which is found in approximately 95% of prostate
cancers. We have subjected prostatic acid phosphatase to our antigen
engineering process and have created a proprietary Antigen Delivery Cassette.
Target Market. Prostate cancer is the most common solid tumor malignancy in
men in the United States, with over one million currently diagnosed with the
disease. The American Cancer Society expects an estimated 180,000 new cases and
32,000 deaths in the United States in 2000. The five-year survival rate for
patients with prostate cancer resistant to standard treatment is less than 30%.
Current Treatment. Prostate cancer is treated initially with surgery or
radiation therapy, but a substantial percentage of patients will develop
metastases after local therapy with surgery or radiation. Hormone therapy is
standard treatment for metastatic prostate cancer and achieves temporary tumor
control or regression in approximately 80% to 85% of patients. However, hormone
therapy causes serious side effects, including impotence and osteoporosis. In
addition, within two years the cancer usually grows, a condition called hormone
refractory prostate cancer, or HRPC. Half of the patients with HRPC will die
within 12 to 18 months of the onset of HRPC. Currently, the only FDA approved
treatments for HRPC are chemotherapy and radiopharmaceuticals, which can
alleviate cancer-related symptoms but cause severe side effects and do not
prolong survival. Most men have no symptoms when first diagnosed with HRPC. We
believe there is a need for new treatments that control prostate cancer without
the side effects of current treatments.
Vaccine Development. We have initiated two double-blind, placebo-controlled
Phase III clinical trials that are designed to demonstrate that Provenge is
safe and effective for treating HRPC. The trials will determine if Provenge
delays disease progression and its associated pain. Patients are eligible for
the trials if they have HRPC and do not have cancer-related symptoms, such as
pain. We anticipate that the initial results from these trials will be
available by the end of 2001.
We treated 31 patients with Provenge in Phase I and Phase II clinical trials
that were performed in collaboration with clinical investigators at the
University of California, San Francisco. All patients had advanced prostate
cancer that was resistant to hormone therapy. We treated twelve of these
patients in the Phase I dose ranging study. Nineteen patients participated in
the Phase II trial and received three infusions of Provenge, at a full
therapeutic dose. Based upon historical data, we would have expected that 50%
of untreated patients at a similar stage of disease as the 19 patients treated
in the Phase II trial would have experienced disease progression at 12 weeks,
75% at 30 weeks, and 90% at one year. In our trials, we observed a significant
decrease in the rate of progression of the disease. At 28 weeks, 10 patients,
or 53%, had stabilized; five patients, or 26%, were stable for greater than one
year. Among those patients experiencing side effects, the most common side
effects of the treatment were low grade fever and minor muscle aches. In
addition, less than two percent of Provenge infusions were associated with
clinically significant side effects. This trial suggests that Provenge is safe
and may be effective for the treatment of HRPC.
In a dose-ranging study, we treated 29 patients in sequential Phase I and
Phase II clinical trials that were performed in collaboration with clinical
investigators at the Mayo Clinic. This trial tested the effectiveness of two
doses of Provenge followed by injections of the prostate antigen alone for
treatment of men with HRPC.
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All patients had advanced prostate cancer and most had cancer-related pain
symptoms. Provenge treatment resulted in decreased levels of prostate specific
antigen, or PSA, a marker of disease status, in six of the 29 patients. One of
these patients had widespread metastases in his lymph nodes. After Provenge
treatment, this patient experienced a complete remission that has lasted for
more than 12 months. Most patients in this trial did not experience any side
effects from our treatment.
We are also performing a Phase I trial of different doses of Provenge for
the treatment of HRPC to support a regulatory filing in Asia. The trial is
being performed in collaboration with clinical investigators at the National
Cancer Center Hospital in Tokyo, Japan and investigators at Kirin. Treatment so
far has been shown to be safe, with low grade fevers being the only side
effect. One of the first four patients who completed treatment has experienced
a partial remission, as evidenced by greater than 50% decrease in tumor masses
detected by computerized axial tomography, or CT scans.
In addition to the treatment of HRPC, based on our clinical trials to date,
we believe that Provenge may also be effective for treatment of earlier stage
patients who have a low number tumor cells. In 1999, we began a Phase II
clinical trial of Provenge for treatment of men with relapsed prostate cancer
who have not received hormone therapy. This trial, which is being performed at
University of California, San Francisco, is designed to assess the
effectiveness of Provenge for treatment of newly relapsed prostate cancer. We
plan to design a second trial of Provenge to treat men with newly diagnosed
prostate cancer. These men will first undergo surgery to remove the tumor in
the prostate and then receive Provenge in an effort to eliminate residual
disease and metastases and thereby prevent recurrence. These two trials are
intended to provide further evidence of Provenge's effectiveness and, if
successfully completed, will be the basis for future Phase III trials that
would seek expanded labeling indications for this product, if approved.
Mylovenge for B-cell Malignancies: Multiple Myeloma and Amyloidosis
Existing therapies for multiple myeloma, a cancer of the blood, amyloidosis,
a complication of multiple myeloma, and other cancers of B-lymphocytes, or B-
cells, are usually not curative and cause severe side effects. We are
conducting two Phase II clinical trials of our therapeutic vaccine for multiple
myeloma and amyloidosis. In these trials, 31 of 58 patients with multiple
myeloma that was resistant to standard therapy benefitted from Mylovenge
therapy as demonstrated by major tumor reductions or disease stabilization for
six months or longer.
Vaccine Description. Mylovenge is our vaccine for treatment of multiple
myeloma, amyloidosis and other B-cell malignancies. In contrast to our other
vaccines, Mylovenge utilizes a patient-specific antigen, called M protein, a
unique immunoglobulin, or antibody, produced by a patient's tumor. We obtain M
protein by collecting a sample of a patient's blood.
Target Market. Multiple myeloma accounts for approximately 10% of cancers of
the blood. The American Cancer Society estimates that in 2000, 13,600
individuals in the United States will be diagnosed with multiple myeloma and
over 11,000 individuals will die from the disease. Amyloidosis is a disease
related to multiple myeloma, in which plasma cells produce an immunoglobulin
that accumulates in normal tissues including the heart, liver, kidneys and
nerves. The immunoglobulin deposits increase continually and eventually disrupt
normal organ functions, resulting in death from organ failure. Amyloidosis
afflicts approximately 2,500 individuals in the United States annually and is
fatal in most cases.
Current Treatment. Unlike most cancers that metastasize over time, multiple
myeloma is typically metastatic at the time of diagnosis. Chemotherapy is the
standard initial treatment for this disease. A number of chemotherapy drugs
cause a reduction in the volume of myeloma. However, standard doses of
chemotherapy rarely induce complete disappearance of myeloma even temporarily
and do not prolong survival. High dose chemotherapy with autologous stem cell
rescue, a type of bone marrow transplant, appears to prolong survival and is
rapidly becoming standard treatment. This approach, however, causes significant
adverse side effects and
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does not cure patients. We believe these patients, however, are excellent
candidates for immunotherapy because of low levels of residual cancer cells
located in the bone marrow.
Doctors treat amyloidosis with chemotherapy, but patients often have severe
side effects because of pre-existing organ damage due to the immunoglobulin
deposits. The goal of treatment is to stabilize the patient's condition, since
improvement of organ damage is rare even after aggressive therapy.
Vaccine Development. We are currently conducting a Phase II clinical trial
of Mylovenge, in collaboration with the Mayo Clinic, for treatment of patients
who have residual myeloma after high dose chemotherapy and stem cell
transplant. These patients have advanced resistant disease but have a low
number of tumor cells. We use M protein in the blood to monitor the patients'
condition--the lower the level of M protein, the lower the number of remaining
tumor cells. We plan to treat 30 patients in this trial and 15 have completed
treatment so far. Among the 15 patients, eight, or 53%, had major tumor
reductions. Four of these eight patients had complete disappearance of M
protein from the blood; the other four had a greater than 50% reduction. We
examined the bone marrow of three patients whose M protein disappeared from the
blood and in each case the tumor had also disappeared from the marrow. To date,
two of these patients underwent the most sensitive test known for detecting
myeloma, polymerase chain reaction, also known as PCR, testing. This test was
negative for the presence of tumor in the marrow. We are in the process of
performing the test on the remaining patients. Of the seven remaining patients,
five have been stable for more than 28 weeks and two had disease progression
that occurred before 28 weeks after starting treatment. The treating physicians
did not report any side effects in this trial. The results of this trial
suggest that Mylovenge is safe and provide preliminary evidence that it may be
effective for treating multiple myeloma that is resistant to high dose
chemotherapy.
We are also conducting a Phase II clinical trial of Mylovenge in multiple
sites in the United States for treatment of patients with high numbers of tumor
cells that are resistant to standard therapy. Forty-three patients have
completed treatment in this trial to date. All of these patients had previously
failed standard chemotherapy and half of the patients had previously received
three or more different chemotherapy combinations. Seventeen of these patients
show signs of clinical benefit from our treatment. Of the 17 patients, five had
decreased M protein and 12 had stable M protein for at least 24 weeks after
beginning treatment. Fewer than two percent of Mylovenge infusions were
associated with serious side effects. We have extended this multicenter trial
to determine the efficacy of Mylovenge for treatment of patients with a low
number of tumor cells after stem cell transplantation. We anticipate beginning
an additional Phase II trial of Mylovenge for multiple myeloma patients who
have a low number of tumor cells after standard dose chemotherapy. If the
results of these trials continue to demonstrate favorable results, we
anticipate beginning Phase III trials of Mylovenge in 2001.
We have treated five patients with amyloidosis with Mylovenge, as part of
the Mayo Clinic multiple myeloma Phase II trial. Three of these patients have
shown evidence of significant clinical improvement even to damaged organs. None
of the patients had side effects from treatment. We are currently enrolling
additional amyloidosis patients in this trial.
APC8024 for Treatment of Multiple Cancers
Vaccine Description. APC8024 is our vaccine against tumors that have
increased levels of a protein called HER2 on their surface. We have identified
those portions of the HER2 molecule that stimulate the strongest cell-mediated
immune response and combined them with our Antigen Delivery Cassette. Our
preclinical studies indicate that our engineered antigen may be superior to
other HER2 antigens at stimulating cell-mediated immunity and prolonging
survival of tumor-bearing animals. As a result, we believe our vaccine approach
may be more effective than antibodies to HER2 in treating a variety of cancers.
Target Market. Many cancers, including approximately 25% of breast,
ovarian/uterine, pancreatic and colorectal cancers, have HER2 on their
surfaces. The American Cancer Society estimates that these four cancers will
account for 414,000 new cases and 150,000 deaths in the United States in 2000.
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Current Treatment. Breast cancer is the most common malignancy among women
in the United States. Screening with mammography has resulted in diagnosis of
many cancers before they have metastasized, when surgery and/or radiation
therapy is often curative. It is not possible to determine which tumors have
metastasized, however, and most women receive chemotherapy in an effort to
prevent recurrence. Breast cancer that has recurred after initial therapy is
fatal in nearly all cases, and treatment is directed toward prolonging survival
and alleviating symptoms. Many drugs are effective for shrinking tumors to a
level that is optimal for immunotherapy. In addition, the FDA has approved the
antibody Herceptin for treatment of breast cancers that have HER2 on their
surface. Herceptin is usually given in combination with chemotherapy in an
effort to alleviate symptoms and prolong survival. Treatment with Herceptin has
not been shown to be curative.
Ovarian cancer is a silent killer that usually grows undetected until it has
spread throughout the abdomen. After detection, women are treated with
extensive surgery followed by chemotherapy. This aggressive treatment
frequently reduces the number of tumor cells substantially but is not curative
for most patients. Once the cancer has recurred, the disease is usually fatal
within two years.
Pancreatic cancer grows in the abdomen undetected until it affects vital
organs, at which time surgery and radiation therapy are ineffective. More than
95% of patients with pancreatic cancer die of this disease. Chemotherapy, if
given, aims to control symptoms, but does not prolong survival.
Cancers involving the large intestine are called colorectal cancers. The FDA
has approved the immunotherapy drug Levamisole for prevention of recurrence of
colorectal cancer after initial surgery. Thus, colorectal cancer appears to be
sensitive to immunotherapy. Advanced colorectal cancer is resistant to
chemotherapy drugs and the only approved chemotherapy drugs simply alleviate
symptoms.
Vaccine Development. We are in the process of initiating two Phase I trials
to evaluate APC8024 for treatment of patients with tumors that have HER2 on
their surface. The two trials will examine different doses and schedules of
APC8024 for safety and ability to stimulate immunity. We expect to begin
enrolling patients in the first of these trials later this year. We plan to use
the results of these two trials, if successful, to select one treatment regimen
for Phase II trials that will examine the effectiveness of APC8024 for
treatment of specific cancers. We also expect to begin work this year under our
research collaboration and license agreement with The R.W. Johnson
Pharmaceutical Research Institute, which will include a Phase I clinical trial
evaluation of APC8024.
APC80NY for Treatment of Multiple Cancers
APC80NY targets the NY-ESO protein that is present on many cancers,
including breast, prostate, lung, ovarian/uterine and bladder. It is estimated
that these cancers will account for 654,000 new cases and 267,000 deaths in the
United States in 2000. We licensed the NY-ESO antigen from the Ludwig Cancer
Institute, where scientists performed a series of preclinical studies that
demonstrated NY-ESO is an excellent immunotherapy target present in a wide
variety of tumors. We are currently engineering the NY-ESO antigen into our
Antigen Delivery Cassette. This involves identifying those regions of the
molecule that stimulate the strongest cell-mediated immunity and then combining
those regions to yield a protein that is most effectively presented by
dendritic cells. We expect to complete preclinical studies and, if the results
are positive, begin Phase I clinical trials of APC80NY in 2001.
APC80TR for Treatment of Multiple Cancers
APC80TR targets the Trp-P8 antigen that is present on 100% of prostate
cancers and approximately 71% of breast cancers, 93% of colorectal cancers and
80% of lung cancers. Trp-P8 is the first antigen generated from our internal
antigen discovery program. We plan to engineer the Trp-P8 antigen into our
Antigen Delivery Cassette. We will identify the cassette that stimulates the
strongest cell-mediated immunity and use this protein for our vaccine, APC80TR.
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Therapeutic Antibody Products
Danton (DN1924) Antibody for Treatment of Cancer
Danton (DN1924) is our therapeutic antibody which targets a unique antigen
present on normal and malignant blood cells and causes death of only malignant
cells. Danton's target is present on numerous blood-borne tumors, such as
Hodgkin's lymphoma, Non-Hodgkin lymphoma, and B-cell leukemias. The American
Cancer Society estimates that these tumors will account for 84,000 new cases
and 43,500 deaths in the United States in 2000. Current treatment for these
cancers includes chemotherapy, radiation, and high dose chemotherapy with stem
cell transplantation, all of which are highly toxic and only curative in a
minority of cases. Preclinical studies suggest that Danton (DN1924) can kill
human cancer cells without apparent toxicity or immune suppressive side
effects. Furthermore, these preclinical studies suggest that cancer cells may
not develop resistance to this treatment over time.
Dantes (DN1921) Antibody for Treatment of Autoimmune Disease
Dantes (DN1921) is our therapeutic antibody that suppresses activities of
the immune system. Autoimmune diseases such as rheumatoid arthritis, systemic
lupus erythematosus, multiple sclerosis, myasthenia gravis and pemphigus
vulgaris, result from unwanted activities of the immune system. In the United
States, approximately 4.2 million people currently suffer from these diseases.
Current therapeutics include nonspecific immune suppression by corticosteroids,
methotrexate and other drugs. Although these treatments may reduce tissue
damage in some patients, they are not curative.
Dantes (DN1921) is specific for a well-known target for immunosuppression,
HLA-DR. Previously other companies have attempted to develop drugs that
targeted HLA-DR. Although those drugs were usually effective
immunosuppressants, they failed in preclinical studies due to unacceptable
toxicity. We have observed that immunosupression and toxicity are mediated by
two separate parts of the antibody molecule. We are developing Dantes (DN1921)
to take advantage of this observation. Dantes (DN1921) has shown significant
immunosuppressive abilities in our preclinical studies without producing
toxicity.
Additional Vaccine Products
We believe that our vaccine technologies have additional potential
applications that we will pursue in the fields of autoimmune diseases,
allergies and infectious diseases.
Autoimmune Diseases
Autoimmune diseases such as arthritis occur when immunoglobulins or T-cells
bind to self-antigens and damage the normal tissue. Our experience with
vaccines for treating immunoglobulin producing tumors such as multiple myeloma
suggests that our vaccine approach may be effective for treating autoimmune
diseases. Mylovenge directs the immune response to destroy cancerous cells that
produce a specific immunoglobulin, or M protein. We believe the same vaccine
approach may be used to direct the immune response to destroy non-cancerous
cells that produce disease-causing immunoglobulin. We believe that eliminating
these cells may be an effective way to treat patients with this disease. T-
cells have proteins on their surface that are similar to immunoglobulins and
that bind antigens causing autoimmune disease. We believe that our vaccine
approach may also be effective for stimulating the immune response to destroy
these T-cells.
Allergies
The trigger for an allergic reaction is the binding of an antigen such as
ragweed to an immunoglobulin. The resulting immune response is out of
proportion to the danger posed by the antigen and the excessive immune response
itself causes the disease. We believe that our therapeutic vaccine has the
potential to direct an immune response to destroy cells which produce allergy-
causing immunoglobulins.
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Infectious Diseases
In chronic viral infections like AIDS, herpes and Hepatitis C, the virus
resides inside the cells. Antibodies are generally not effective for treating
these infections because antibodies cannot reach the cell interior. T-cells, in
contrast, are effective for destroying cells that are infected by a virus. Most
vaccines stimulate antibody responses rather than T-cell responses. This may
explain why vaccines have not been effective in treating chronic viral
infections. In a pilot study of our therapeutic vaccine approach in patients
with AIDS, we prepared vaccines using dendritic cells from healthy siblings of
the patients. This pilot study suggests that our vaccines could stimulate a
strong, cell-mediated immune response to the AIDS virus.
Cell Separation Products
We have developed proprietary cell separation technology which can be
tailored for specific cell types. This technology consists of two components:
specially engineered separation containers, and solutions called buoyant
density solutions. We prepare our buoyant density solutions to match the
buoyant density of a particular cell type. By matching buoyant densities in
this manner, we are able to control whether or not a specific cell type floats
or sinks in the solution. This allows us to isolate the desired cells easily,
rapidly and without the need for the biological reagents used in conventional
cell separation techniques.
In 1996, we received a marketing authorization in the United States on a
family of our separation devices. In 1999, we obtained pre-marketing approval,
or a PMA, from the FDA for our DACS(R)SC kit and in July 2000, we granted
exclusive worldwide marketing and distribution rights to Charter Medical, Ltd.,
for this device. This product uses our cell separation technology to prepare
stem cells for transplantation following high dose chemotherapy, which is
standard therapy for many blood cell malignancies, such as multiple myeloma,
lymphoma and leukemias. Stem cells, sometimes called hematopoietic progenitor
cells, are collected from the blood before chemotherapy and infused afterwards
to restore the destroyed marrow.
We also use our cell separation technology to isolate dendritic cells for
our cancer vaccines. For cell types outside of our interests, we license our
technology to third parties. For example, we currently have agreements to allow
BioTransplant and Osiris to use our technology to isolate cells for their
products.
Collaborations
Kirin Brewery Co., Ltd.
Kirin is our collaborator for the marketing and development of our vaccines
in Asia. We have granted Kirin an exclusive license to our proprietary
dendritic cell technology for the development and commercialization of our
products in Japan and other Asian countries. We also granted Kirin an option to
obtain an exclusive license to commercialize in these countries other products
we develop with our dendritic cell technology. In exchange, Kirin has granted
us an option to obtain an exclusive license to commercialize in North America
any products developed by Kirin under this agreement.
Additionally, we conduct collaborative research with Kirin intended to
create improvements in our dendritic cell technology and to develop new
products. By agreement, Kirin will own all rights in these improvements and
will exclusively license them to us. We also supply Kirin with devices,
reagents and some of our proprietary antigens. Kirin, in turn, supplies us with
some of its proprietary antigens and other items. We and Kirin have also agreed
to collaborate in the clinical development and commercialization in the
European Union of novel products jointly developed under our agreements and to
share equally in any profits.
In connection with these agreements, Kirin has paid us an upfront license
fee of $5.0 million. In December 1998, Kirin exercised an option under the
agreement to receive rights to our prostate program for which Kirin paid us
$1.0 million and is obligated to pay us up to an additional $4.0 million in
fees and milestone payments. Kirin is solely responsible for the development
and clinical trials of the prostate program in Japan. We will also
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receive royalties on sales of any products in Japan that utilize the licensed
technology. In April 2000, Kirin exercised an option under the agreement to
receive rights to our multiple myeloma program for which Kirin paid us $1.0
million and is obligated to pay us up to an additional $4.0 million in fees and
milestone payments. Kirin is solely responsible for the development and
clinical trials of the multiple myeloma program in Japan. We will also receive
royalties on sales of products in Japan that utilize the licensed technology.
Additionally, Kirin is obligated to support our research efforts. We
received from Kirin $1.3 million for research funding in 1999 and Kirin is
obligated to pay $2.3 million in 2000. We are obligated to pay royalties to
Kirin on products that we sell in North America, developed by or in
collaboration with Kirin under these agreements. We and Kirin are also
obligated to pay for items supplied by the other party at the fully-burdened
manufacturing cost plus a handling fee. During 1999, we received $1.0 million
for antigens and cell processing devices supplied to Kirin under this
arrangement. Kirin has the right to terminate these agreements without cause on
90 days written notice after January 1, 2002. Pursuant to these agreements, in
February 2000, we exercised our right to have Kirin purchase $5.0 million of
our common stock in a private placement that closed simultaneous with the
completion of our initial public offering at the initial public offering price
of $10.00 per share.
The R.W. Johnson Pharmaceutical Research Institute
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.
Under the agreement, R.W. Johnson will pay us a study fee and a milestone
payment at the initiation of clinical trials under our Investigational New Drug
application, to be filed with the U.S. Food and Drug Administration, for
APC8024, our proprietary antigen activated dendritic cell product. The
agreement also provides in part that R.W. Johnson will fund the research plan
by paying us for our research effort. R.W. Johnson will receive exclusive
access to the work and its results and an exclusive right to negotiate with us
during the term of the agreement regarding further activities in the territory
and field covered by the agreement.
The agreement provides that during the course of this collaboration, we and
R.W. Johnson will endeavor to agree upon terms for future collaboration using
R.W. Johnson's and our respective separate and/or combined technologies. Work
under the agreement is scheduled to begin in 2000.
BioTransplant, Inc.
In August 1996, we entered into an agreement with BioTransplant under which
we granted them a ten-year exclusive license to use our proprietary cell
separation technology for use in combination with solid organ transplantation.
In return for this license, we received an up-front fee and will receive
royalties on sales. In addition, BioTransplant is obligated to annual minimum
purchase amounts and payments to maintain exclusivity. The term of the
agreement extends to 2006, but can be renewed by BioTransplant, on terms
acceptable to us, for two years.
Osiris Therapeutics, Inc.
In February 1997, we entered into an agreement with Osiris under which we
granted them a non-exclusive license to use our proprietary cell separation
technology for use in the separation of mesenchymal stem cells, those cells
from which bone, muscle and cartilage are derived. In return for this license,
we received fees and
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will receive royalties on sales. The term of the agreement extends to 2004 but
can be extended by Osiris, on terms acceptable to us, for two additional three-
year terms.
Charter Medical, Ltd.
In July 2000, we entered into an agreement with Charter Medical, Ltd., under
which we granted them exclusive worldwide distribution rights for our DACS SC
stem cell enrichment kit. Under this agreement, we will maintain manufacturing
rights and will sell units to Charter Medical for a transfer price. The initial
term of the agreement extends through 2003. The agreement extends automatically
for one year periods unless either party provides notice of termination at
least 90 days prior to the applicable expiration date.
Manufacturing
We manufacture the Antigen Delivery Cassettes used to conduct preclinical
and clinical trials. We manufacture our Antigen Delivery Cassettes as
recombinant proteins using standard production methods in compliance with cGMP.
We intend to rely on third party contract manufacturers to produce larger
quantities of Antigen Delivery Cassettes for product commercialization.
We own and operate cell-processing centers in Mountain View, California and
Seattle, Washington. In addition, we use three third-party dendritic cell-
processing centers operated in conjunction with the Mayo Clinic in Rochester,
Minnesota, Kirin in Tokyo, Japan and the American Red Cross in Philadelphia,
Pennsylvania. A fourth cell-processing center will be operated in conjunction
with Progenitor Cell Therapy in Hackensack, New Jersey, which we expect to open
in the fourth quarter of this year.
The use of our single-use, proprietary cell separation devices has enabled
us to perform dendritic cell processing in simple, well-controlled
manufacturing facilities. Our cell-processing centers take advantage of pre-
fabricated clean room technology used widely in the electronics industry. We
can assemble and validate a pre-fabricated clean room in 30 days. Accordingly,
we believe we can easily expand our cell-processing capacity.
We also manufacture cell separation devices that isolate cells from blood
and other bodily fluids. We rely on subcontractors to manufacture these devices
in full compliance with cGMP.
Marketing
We plan to market our products either directly or through co-marketing or
licensing agreements with established pharmaceutical companies. Due to the
concentrated distribution channels for the United States oncology market, we
plan to develop a direct sales force to market our cancer vaccines in the
United States. In market segments outside the United States and for products
with less concentrated distribution channels, like autoimmune diseases,
allergies and infectious diseases, we will seek strategic alliances with
leading pharmaceutical companies.
Intellectual Property
We protect our technology through United States and foreign patent filings,
trademarks and trade secrets. As of September 21, 2000, we had 60 United States
and foreign patents and had 177 patent applications pending. In addition, we
have licensed from others 67 issued patents or patent applications pending. Our
issued patents expire on dates from May 22, 2007 through January 14, 2018. In
addition, our issued and allowed patents include patents that are directed to
the solutions and devices by which cells can be isolated and manipulated,
including claims that apply specifically to the isolation of dendritic cells,
and claims on the use of these cells for immunotherapy, such as for the
treatment of diseases such as B-cell malignancies. We have also received claims
on treatment methods covering a variety of immunostimulatory antigen
compositions. These include our Antigen Delivery Cassette for use with a
variety of tumor antigens and specifically, the prostate antigen containing
cassette, for which we have independent patent protection. We intend to
continue using our
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scientific expertise to pursue and patent new developments with respect to
uses, compositions and factors to enhance our position in the cancer vaccine
field. Patents, if issued, may be challenged, invalidated or circumvented.
Thus, any patent that we own or license from third parties may not provide
adequate protection against competitors. Our pending patent applications, those
we may file in the future, or those we may license from third parties may not
result in issued patents. Also, patents may not provide us with adequate
proprietary protection or advantages against competitors with similar or
competing technologies. For example, we are aware of others that have had
patents issued to them in the dendritic cell field relating to methods to
isolate, culture or activate dendritic cells and relating to the treatment with
antigens of cancers such as prostate cancer. As a result of potential conflicts
with the proprietary rights of others, we may in the future have to prove we
are not infringing the patent rights of others or be required to obtain a
license to the patent. We do not know whether such a license would be available
on commercially reasonable terms, or at all.
We also rely on trade secrets and unpatentable know-how that we seek to
protect, in part, by confidentiality agreements. Our policy is to require our
officers, employees, consultants, contractors, manufacturers, outside
scientific collaborators and sponsored researchers and other advisors to
execute confidentiality agreements. These agreements provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with us be kept confidential and not
disclosed to third parties except in specific limited circumstances. We also
require signed confidentiality or material transfer agreements from companies
that are to receive our confidential data. In the case of employees,
consultants and contractors, confidentiality agreements with them generally
provide that all inventions conceived by the individual while rendering
services to us shall be assigned to us as our exclusive property. However, it
is possible that these parties may breach those agreements, and we may not have
adequate remedies for any breach. It is also possible that our trade secrets or
unpatentable know-how will otherwise become known or be independently developed
by competitors.
Competition
The biotechnology and biopharmaceutical industries are characterized by
rapidly advancing technologies, intense competition and a strong emphasis on
proprietary products. Many entities, including pharmaceutical and biotechnology
companies, academic institutions and other research organizations are actively
engaged in the discovery, research and development of products that could
compete directly with our products under development. Companies, including AVI
Biopharma, Inc., Cell Genesys, Inc., NW Biotherapeutics, Inc., Therion
Biologics Corporation and Vical Incorporated have disclosed that they are
developing cancer vaccines that may compete with Provenge. These competitors
may succeed in developing and marketing cancer vaccines that are more effective
than or marketed before Provenge. However, to our knowledge, we are the only
company that has begun Phase III clinical development of a therapeutic cancer
vaccine for prostate cancer.
Many companies, including major pharmaceutical companies, are also
developing alternative therapies that may compete with our products in the
fields of cancer, autoimmune diseases, allergies and infectious diseases. Many
of the companies developing cancer vaccines and alternative treatments have
significantly greater financial resources and expertise in research and
development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing. Others have partnered with large
established companies to obtain access to these resources. Smaller companies
may also prove to be significant competitors, particularly through the
establishment of collaborative arrangements with large, established companies.
Our ability to commercialize our products and compete effectively will
depend, in large part, on;
. our ability to advance Provenge and Mylovenge through clinical trials
and to successfully manufacture and market these vaccines;
. the price of our vaccines relative to other products or competing
treatments;
. the effectiveness of our sales and marketing efforts and those of our
marketing partners;
40
<PAGE>
. the perception by physicians and other members of the health care
community of the safety, efficacy and benefits of our vaccines compared
to those of competing products or therapies;
. the willingness of physicians to adopt a new treatment regimen
represented by our dendritic cell technology; and
. unfavorable publicity concerning cancer vaccines.
Competition among products approved for sale will be based, among other
things, upon efficacy, reliability, product safety, price and patent position.
Our competitiveness will also depend on our ability to advance our
technologies, license additional technology, maintain a proprietary position in
our technologies and products, obtain required government and other public and
private approvals on a timely basis, attract and retain key personnel and enter
into corporate partnerships that enable us and our collaborators to develop
effective products that can be manufactured cost-effectively and marketed
successfully.
Governmental Regulation
Governmental authorities in the United States and other countries
extensively regulate the preclinical and clinical testing, manufacturing,
labeling, storage, record-keeping, advertising, promotion, export, marketing
and distribution, among other things, of our immunotherapeutics. In the United
States, the FDA under the Federal Food, Drug, and Cosmetic Act, the Public
Health Service Act and other federal statutes and regulations subjects
pharmaceutical products to rigorous review. If we do not comply with applicable
requirements, we may be fined, our products may be recalled or seized, our
production may be totally or partially suspended, the government may refuse to
approve our marketing applications or allow us to distribute our products, and
we may be criminally prosecuted. The FDA also has the authority to revoke
previously granted marketing authorizations.
In order to obtain approval of a new product from the FDA, we must, among
other requirements, submit proof of safety and efficacy as well as detailed
information on the manufacture and composition of the product. In most cases,
this proof entails extensive laboratory tests, and preclinical and clinical
trials. This testing, the preparation of necessary applications and processing
of those applications by the FDA are expensive and typically take several years
to complete. The FDA may not act quickly or favorably in reviewing these
applications, and we may encounter significant difficulties or costs in our
efforts to obtain FDA approvals that could delay or preclude us from marketing
any products we may develop. The FDA may also require post-marketing testing
and surveillance to monitor the effects of approved products or place
conditions on any approvals that could restrict the commercial applications of
these products. Regulatory authorities may withdraw product approvals if we
fail to comply with regulatory standards or if we encounter problems following
initial marketing. With respect to patented products or technologies, delays
imposed by the governmental approval process may materially reduce the period
during which we will have the exclusive right to exploit the products or
technologies.
After an investigational new drug application becomes effective, a sponsor
may commence human clinical trials. The sponsor typically conducts human
clinical trials in three sequential phases, but the phases may overlap. In
Phase I clinical trials, the product is tested in a small number of patients or
healthy volunteers, primarily for safety at one or more doses. In Phase II, in
addition to safety, the sponsor evaluates the efficacy of the product in a
patient population somewhat larger than Phase I clinical trials. Phase III
clinical trials typically involve additional testing for safety and clinical
efficacy in an expanded population at geographically dispersed test sites. The
sponsor must submit to the FDA a clinical plan, or "protocol," accompanied by
the approval of the institution participating in the trials, prior to
commencement of each clinical trial. The FDA may order the temporary or
permanent discontinuation of a clinical trial at any time.
The sponsor must submit to the FDA the results of the preclinical and
clinical trials, together with, among other things, detailed information on the
manufacture and composition of the product, in the form of a new drug
application or, in the case of a biologic, a biologics license application. The
FDA is regulating our
41
<PAGE>
therapeutic vaccine products as biologics and, therefore, we will be submitting
biologics license applications to the FDA to obtain approval of our products.
In a process which generally takes several years, the FDA reviews this
application and, when and if it decides that adequate data is available to show
that the new compound is both safe and effective and that other applicable
requirements have been met, approves the drug or biologic for marketing. The
amount of time taken for this approval process is a function of a number of
variables, including the quality of the submission and studies presented, the
potential contribution that the compound will make in improving the treatment
of the disease in question, and the workload at the FDA. It is possible that
our vaccines will not successfully proceed through this approval process or
that the FDA will not approve them in any specific period of time, or at all.
Congress enacted the Food and Drug Administration Modernization Act of 1997,
in part, to ensure the availability of safe and effective drugs, biologics and
medical devices by expediting the FDA review process for new products. The
Modernization Act establishes a statutory program for the approval of fast
track products, including biologics. A fast track product is defined as a new
drug or biologic intended for the treatment of a serious or life-threatening
condition that demonstrates the potential to address unmet medical needs for
this condition. Under the fast track program, the sponsor of a new drug or
biologic may request the FDA to designate the drug or biologic as a fast track
product at any time during the clinical development of the product.
The Modernization Act specifies that the FDA must determine if the product
qualifies for fast track designation within 60 days of receipt of the sponsor's
request. The FDA can base approval of a marketing application for a fast track
product on an effect, on a clinical endpoint or on another endpoint that is
reasonably likely to predict clinical benefit. The FDA may subject approval of
an application for a fast track product to post-approval studies to validate
the surrogate endpoint or confirm the effect on the clinical endpoint and prior
review of all promotional materials. In addition, the FDA may withdraw its
approval of a fast track product on a number of grounds, including the
sponsor's failure to conduct any required post-approval study with due
diligence.
If a preliminary review of clinical data suggests that a fast track product
may be effective, the FDA may initiate review of sections of a marketing
application for a fast track product before the sponsor completes the
application. This rolling review is available if the applicant provides a
schedule for submission of remaining information and pays applicable user fees.
However, the time periods specified under the Prescription Drug User Fee Act
concerning timing goals to which the FDA has committed in reviewing an
application, do not begin until the sponsor submits the entire application.
We may request fast track designation and orphan drug status for our
vaccines. Orphan drug designation may be granted to those products developed to
treat diseases or conditions that affect fewer than 200,000 persons in the
United States. We believe that some of our target cancer patient populations
meet these criteria. Under the law, the developer of an orphan drug may be
entitled to seven years of market exclusivity following the approval of the
product by the FDA, exemption from user fee payments to the FDA, and a 50% tax
credit for the amount of money spent on human clinical trials. We cannot
predict whether the FDA will grant these designations, nor can we predict the
ultimate impact, if any, of the fast track process on the timing or likelihood
of FDA approval of our immunotherapeutics.
The FDA may, during its review of a new drug application or biologics
license application, ask for additional test data. If the FDA does ultimately
approve the product, it may require post-marketing testing, including
potentially expensive Phase IV studies, and surveillance to monitor the safety
and effectiveness of the drug. In addition, the FDA may in some circumstances
impose restrictions on the use of the drug, which may be difficult and
expensive to administer, and may require prior approval of promotional
materials.
Before approving a new drug application or biologics license application,
the FDA will also inspect the facilities at which the product is manufactured
and will not approve the product unless the manufacturing facilities are in
compliance with current Good Manufacturing Practices. In addition, the
manufacture, holding,
42
<PAGE>
and distribution of a product must be in compliance with current Good
Manufacturing Practices. Manufacturers must continue to expend time, money and
effort in the area of production and quality control and record keeping and
reporting to ensure full compliance with those requirements. The labeling,
advertising, promotion, marketing and distribution of a drug or biologic
product must be in compliance with FDA regulatory requirements. Failure to
comply with applicable requirements can lead to the FDA demanding that
production and shipment cease, and, in some cases, that the manufacturer recall
products, or to FDA enforcement actions that can include seizures, injunctions
and criminal prosecution. These failures can also lead to FDA withdrawal of
approval to market the product.
We are also subject to regulation by the Occupational Safety and Health
Administration and the Environmental Protection Agency and to regulation under
the Toxic Substances Control Act, the Resource Conservation and Recovery Act
and other regulatory statutes, and may in the future be subject to other
federal, state or local regulations. Either or both of OSHA or the EPA may
promulgate regulations that may affect our research and development programs.
We are unable to predict whether any agency will adopt any regulation which
could limit or impede on our operations.
Sales of pharmaceutical products outside the United States are subject to
foreign regulatory requirements that vary widely from country to country.
Whether or not we have obtained FDA approval, we must obtain approval of a
product by comparable regulatory authorities of foreign countries prior to the
commencement of marketing the product in those countries. The time required to
obtain this approval may be longer or shorter than that required for FDA
approval. The foreign regulatory approval process includes all the risks
associated with FDA regulation set forth above, as well as country-specific
regulations.
Employees
As of June 30, 2000, we had 91 employees. None of our employees is subject
to a collective bargaining agreement, and we believe that our relations with
our employees are good.
Facilities
We lease approximately 70,650 square feet of laboratory, manufacturing and
office space in Seattle, Washington under a lease expiring December 2008. The
lease may be extended at our option for two five-year periods. We sublease
approximately 15,250 square feet of this facility under a lease expiring March
2004. We lease approximately 25,000 square feet of laboratory, manufacturing
and office space in Mountain View, California under a lease expiring June 2001.
This lease may be extended at our option for one five year period. We sublease
approximately 18,600 square feet of this facility under a lease expiring June
2001.
Legal Proceedings
We are not a party to any material legal proceedings.
43
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our directors and executive officers, their positions and ages as of
September 15, 2000 are listed below. No family relationships exist among any of
our directors or executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Christopher S. Henney, Ph.D., D.Sc. .. 59 President, Chief Executive Officer and
Director
T. Dennis George, J.D. ............... 62 Senior Vice President, Corporate Affairs,
General Counsel and Secretary
Martin A. Simonetti................... 43 Chief Financial Officer, Vice President,
Administration and Treasurer
David L. Urdal, Ph.D.................. 51 Executive Vice President, Chief Scientific
Officer, and Vice Chairman of the Board
Frank H. Valone, M.D. ................ 51 Senior Vice President, Medical and
Regulatory Affairs, and Chief Medical
Officer
William Crouse (1).................... 58 Chairman of the Board
Gerardo Canet (2)..................... 55 Director
Timothy Harris, Ph.D. (1)............. 50 Director
Ruth Kunath........................... 48 Director
Lowell E. Sears (2)................... 49 Director
Ralph Shaw, J.D. (1).................. 62 Director
Douglas Watson (2).................... 55 Director
</TABLE>
--------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Christopher S. Henney, Ph.D., D.Sc., has served as our President, Chief
Executive Officer, and Director since May 1995. In 1989, Dr. Henney co-founded
ICOS Corporation, a publicly-held biotechnology company, where from 1989 to
1995, Dr. Henney served as Executive Vice President, Scientific Director and
Director. In 1981, Dr. Henney co-founded Immunex Corporation, a publicly-held
biotechnology company, where from 1981 to 1989, he held various positions,
including Director, Vice Chairman and Scientific Director. Dr. Henney was also
a former academic immunologist. Dr. Henney currently serves as a director of
Techne Corporation, Sonus Pharmaceuticals Inc., Bionomics, Inc. and Structural
Genomix, Inc. Dr. Henney received a B.Sc. with Honors, a Ph.D. in experimental
pathology and a D.Sc. for his contributions to immunology from the University
of Birmingham, England.
T. Dennis George, J.D., has served as our Senior Vice President of Corporate
Affairs, General Counsel and Secretary since December 1999. From 1977 until
joining us, Mr. George was a partner in the law firm George, Hull, Porter &
Kohli, P.S. in Seattle, Washington. Mr. George is a member of the Washington
State, King County and American Bar Associations and is a former president of
the Federal Bar Association of the Western District of Washington. Mr. George
is admitted to the U.S. Supreme Court, U.S. Court of Appeals for the Ninth
Circuit and U.S. District Courts for the Western and Eastern Districts of
Washington. Mr. George received a B.S. with honors from Northern Michigan
University and a J.D. with honors from the University of Wisconsin Law School.
Martin A. Simonetti has served as our Chief Financial Officer, Vice
President, Administration and Treasurer since joining us in January 1999. From
1991 to 1998, Mr. Simonetti was employed at Amgen Inc., a pharmaceutical
company, where he held various positions, including Vice-President Operations
and Finance of Amgen BioPharma and their Director of Colorado Operations. From
1984 to 1991, Mr. Simonetti was employed at Genentech, Inc., a biotechnology
company, first as a scientist in their Medicinal and Analytical Chemistry
Department and later, after obtaining an M.B.A., as a financial analyst and
quality group controller. Mr. Simonetti received a B.S. and an M.S. in
Nutrition from the University of California, Davis and an M.B.A. from the
University of Santa Clara.
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<PAGE>
David L. Urdal, Ph.D., has served as our Executive Vice President since
January 1999 and as our Chief Scientific Officer and Vice Chairman of our Board
of Directors since joining us in July 1995. From 1982 until July 1995, Dr.
Urdal held various positions with Immunex Corporation, including President of
Immunex Manufacturing Corporation, Vice President and Director of Development,
and head of the departments of biochemistry and membrane biochemistry. Dr.
Urdal received a B.S. and M.S. in Public Health and a Ph.D. in Biochemical
Oncology from the University of Washington.
Frank H. Valone, M.D., has served as our Senior Vice President, Medical and
Regulatory Affairs, since January 1999 and as our Chief Medical Officer since
1994. From 1991 until joining us, Dr. Valone was Associate Professor of
Medicine at Dartmouth-Hitchcock Medical Center, Norris Cotton Cancer Center.
From 1984 to 1991, Dr. Valone held various positions at the VA Medical Center
in San Francisco, including Chief of Hematology/Oncology. From 1982 to 1991,
Dr. Valone held faculty positions at the University of California, San
Francisco, including Associate Professor of Medicine. Prior to that time, Dr.
Valone served as an instructor in Medicine at Harvard Medical School and
instructor in Medical Oncology at the Dana Farber Cancer Institute. Dr. Valone
received a B.A. from Hamilton College and an M.D. from Harvard Medical School.
William Crouse has served as Chairman of our Board of Directors since April
1995 and as a Director since January 1994. Since 1994, Mr. Crouse has been
Managing Director of HealthCare Ventures LLC, the management company for
HealthCare Ventures III, L.P., HealthCare Ventures IV, and HealthCare Ventures
V, L.P., venture capital funds specializing in biotechnology. Prior to joining
HealthCare Ventures LLC, Mr. Crouse was Worldwide President of Ortho Diagnostic
Systems, Inc., a manufacturer of diagnostic tests and reagents, and a Vice
President of Johnson & Johnson International, from 1987 to 1993. Mr. Crouse
currently serves as a director of BioTransplant Inc. Mr. Crouse received a B.S.
in Finance and Economics from Lehigh University and an M.B.A. with Distinction
in Marketing Management from Pace University.
Gerardo Canet has served as one of our Directors since December 1996. Mr.
Canet has been President, Chief Executive Officer, and a member of the Board of
Directors of IntegraMed America, Inc., a manager of reproductive fertility
centers, since 1994. From 1989 to 1994, Mr. Canet held various executive
management positions with Curative Health Services, Inc., most recently as
Executive Vice President and President of its Wound Care Business Unit. From
1979 to 1989, Mr. Canet held various management positions with Kimberly Quality
Care, Inc., a provider of home health care services, most recently as Executive
Vice President and Chief Operating Officer. Mr. Canet received a B.A. in
Economics from Tufts University and an M.B.A. from Suffolk University.
Timothy Harris, Ph.D., has served as one of our Directors since February
1999. Dr. Harris has been President and Chief Executive Officer of Structural
Genomix, Inc., a biotechnology company, since April 1999. From 1993 to January
1999, Dr. Harris was Senior Vice President of Research and Development for
Sequana Therapeutics Inc., which became Axys Pharmaceuticals, Inc., a
pharmaceutical company, in 1998. Before joining Sequana, Dr. Harris was
Director of Biotechnology at Glaxo Group Research in England. Dr. Harris
received a B.S. and a Ph.D. in Virology from the University of Birmingham,
England.
Ruth Kunath has served as one of our Directors since December 1999. Ms.
Kunath has been biotechnology portfolio manager for Vulcan Ventures
Incorporated, a venture capital firm founded by Paul G. Allen to research and
implement his investments, since 1992. Prior to her employment at Vulcan
Ventures Incorporated, Ms. Kunath spent nine years managing Seattle Capital
Management Equity transactions and eight years as the Senior Portfolio Manager
for the healthcare sector of Bank of America Capital Management. Ms. Kunath
currently serves as a director of Curis, Inc., Rosetta Inpharmatics, Inc. and
VaxGen, Inc. Ms. Kunath received a B.A. from DePauw University and is a
Chartered Financial Analyst.
Lowell E. Sears has served as one of our Directors since November 1995. Mr.
Sears has informed us of his intention to resign from our board effective
November 16, 2000. Since 1994, Mr. Sears has been Chairman and Chief Executive
Officer of Sears Capital Management, Inc., a life sciences venture capital and
portfolio management company. Prior to founding Sears Capital Management, Inc.,
Mr. Sears was Chief Financial Officer of Amgen Inc., from 1988 to 1994, and
also served as its Senior Vice President responsible for the
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<PAGE>
Asia-Pacific region. Mr. Sears currently serves as a director for Neose
Technologies, Inc. and Techne Corporation. Mr. Sears received a B.A. in
economics from Claremont McKenna College and an M.B.A. from Stanford
University.
Ralph Shaw, J.D., has served as one of our Directors since March 1996. Since
January 1983, Mr. Shaw has been the general partner of Shaw Venture Partners, a
venture capital firm formed by Mr. Shaw and U.S. Bancorp in 1983. In 1980, Mr.
Shaw formed Shaw Management Company, an investment counseling firm. Mr. Shaw
currently serves as a director of Schnitzer Steel Industries, Inc. Mr. Shaw
received a B.B.A. in Public Accounting from Hofstra University and a J.D. from
New York University's School of Law.
Douglas Watson has served as one of our Directors since February 2000. Mr.
Watson is Chief Executive Officer of Pittencrieff Glen Associates, a consulting
firm which he founded in June 1999. Mr. Watson was also recently appointed
President and Chief Executive Officer of Valigen, N.V., a European-American
life sciences company, where he also serves as a director. From January 1997 to
May 1999, Mr. Watson served as President and Chief Executive Officer of
Novartis Corporation, a pharmaceutical company. From April 1996 to December
1996, Mr. Watson served as President and Chief Executive Officer of Ciba-Geigy
Corporation. From April 1986 to March 1996, Mr. Watson served as the President
of Ciba Pharmaceuticals Division. Mr. Watson's career spanned 33 years with
Novartis, having joined Geigy (UK) Ltd. in 1966. Mr. Watson currently serves as
a director of Engelhard Corporation, a supplier of environmental technologies
and chemical products, and Summit Bank Corporation. Mr. Watson received an M.A.
in Pure Mathematics from Churchill College, Cambridge University.
Board Composition
We currently have authorized ten directors. Our directors are divided into
three classes: Class I, whose term will expire at the annual meeting of
stockholders to be held in 2001; Class II, whose terms will expire at the
annual meeting of stockholders to be held in 2002; and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2003. The Class
I directors are Gerardo Canet and Ralph Shaw; the Class II directors are
William Crouse, Timothy Harris, Ph.D., and Ruth Kunath; and the Class III
directors are Christopher Henney, Lowell Sears, David Urdal and Douglas Watson.
There is currently one vacancy on our board of directors. In addition, Mr.
Sears has informed us of his intention to resign from our board effective
November 16, 2000. At each annual meeting of stockholders, the successors to
directors whose terms will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following
election. In addition, our certificate of incorporation provides that the
authorized number of directors may be changed only by resolution of our board
of directors. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one third of the directors. This
classification of our board of directors may have the effect of delaying or
preventing changes in control or management of Dendreon, although our directors
may be removed for cause by the affirmative vote of the holders of a majority
of our common stock.
Board Committees
Audit Committee. Our audit committee consists of Gerardo Canet, Lowell Sears
and Douglas Watson. Lowell Sears serves as chairman of our audit committee. The
audit committee:
. makes recommendations to our board of directors about the selection of
independent auditors;
. reviews the results and scope of the audit and other services provided
by our independent auditors; and
. reviews and evaluates our internal controls.
Compensation Committee. Our compensation committee consists of William
Crouse, Timothy Harris, Ph.D., and Ralph Shaw. William Crouse serves as
chairman of our compensation committee. The compensation committee:
. reviews and approves the compensation and benefits for our executive
officers;
46
<PAGE>
. administers our stock option plans; and
. makes recommendations to our board of directors about compensation
matters.
Compensation Committee Interlocks and Insider Participation
Decisions about executive compensation are made by the compensation
committee. No member of our compensation committee has been an officer or
employee of ours at any time. Christopher S. Henney, Ph.D., D.Sc., our
president and chief executive officer, is a director and serves on the
compensation committee of Structural Genomix, Inc. Timothy Harris, Ph.D., a
director and member of our compensation committee, is the president and chief
executive officer of Structural Genomix. No other of our executive officers
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of our board
of directors or compensation committee.
Executive Compensation
The following table sets forth all compensation awarded to, earned by, or
paid by us during the fiscal year ended December 31, 1999, to our chief
executive officer and president and all of our most highly compensated
executive officers whose salary and bonus for the fiscal year exceeded
$100,000. Collectively, these individuals are referred to as "Named Executive
Officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation Award
--------------------- ---------------------
Securities Underlying All other
Name and Principal Position Salary($) Bonus($)(1) Options (#) Compensation($)
--------------------------- --------- ----------- --------------------- ---------------
<S> <C> <C> <C> <C>
Christopher S. Henney, Ph.D., D.Sc. .. $300,000 $100,000 65,450 --
President, Chief Executive Officer
and Director
David L. Urdal, Ph.D.,................ 240,000 50,000 39,270 --
Executive Vice President, Chief
Scientific Officer and Vice Chairman
of the Board
Frank H. Valone, M.D. ................ 215,000 25,000 16,500 34,424(3)
Senior Vice President, Clinical &
Regulatory Affairs, and Chief Medical
Officer
Martin A. Simonetti................... 175,000 20,000 88,000(2) 44,107(4)
Chief Financial Officer, Vice
President, Administration, and
Treasurer
</TABLE>
--------
(1) Consists of bonus earned during fiscal 1999 and paid in January 2000.
(2) Represents options granted in January 1999 pursuant to commencement of
employment.
(3) Consists of temporary housing expenses and tax gross up payment.
(4) Consists of relocation expenses and tax gross up payment.
47
<PAGE>
The following table shows certain information regarding stock options
granted to our Named Executive Officers during fiscal 1999. No stock
appreciation rights were granted in fiscal 1999. All options granted to these
executive officers in the last fiscal year were granted under our equity
incentive plan. Each option has a ten-year term, subject to earlier termination
if the optionee's service with us terminates. Unless otherwise noted, options
vest at the rate of 25% on the anniversary of the vesting commencement date and
1/48th monthly thereafter in 36 equal installments. The percentage of total
options set forth below is based on options to purchase 665,720 shares of
common stock granted to employees during fiscal 1999. All options are granted
at the fair market value on the date of grant as determined by our board of
directors. Potential realizable values are net of exercise price, but before
associated taxes based on the terms of the option at the time of grant. The 5%
and 10% assumed annual rates of compounded stock price appreciation are
mandated by the Securities and Exchange Commission and do not represent our
estimate or projection of our future common stock price. Unless the market
price of the common stock appreciates over the option term, no value will be
realized from the option grants made to our Named Executive Officers. The
assumed 5% and 10% rates of stock appreciation are based on our initial public
offering price of $10.00 per share.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of Stock Price
Shares % of Total Appreciation for
Underlying Options Option Term(1)
Options Granted to Exercise Price Expiration ---------------------
Name Granted Employees Per Share($) Date 5% 10%
---- ---------- ---------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Christopher S. Henney,
Ph.D, D.Sc. ........... 65,450 9.8 $0.91 1/1/09 $1,006,552 $1,638,045
David L. Urdal, Ph.D. .. 39,270 5.9 0.91 1/1/09 603,931 982,827
Frank H. Valone, M.D. .. 16,500 2.5 0.91 1/1/09 253,753 412,953
Martin A. Simonetti..... 88,000 13.2 0.91 1/1/09 1,353,347 2,202,413
</TABLE>
--------
(1) Potential realizable values are computed by multiplying the number of
shares of common stock subject to a given option by our initial public
offering price of $10.00 per share, assuming that the aggregate stock value
derived from that calculation compounds at the annual 5% or 10% rate shown
in the table for the entire ten-year term of the option and subtracting
from that result the aggregate option exercise price.
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<PAGE>
Options Exercises and Holdings
The following table sets forth the number of shares of common stock acquired
upon the exercise of stock options by the Named Executive Officers during
fiscal 1999, and the number and value of the shares of common stock underlying
unexercised options held by the Named Executive Officers as of December 31,
1999. The value realized is based on the fair market value of the underlying
securities as of the date of exercise, minus the per share exercise price,
multiplied by the number of shares underlying the option. The value of
unexercised in-the-money options is based on our initial public offering price
of $10.00 per share less the exercise price, multiplied by the number of shares
underlying the option. All options were granted under our equity incentive
plan. Unless otherwise noted, these options generally vest at the rate of 25%
on the anniversary of the vesting commencement date and 1/48th monthly
thereafter in 36 equal installments.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Shares Underlying Value of Unexercised
Number of Unexercised Options at In-the-Money Options at
Shares December 31, 1999 December 31, 1999
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher S. Henney, Ph.D, D.Sc. (1).. 211,026 $82,461 79,110 241,776 $ 678,038 $2,041,122
David L. Urdal, Ph.D. (2)............... 92,571 30,958 -- 108,434 -- 910,126
Frank H. Valone, M.D. (3)............... 11,000 4,900 146,380 40,620 1,257,584 339,966
Martin A. Simonetti..................... -- -- -- 88,000 -- 720,000
</TABLE>
--------
(1) Of Dr. Henney's options to purchase 320,886 shares of common stock as of
December 31, 1999, options to purchase 132,554 shares of common stock
vested on the closing of our initial public offering.
(2) Of Dr. Urdal's options to purchase 108,434 shares of common stock as of
December 31, 1999, options to purchase 44,185 shares of common stock
vested on the closing of our initial public offering.
(3) Of Dr. Valone's options to purchase 187,000 shares of common stock as of
December 31, 1999, options to purchase 64,625 shares of common stock
vested on the date of grant.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
In October 1998, we entered into an employment letter agreement with Drs.
Henney and Urdal. This agreement provides that Dr. Henney will receive an
annual base salary of $300,000 and Dr. Urdal will receive an annual base salary
of $240,000. In addition, Dr. Henney was granted an option to purchase 44,000
shares of our common stock at an exercise price of $0.91 per share, which vests
monthly on a pro rata basis over four years, beginning May 1, 1998. Dr. Urdal
was granted an option to purchase 16,500 shares of our common stock at an
exercise price of $0.91 per share, which vests monthly on a pro rata basis over
four years, beginning July 1, 1998. Under the agreement, we reaffirmed the 1995
grant of options to purchase 198,832 shares of our common stock at an exercise
price of $0.46 per share to Dr. Henney and options to purchase 66,277 shares of
our common stock at an exercise price of $0.46 per share to Dr. Urdal. One-
third of these options granted in 1995 vested when we entered into a strategic
collaboration with Kirin Brewery Co., Ltd. in December 1998, and two-thirds of
these options vested on the closing of our initial public offering. With the
exception of these 1995 options, the agreement further provides that the
vesting of all stock options held by Drs. Henney and Urdal, respectively, will
accelerate by one year if Drs. Henney or Urdal are terminated for any reason
other than cause.
Director Compensation
Dr. Harris and Messrs. Canet, Sears and Watson currently receive $1,500 for
each board meeting attended in person and $500 for each committee meeting
attended in person, as compensation for their services as members of our board
of directors and as members of committees of our board of directors. They are
also
49
<PAGE>
reimbursed for out-of-pocket expenses incurred in connection with board and
committee meeting attendance. Messrs. Crouse, Shaw, Ms. Kunath and directors
who are our employees do not receive any cash compensation for serving on our
board of directors or committees of our board of directors.
From time to time, some of our directors have received grants of options to
purchase shares of our common stock under our equity incentive plans. In May
2000, pursuant to our 2000 Equity Incentive Plan, Messrs. Canet and Sears each
received an annual stock option grant to purchase 6,600 shares of our common
stock at an exercise price of $4.55 per share, which fully vest on the first
anniversary date of grant. In March 2000, Dr. Harris received an option to
purchase 16,500 shares of our common stock at an exercise price of $4.55 per
share, which vest at the rate of 33 1/3% per year. Upon joining our board of
directors, in January 2000 and February 2000, Ms. Kunath and Mr. Watson,
respectively, each received an option to purchase 26,400 shares of our common
stock at an exercise price of $1.82 per share, which vest at the rate of 25% on
the first anniversary from the date of grant and 1/48th monthly thereafter. In
May 1999, Messrs. Canet and Sears each received an option to purchase 6,875
shares of our common stock at an exercise price of $0.91 per share. These
options were fully vested and immediately exercisable as of the date of grant.
Upon joining our board of directors in February 1999, Dr. Harris received an
option to purchase 27,500 shares of our common stock at an exercise price of
$0.91 per share. In October 1995, Mr. Sears was granted an option to purchase
an aggregate of 8,250 shares of our common stock at an exercise price of $5.45
per share, 6,875 of which were fully vested and immediately exercisable as of
the date of grant and the remaining 1,375 vest at the rate of 25% on the first
anniversary from the date of grant and 1/48th monthly thereafter pursuant to a
consulting agreement between Mr. Sears and us. The consulting agreement
terminated pursuant to its terms in October 1999.
Under the 2000 Equity Incentive Plan, Dr. Harris and Messrs. Canet, Sears
and Watson, and any newly elected directors, will each receive automatic annual
stock option grants for serving on our board of directors. See "Management--
Employee Benefit Plans."
Employee Benefit Plans
2000 Equity Incentive Plan
A total of four million four hundred thousand (4,400,000) shares of common
stock have been authorized for issuance under the 2000 Equity Incentive Plan.
Each year, the number of shares reserved for issuance under the plan will
automatically be increased by the least of (i) five percent (5%) of the total
number of shares of our common stock then outstanding, (ii) five hundred fifty
thousand (550,000) shares, or (iii) a number to be determined by the board of
directors. Shares subject to stock awards that have expired or otherwise
terminated without having been exercised in full again become available for
grant, but exercised shares repurchased by us under a right of repurchase will
not again become available for grant.
The 2000 Equity Incentive Plan permits the grant of options to our
employees, directors, consultants and those of our affiliates. Options may be
either incentive stock options, within the meaning of Section 422 of the
Internal Revenue Code, to employees or nonstatutory stock options. In addition,
the 2000 Equity Incentive Plan permits the grant of stock bonuses and rights to
purchase restricted stock. No person may be granted options covering more than
five hundred fifty thousand (550,000) shares of common stock in any calendar
year.
The 2000 Equity Incentive Plan is administered by the board of directors or
a committee appointed by the board of directors. The board of directors has
delegated the authority to administer the 2000 Equity Incentive Plan to the
compensation committee. Subject to the limitations set forth in the 2000 Equity
Incentive Plan, the compensation committee has the authority to select the
eligible persons to whom award grants are to be made, to designate the number
of shares to be covered by each award, to determine whether an option is to be
an incentive stock option or a nonstatutory stock option, to establish vesting
schedules, to specify the exercise price of options and the type of
consideration to be paid upon exercise and, subject to applicable restrictions,
to specify other terms of awards.
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<PAGE>
The maximum term of options granted under the 2000 Equity Incentive Plan is
ten years. Incentive stock options granted under the 2000 Equity Incentive Plan
generally are non-transferable. Nonstatutory stock options generally are non-
transferable, although the applicable option agreement may permit some
transfers. Options generally expire three months after the termination of an
optionholder's service. However, if an optionholder is permanently disabled or
dies during his or her service, that person's options generally may be
exercised up to 12 months following disability or 18 months following death.
The exercise price of options granted under the 2000 Equity Incentive Plan
is determined by the board of directors, committee or administrator in
accordance with the guidelines set forth in the 2000 Equity Incentive Plan. The
exercise price of an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of the grant. The exercise
price of a nonstatutory stock option cannot be less than 85% of the fair market
value of the common stock on the date of grant.
Options granted under the 2000 Equity Incentive Plan vest at the rate
determined by the board of directors, committee or administrator and specified
in the option agreement. Typically, options granted under this plan vest over
four years, at the rate of 25% of the shares subject to the option vesting
after one year from the grant date and then vest monthly thereafter. The terms
of any stock bonuses or restricted stock purchase awards granted under the 2000
Equity Incentive Plan will be determined by the board of directors, committee
or administrator. The purchase price of restricted stock under any restricted
stock purchase agreement will not be less than 85% of the fair market value of
our common stock on the date of grant. Stock bonuses and restricted stock
purchase agreements awarded under the 2000 Equity Incentive Plan are generally
non-transferable, although the applicable award agreement may permit some
transfers.
Non-Employee Director Stock Option Grants. The 2000 Equity Incentive Plan
also provides for automatic stock option grants to non-employee directors
serving on the board of directors who were invited to join the board of
directors other than in connection with the director's investment in the
company at the time of the director's election to the board of directors. Each
person who is elected or appointed for the first time to be a non-employee
director subsequent to the adoption of the Equity Incentive Plan will receive
an initial grant on the date of his or her election or appointment to the board
of directors to purchase twenty-four thousand (24,000) shares of our common
stock. All options granted to non-employee directors will be granted at the
fair market value of the common stock on the date of grant.
The 2000 Equity Incentive Plan also provides that eligible non-employee
directors will automatically receive an annual grant to purchase six thousand
(6,000) shares of our common stock commencing, as applicable, on the fourth
anniversary of (i) the date of the initial grant to the director or (ii) the
initial election of the non-employee director to the board of directors.
Messrs. Crouse and Shaw are not eligible for automatic grants under the 2000
Equity Incentive Plan.
The non-employee director stock options will have a maximum term of ten
years for an initial grant and five years for an annual grant, and generally
must be exercised prior to the earliest of 18 months following the death of the
non-employee director, 12 months from the termination of service on the board
of directors by the non-employee director due to a disability, 3 months from
the termination of the service of the non-employee director for any other
reason, or the expiration of the original term of the stock option. Twenty-five
percent of shares pursuant to each initial grant of a non-employee director
option vest one year from the date of grant and 1/48th of the shares vest
monthly thereafter. One hundred percent of the shares pursuant to each annual
grant of a non-employee director option vest one year from the date of grant.
Upon some types of changes in control in our ownership, all outstanding
stock awards under the 2000 Equity Incentive Plan must either be assumed or
substituted by the surviving entity. In the event the surviving entity does not
assume or substitute the stock awards, then the vesting and exercisability of
outstanding awards will accelerate prior to the change in control and the
awards will terminate to the extent they are not exercised prior to the change
in control. The stock options will not be transferable except as otherwise
provided in a stock option agreement to the extent permitted by federal
securities laws and regulations.
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<PAGE>
The board of directors may amend or terminate the 2000 Equity Incentive Plan
at any time. Amendments will generally be submitted for stockholder approval to
the extent required by applicable law.
As of June 30, 2000, we had issued and outstanding under the 2000 Equity
Incentive Plan options to purchase 1,717,085 shares of common stock. The per
share exercise prices of these options range from $0.46 to $4.55. As of June
30, 2000, 1,167,229 shares remained available for grant under the 2000 Equity
Incentive Plan.
2000 Employee Stock Purchase Plan
A total of one million four hundred eighty-five thousand (1,485,000) shares
of common stock have been reserved for issuance under our 2000 Employee Stock
Purchase Plan. Each year, the number of shares reserved for issuance under the
purchase plan will automatically be increased by the least of (i) one percent
(1%) of the total number of shares of our common stock then outstanding,
(ii) four hundred thousand (400,000) shares, or (iii) a number determined by
the board of directors. The purchase plan is intended to qualify as an employee
stock purchase plan within the meaning of section 423 of the Internal Revenue
Code. Under the 2000 Employee Stock Purchase Plan, the board of directors or a
committee comprised of at least two members of the board of directors may
authorize participation by eligible employees, including officers, in periodic
offerings following the commencement of the purchase plan. The initial offering
under the purchase plan commenced on June 16, 2000 and will terminate on July
31, 2002. Purchase dates occur each January 31 and July 31 during that period.
Unless otherwise determined by the board of directors, employees are
eligible to participate in the 2000 Employee Stock Purchase Plan only if they
are customarily employed by us or one of our subsidiaries designated by the
board of directors for at least twenty (20) hours per week and five (5) months
per calendar year and have completed at least ten (10) days of continued
employment. The ten (10) day continued employment requirement will be waived
for the initial offering. Employees who participate in an offering may have up
to fifteen percent (15%) of their eligible earnings withheld under the purchase
plan. The amount withheld is then used to purchase shares of the common stock
on specified dates determined by the board of directors. The price of common
stock purchased under the purchase plan will be equal to 85% of the lower of
the fair market value of the common stock at the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in an offering at any time during that offering, and their
participation will end automatically on termination of their employment with us
or one of our affiliates.
In the event of a merger, reorganization, consolidation or liquidation that
involves us, the board of directors has discretion to provide that each right
to purchase common stock will be assumed or an equivalent right substituted by
the successor corporation or the board of directors may provide for all sums
collected by payroll deductions to be applied to purchase stock immediately
prior to a merger or other transaction. The board of directors has the
authority to amend or terminate the purchase plan, provided, however, that no
action may limit or reduce any outstanding rights to purchase common stock.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of certain related party transactions since
January 1997 to which we were or are a party or in which certain of our
executive officers, directors or 5% stockholders have or had a direct or
indirect material interest. We believe that each of these agreements was made
on terms at least as fair to us as could have been obtained from unaffiliated
third parties.
Series C Preferred Stock
From June 1997 to and August 1997, we sold an aggregate of 3,308,179 shares
of Series C preferred stock at a price per share of $3.60 to a group of private
investors that include the following directors, officers and 5% stockholders:
<TABLE>
<CAPTION>
Shares of Series C
Purchaser Preferred Stock
--------- ------------------
<S> <C>
HealthCare Ventures V, L.P. ........................... 277,777
Kummell Investments Limited............................ 833,333
Sanderling III Biomedical, L.P. ....................... 27,960
Sanderling III Limited Partnership..................... 84,037
Sanderling IV Biomedical Co-Investment Fund, L.P. ..... 416,666
Sanderling Venture Partners III, L.P. ................. 162,231
Sanderling Ventures Management......................... 3,550
Sears Living Trust DTD 3/11/91......................... 13,888
Shaw Venture Partners III, L.P. ....................... 138,889
Vulcan Ventures Incorporated........................... 277,777
</TABLE>
Ralph Shaw, one of our directors, is a general partner of Shaw Venture
Partners III, L.P. Lowell E. Sears, one of our directors, is the trustee of
Sears Living Trust DTD 3/11/91.
Series D Preferred Stock
In July 1998, we sold an aggregate of 937,000 shares of Series D Preferred
Stock at a price per share of $5.00 to a group of private investors that
include the following directors, officers and 5% stockholders:
<TABLE>
<CAPTION>
Shares of Series D
Purchaser Preferred Stock
--------- ------------------
<S> <C>
Kummell Investments Limited............................. 50,000
Shaw Venture Partners III, L.P. ........................ 100,000
Vulcan Ventures Incorporated............................ 200,000
</TABLE>
53
<PAGE>
Series E Preferred Stock
From September 1999 to February 2000, we sold an aggregate of 4,069,553
shares of Series E Preferred Stock at a price per share of $4.25 to a group of
private investors that include the following directors, officers and 5%
stockholders:
<TABLE>
<CAPTION>
Shares of Series E
Purchaser Preferred Stock
--------- ------------------
<S> <C>
HealthCare Ventures V, L.P. .......................... 235,300
Kummell Investments Limited........................... 117,650
Sanderling Venture Partners IV Co-Investment Fund,
L.P. ................................................ 117,650
Sears Living Trust DTD 3/11/91........................ 10,000
Shaw Venture Partners III, L.P. ...................... 70,585
Martin A. & Mary Ann Simonetti........................ 10,000
Vulcan Ventures Incorporated.......................... 2,352,950
</TABLE>
All shares of preferred stock outstanding as of the date of our initial
public offering automatically converted to common stock immediately prior to
the completion of our initial public offering.
Other Transactions
In December 1996, we entered into an employment agreement with Christopher
S. Henney, Ph.D., D.Sc., our President and Chief Executive Officer. This
agreement terminated pursuant to its terms in April 1998. In December 1996, we
entered into an employment agreement with David L. Urdal, Ph.D., our Executive
Vice President, Chief Scientific Officer and Vice Chairman of our board of
directors. This agreement terminated pursuant to its terms in July 1998.
We have entered into compensation arrangements with some of our directors as
described in "Management--Director Compensation."
We have entered into employment arrangements with some of our executive
officers as described in "Management--Employment Contracts, Termination of
Employment and Change-in-Control Arrangements."
We have granted registration rights to all of the above stockholders as
described under "Description of Capital Stock--Registration Rights."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of common stock as of August 31, 2000, by (1) each person (or group
of affiliated persons) known by us to own beneficially more than five percent
of the outstanding shares of our common stock, (2) each of our directors and
executive officers, and (3) all of our directors and executive officers as a
group. Unless otherwise indicated, the address of each of the named individuals
is c/o Dendreon Corporation, 3005 First Avenue, Seattle, Washington 98121.
Except as otherwise indicated, and subject to applicable community property
laws, the persons named in the table have sole voting and investment power with
respect to all shares of common stock held by them. Beneficial ownership is
determined in accordance with the rules of the SEC. Shares of common stock
subject to options or warrants that are exercisable or will become exercisable
within 60 days of August 31, 2000 are deemed outstanding for the purpose of
computing the percentage of ownership of the person or entity holding options
or warrants but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person or entity. Percentage of shares
beneficially owned is based on (1) 21,663,604 shares of common stock
outstanding as of August 31, 2000, and (2) 24,163,604 shares of common stock to
be outstanding upon the consummation of this offering.
<TABLE>
<CAPTION>
Shares Percentage Beneficially Owned
Beneficially ------------------------------
Name and Address Owned Before Offering After Offering
---------------- ------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders
Entities affiliated with HealthCare
Ventures LLC (1)........................ 3,809,321 17.5% 15.7%
44 Nassau Street
Princeton, NJ 08542
Vulcan Ventures Incorporated (2)......... 4,038,491 18.6 16.7
110-110th Avenue NE, Suite 550
Bellevue, WA 98004
Entities affiliated with Sanderling
Ventures (3)............................ 1,215,991 5.6 5.0
2730 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Kummell Investments Limited (4).......... 1,101,081 5.1 4.6
Suite 835A
Europort, Gibraltar (via London)
Executive Officers and Directors
Christopher S. Henney, Ph.D., D.Sc. (5).. 288,608 1.3 1.2
T. Dennis George, J.D.................... 1,000 * *
Martin A. Simonetti (6).................. 49,499 * *
David L. Urdal, Ph.D. (7)................ 301,765 1.4 1.2
Frank H. Valone, M.D. (8)................ 196,256 1.0 *
William Crouse (1)....................... 3,809,321 17.5 15.7
Gerardo Canet (9)........................ 41,250 * *
Timothy Harris, Ph.D (10)................ 9,740 * *
Ruth Kunath (2).......................... 4,038,491 18.6 16.7
Lowell E. Sears (11)..................... 154,932 * *
Ralph Shaw, J.D. (12).................... 671,178 3.1 2.8
Douglas Watson........................... -- * *
All executive officers and directors as a
group (12 persons) (13)................. 9,561,040 43.6 39.1
</TABLE>
--------
* Represents beneficial ownership of less than 1%.
(1) Includes 2,423,699 shares and warrants to purchase 84,638 shares held by
HealthCare Ventures III, L.P., 711,745 shares and warrants to purchase
24,855 shares held by HealthCare Ventures IV, L.P. and 564,384 shares held
by HealthCare Ventures V, L.P. Mr. William Crouse, one of our directors,
is the Managing Director of HealthCare Ventures LLC, the management
company for HealthCare Ventures III, L.P., HealthCare Ventures
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<PAGE>
IV, L.P., and HealthCare Ventures V, L.P. and may be deemed to share voting
and investment control over these shares. Mr. Crouse disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest
therein.
(2) Includes 2,000 shares held by Ms. Ruth Kunath. Ms. Kunath, one of our
directors, manages the Vulcan Venture Biotechnology Portfolio as an
employee of Vulcan Ventures Incorporated and may be deemed to share voting
and investment control over these shares. Ms. Kunath disclaims beneficial
ownership of the shares held by Vulcan Ventures except to the extent of
her pecuniary interest therein.
(3) Includes 63,234 shares held by Sanderling III Biomedical, L.P.; 190,063
shares held by Sanderling III Limited Partnership; 458,332 shares held by
Sanderling IV Biomedical Co-Investment Fund, L.P.; 129,415 shares held by
Sanderling Venture Partners IV Co-Investment Fund, L.P.; 366,915 shares
held by Sanderling Venture Partners III, L.P.; and 8,032 shares held by
Sanderling Ventures Management. Dr. Robert McNeil and Mr. Fred Middleton,
the General Partners of each of the Sanderling partnerships, exercise
shared voting and investment control over all shares held by each of the
Sanderling partnerships.
(4) Morningside Ventures Inc. advises Kummell Investments Limited on its
venture capital investments. Mr. Mark Carthy, who served as a member of
our board of directors from March 2000 to September 14, 2000, is the
biotechnology portfolio manager for Morningside Ventures Inc. Mr. Carthy
disclaims beneficial ownership of the shares held by Kummell Investments
Limited except to the extent of his pecuniary interest therein. The
Venture Investment Committee of the Board of Directors of Kummell holds
voting and dispositive control of the shares of Dendreon held by Kummell
Investments. The members of the Venture Investment Committee are Lars
Sorensen and Steve McDonald.
(5) Includes 23,033 shares issuable on exercise of outstanding options
exercisable within 60 days of August 31, 2000.
(6) Includes 4,833 shares held for the benefit of Mr. Simonetti's minor child
and 3,667 shares issuable on exercise of outstanding options exercisable
within 60 days of August 31, 2000.
(7) Includes 213,170 shares held jointly with Shirley G. Urdal. Also includes
6,938 shares issuable on exercise of outstanding options exercisable
within 60 days of August 31, 2000.
(8) Includes: (a) 15,458 shares held by Judy Valone, Trustee for Frank H.
Valone III; (b) 15,780 shares held by Judy Valone, Trustee for Justin
Valone; (c) 14,817 shares held by Judy Valone, Trustee for Elizabeth L.
Valone; and (d) 103,125 shares issuable on exercise of outstanding options
exercisable within 60 days of August 31, 2000. As trustee for Frank H.
Valone III, Justin Valone and Elizabeth L. Valone, Ms. Judy Valone, the
spouse of Frank Valone, holds voting and dispositive power over all shares
held by the trusts.
(9) Includes 13,750 shares issuable on exercise of outstanding options
exercisable within 60 days of August 31, 2000.
(10) Includes 9,740 shares issuable on exercise of outstanding options
exercisable within 60 days of August 31, 2000.
(11) Includes 138,210 shares held by the Sears Living Trust DTD 3/11/91. As the
trustee of the Sears Living Trust DTD 3/11/91, Mr. Sears has voting and
dispositive power over all shares held by the trust.
(12) Includes 663,112 shares held by Shaw Venture Partners III, L.P. Mr. Ralph
Shaw is a general partner of Shaw Venture Partner III, L.P. Mr. Shaw
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest therein.
(13) Includes an aggregate of 160,253 shares of common stock issuable on
exercise of outstanding options exercisable upon completion of this
offering or within 60 days of August 31, 2000 and warrants to purchase in
aggregate of 109,493 shares. Excludes shares that may be beneficially
owned by Mr. Mark Carthy, a member of our board of directors from March
2000 to September 14, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 80,000,000 shares of common stock,
$.001 par value, and 10,000,000 shares of preferred stock, $.001 par value.
Common Stock
As of August 31, 2000, there were 21,663,604 shares of our common stock
outstanding that were held of record by approximately 202 stockholders. There
will be 24,163,604 shares of common stock outstanding after giving effect to
the sale to the public of the shares of our common stock offered hereby.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably all dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available. In the
event of the liquidation, dissolution or winding up of Dendreon, the holders of
our common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred
stock, if any, then outstanding. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common
stock to be issued upon completion of this offering will be fully paid and
nonassessable.
Preferred Stock
Our certificate of incorporation authorizes 10,000,000 shares of
undesignated preferred stock. There are no shares of preferred stock
outstanding. The board of directors has the authority to issue the preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of any series, without further vote or action by the stockholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of Dendreon without further action by the stockholders. For
example, the board of directors could issue preferred stock that has the power
to prevent a change of control transaction. The issuance of preferred stock
with voting and conversion rights may decrease the voting power of the holders
of common stock, including the loss of voting control to others. We currently
have no plans to issue any preferred stock.
Warrants
As of August 31, 2000, warrants to purchase 532,543 shares of our common
stock were outstanding. The numbers of shares, exercise prices and expiration
dates of these warrants are summarized below:
<TABLE>
<CAPTION>
Number
of Shares Exercise Price Expiration Date
--------- -------------- ---------------
<S> <C> <C>
112,831 $ 0.18 June 21, 2005
47,362 $ 3.27 August 14, 2004 to December 11, 2004
364,100 $ 4.55 October 17, 2004 to August 3, 2006
8,250 $18.18 June 21, 2005
</TABLE>
Registration Rights
As of August 31, 2000, the holders of up to 10,121,730 shares of our common
stock and holders of warrants to purchase an aggregate of 121,079 shares of our
common stock, or their permitted transferees, are entitled to registration
rights as provided under the terms of an Amended and Restated Stockholders'
Agreement. Commencing June 16, 2001, the holders of 8,900,512 shares of our
common stock and holders of
57
<PAGE>
warrants to purchase 112,829 shares of our common stock will have demand
registration rights, provided the reasonably expected aggregate offering price
to the public exceeds $1,000,000. In addition, the holders of these shares are
entitled under the agreement, subject to limitations, to require us to include
their shares of common stock in future registration statements we file.
In connection with a warrant issued to Fresenius AG to purchase 275,000
shares of our common stock, Fresenius AG is entitled to registration rights
under a Registration Rights and Shareholder's Agreement for the shares of
common stock issuable upon exercise of the warrant. Under this agreement,
Fresenius can, subject to certain limitations, require us to include their
shares of common stock in future registrations statements we file.
Anti-takeover Effects of Provisions of Certificate of Incorporation and
Delaware Law
Certificate of Incorporation
Our certificate of incorporation includes the following provisions, among
others, that could discourage potential acquisition proposals and could delay
or prevent a change of control of Dendreon:
. All stockholder actions must be effected at a duly called meeting and
not by a consent in writing.
. Directors may be removed from office only for cause and only by the
affirmative vote of the holders of a majority of our total outstanding
voting stock.
. Vacancies on our board of directors, including those resulting from an
increase in the number of directors, may generally be filled only by the
remaining directors, not by stockholders.
. Our board of directors is divided into three classes of directors
serving staggered, three-year terms. The classification of the board of
directors has the effect of requiring at least two annual stockholder
meetings, instead of one, to replace a majority of the members of the
board of directors.
Anti-takeover Provisions of Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates "business combinations" with an "interested stockholder." Subject to
some exceptions, Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
. before the date of the business combination, the board of directors of
the corporation approves the transaction;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the outstanding stock of the corporation; or
. the board of directors and at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder approve the
business combination.
A "business combination" includes mergers, assets sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to various exceptions, an "interested stockholder" is a person who,
together with the stockholder's affiliates and associates, owns, or within
three years did own, 15% or more of the corporation's voting stock. This
statute could prohibit or delay mergers or other takeover or change-in-control
attempts with respect to us and, accordingly, may discourage attempts to
acquire us.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable for monetary
58
<PAGE>
damages for breach of that individual's fiduciary duties as a director except
for liability (A) for any breach of the director's duty of loyalty to the
company or to its stockholders, (B) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (C) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law or (D) for any
transaction from which a director derives an improper personal benefit.
Our bylaws provide that we must indemnify our directors and executive
officers and may indemnify our officers, employees and other agents to the
fullest extent not prohibited by law. We believe that indemnification under our
bylaws covers at least negligence on the part of an indemnified party. Our
bylaws also permit us to advance expenses incurred by an indemnified party in
connection with the defense of any action or proceeding arising out of his or
her status or service as a director, officer, employee or other agent of
Dendreon upon an undertaking by him or her to repay any advances if it is
ultimately determined that he or she is not entitled to indemnification.
We have entered into separate indemnification agreements with our directors
and officers. These agreements require us to, among other things, indemnify the
director or officer against expenses, including attorney's fees, judgments,
fines and settlements paid by the individual in connection with any action,
suit or proceeding arising out of the individual's status or service as a
director or officer of Dendreon, other than liabilities arising from willful
misconduct or conduct that is knowingly fraudulent or deliberately dishonest,
and to advance expenses incurred by the individual in connection with any
proceeding against him or her individually with respect to which he or she may
be entitled to indemnification by us. We believe that our certificate of
incorporation and bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and executive officers. We
also maintain directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of Dendreon where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers or persons controlling
Dendreon, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Transfer Agent
The transfer agent for our common stock is ChaseMellon Shareholder Services,
L.L.C., Seattle, Washington.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of our common stock.
After this offering, 24,163,604 shares of our common stock will be
outstanding, 24,538,604 shares if the underwriters exercise their over-
allotment option in full, based on shares outstanding as of August 31, 2000. Of
these shares, 7,761,462 shares, including the shares sold in this offering, or
8,136,462 shares if the underwriters exercise their over-allotment option in
full, will be freely tradable without restriction under the Securities Act
except for any shares purchased by our "affiliates" as defined in Rule 144
under the Securities Act. The remaining 16,402,142 shares are "restricted
securities" within the meaning of Rule 144 under the Securities Act. The
restricted securities generally may not be sold unless they are registered
under the Securities Act or are sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144 under the Securities
Act.
We and our officers and directors have agreed to enter into lock-up
agreements pursuant to which we and they agree not to offer or sell any shares
of our common stock or any securities convertible into or exchangeable or
exercisable for shares of our common stock for a period of 90 days after the
date of this prospectus without the prior written consent of Prudential
Securities Incorporated on behalf of the underwriters. Additionally, in
connection with our initial public offering, substantially all of our
stockholders at that time entered into lock-up agreements pursuant to which
they agreed not to offer or sell any shares of our common stock or any
securities convertible into or exchangeable or exercisable for any shares of
our common stock through December 13, 2000, without the prior written consent
of Prudential Securities Incorporated on behalf of the underwriters in our
initial public offering. Prudential Securities Incorporated may, at any time
and without notice, waive any of the terms of these lock-up agreements.
The following table indicates approximately when the shares of our common
stock that are not being sold in the offering but which were outstanding as of
August 31, 2000 will be eligible for sale into the public market, except for
5,051,977 shares eligible for resale on the date of this prospectus:
<TABLE>
<CAPTION>
Number of Shares Date of Eligibility for Resale into Public Markets
---------------- --------------------------------------------------
<C> <S>
5,418,107 December 14, 2000, due to expiration of lock-up agreements
entered into with us or Prudential Securities Incorporated
in connection with our initial public offering.
9,561,040 91 days after the date of this prospectus, due to
expiration of lock-up agreements entered into with
Prudential Securities Incorporated in connection with this
offering.
1,632,480 Between December 14, 2000 and June 21, 2001, due to
requirements of the federal securities laws.
</TABLE>
Any restricted securities not subject to a lock-up, or with respect to which
the applicable lock-ups are released, will be saleable under Rules 144, 144(k)
and 701.
In general, under Rule 144 as currently in effect, any person, including an
affiliate, who has beneficially owned shares for a period of at least one year
is entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of:
. 1% of the then-outstanding shares of our common stock; or
. the average weekly trading volume in our common stock during the four
calendar weeks immediately preceding the date on which the notice of
such sale on Form 144 is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about us. In addition, a person who has not been one of our affiliates
60
<PAGE>
at any time during the 90 days immediately preceding a sale, and who has
beneficially owned the shares for at least two years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitation and other
conditions described above. The foregoing summary of Rule 144 is not intended
to be a complete description.
Rule 701 permits any of our employees, officers, directors or consultants
who purchased their shares under a compensatory stock or option plan or other
written agreement prior to our initial public offering to sell such shares
under Rule 144 without complying with the holding period, public information,
volume limitation or notice requirements of Rule 144.
Shares issued under our Employee Stock Purchase Plan and 2000 Equity
Incentive Plan and unexercised options as of the offering may be sold in the
open market, subject, in the case of certain holders, to the Rule 144
limitations applicable to affiliates, the above-referenced lock-up agreements
and vesting restrictions imposed by us.
In addition, as of August 31, 2000, the holders of 10,121,730 shares of our
outstanding common stock and warrants to purchase 396,079 shares of our common
stock, or their transferees, have rights to require us to register their shares
for future sale.
61
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with Prudential Securities
Incorporated, SG Cowen Securities Corporation and Pacific Growth Equities,
Inc., acting as underwriters. We are obligated to sell, and the underwriters
are obligated to purchase, all of the shares offered on the cover page of this
prospectus, if any are purchased. Subject to certain conditions of the
underwriting agreement, each underwriter has severally agreed to purchase the
shares indicated opposite its name:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Prudential Securities Incorporated....................................
SG Cowen Securities Corporation.......................................
Pacific Growth Equities, Inc. ........................................
---------
Total............................................................... 2,500,000
=========
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to 375,000 additional shares from us. If any additional shares are purchased,
the underwriters will severally purchase the shares in the same proportion as
per the table above.
The underwriters have advised us that the shares will be offered to the
public at the offering price indicated on the cover page of this prospectus.
The underwriters may allow to selected dealers a concession not in excess of
$ per share and such dealers may reallow a concession not in excess of
$ per share to certain other dealers. After the shares are released for
sale to the public, the underwriters may change the offering price and the
concessions.
We have agreed to pay to the underwriters the following fees, assuming both
no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares:
<TABLE>
<CAPTION>
Total Fees
-------------------------------------------
Fee Without Exercise of Full Exercise of
Per Share Over-Allotment Option Over-Allotment Option
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by us........... $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $500,000 in
expenses for this offering. We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to make in respect
of these liabilities.
We and our officers and directors have agreed to enter into lock-up
agreements pursuant to which we and they agree not to offer or sell any shares
of our common stock or any securities convertible into or exchangeable or
exercisable for shares of our common stock for a period of 90 days after the
date of this prospectus without the prior written consent of Prudential
Securities Incorporated on behalf of the underwriters. Additionally, in
connection with our initial public offering, substantially all of our
stockholders at that time entered into lock-up agreements pursuant to which
they agreed not to offer or sell any shares of our common stock or any
securities convertible into or exchangeable or exercisable for any shares of
our common stock through December 13, 2000, without the prior written consent
of Prudential Securities Incorporated on behalf of the underwriters in our
initial public offering. Prudential Securities Incorporated may, at any time
and without notice, waive any of the terms of these lock-up agreements.
62
<PAGE>
Prudential Securities Incorporated, on behalf of the underwriters, may
engage in the following activities in accordance with applicable securities
rules:
. Create a syndicate short position by making short sales of our common
stock and may purchase our common stock on the open market to cover
syndicate short positions created by short sales. Short sales involve
the sale by the underwriters of a greater number of shares of common
stock than they are required to purchase in the offering. Short sales
can be either "covered" or "naked." "Covered" short sales are sales made
in an amount not greater than the underwriters' over-allotment option to
purchase additional shares in the offering. "Naked" short sales are
sales in excess of the over-allotment option. A "naked" short position
is more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock in the
open market after pricing that could adversely affect investors who
purchase in the offering.
. Stabilizing and short covering: Stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price.
Prudential Securities Incorporated, on behalf of the underwriters, may
close out any covered short position by either exercising the over-
allotment option or purchasing shares in the open market and must close
out any naked short position by purchasing shares in the open market. In
determining the source of shares to close out the covered short
position, Prudential Securities Incorporated, on behalf of the
underwriters, will consider, among other things, the price of shares
available for purchase in the open market as compared to the price
shares may be purchased through the over-allotment option. These
activities may cause the price of the shares to be higher than would
otherwise exist in the open market.
. Penalty bids permitting Prudential Securities Incorporated to reclaim
concessions from a syndicate member of the shares purchased in the
stabilizing or short covering transactions.
These activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise. Also and prior to the pricing of the shares, and until such time
when a stabilizing bid may have been made, some or all of the underwriters who
are market makers in the shares may make bids for or purchases of shares
subject to certain restrictions, known as passive market making activities.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
. the Public Offers of Securities Regulations 1995,
. the Financial Services Act 1986, and
. the Financial Services Act 1986, (Investment Advertisements) (Exemptions)
Order 1996 (as amended).
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
AdvisorSM, a full service brokerage firm program, may view offering terms and a
prospectus online and place orders through their financial advisors.
63
<PAGE>
LEGAL MATTERS
Certain matters with respect to the legality of the issuance of the common
stock offered hereby will be passed upon for us by Cooley Godward LLP, San
Diego, California. An investment partnership of Cooley Godward LLP beneficially
owns 27,458 shares of our common stock. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Skadden, Arps,
Slate, Meagher & Flom (Illinois), Chicago, Illinois.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999, and for each of the three years in
the period ended December 31, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act that registers the shares of our
common stock to be sold in this offering. The registration statement, including
the attached exhibits and schedules, contains additional relevant information
about us and our capital stock. The rules and regulations of the Commission
allow us to omit certain information included in the registration statement
from this document.
In addition, we file reports, proxy statements and other information with
the Commission under the Securities Exchange Act of 1934. You may read and copy
this information at the following public reference rooms of the Commission:
Washington, D.C. New York, New York Chicago, Illinois
450 Fifth Street, N.W., 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. You may obtain information on the
operation of the public reference rooms by calling the Commission at 1-800-SEC-
0330.
The Commission also maintains an Internet website that contains reports,
proxy statements and other information about issuers, like Dendreon, that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing audited
consolidated financial statements, and make available to our stockholders
quarterly reports for the first three quarters of each year containing
unaudited interim consolidated financial information.
64
<PAGE>
DENDREON CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Dendreon Corporation
We have audited the accompanying balance sheets of Dendreon Corporation as
of December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dendreon Corporation as of
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Seattle, Washington
February 18, 2000,
except as to Note 13, as to which the date is June 21, 2000
F-2
<PAGE>
DENDREON CORPORATION
BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------ June 30,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.................... $ 6,883 $ 7,085 $52,222
Short-term investments....................... 3,047 6,728 3,756
Accounts receivable (net allowance of $25 in
1998 and none in 1999)...................... 319 833 714
Other current assets......................... 159 556 1,941
-------- -------- -------
Total current assets........................... 10,408 15,202 58,633
Property and equipment, net.................... 1,134 1,499 1,741
Deposits and other assets...................... 496 674 893
-------- -------- -------
Total assets................................... $ 12,038 $ 17,375 $61,267
======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................. $ 564 $ 377 $ 283
Accrued liabilities.......................... 666 757 1,610
Accrued compensation......................... 361 505 492
Deferred revenue............................. 2,169 2,434 2,464
Current portion of long term debt............ -- 1,033 1,334
Current portion of capital lease
obligations................................. 183 358 479
-------- -------- -------
Total current liabilities...................... 3,943 5,464 6,662
Deferred revenue, less current portion......... 4,785 3,543 3,763
Long term debt, less current portion........... -- 1,967 1,219
Capital lease obligations, less current
portion....................................... 531 832 1,047
Commitments
Stockholders' equity:
Convertible preferred stock, $0.001 par
value; 10,000,000 shares authorized,
9,009,524, 12,108,369 and no shares issued
and outstanding at December 31, 1998 and
1999 and June 30, 2000, respectively,
aggregate liquidation preference of $54,306
at December 31, 1999........................ 9 12
Common stock, $0.001 par value; 80,000,000
shares authorized, 694,482, 1,111,058 and
21,146,799 shares issued and outstanding at
December 31, 1998 and 1999 and June 30,
2000, respectively.......................... 1 1 21
Additional paid-in capital................... 42,258 58,838 111,716
Deferred stock-based compensation............ (440) (1,715) (3,744)
Accumulated deficit.......................... (39,049) (51,567) (59,417)
-------- -------- -------
Total stockholders' equity..................... 2,779 5,569 48,576
-------- -------- -------
Total liabilities and stockholders' equity..... $ 12,038 $ 17,375 $61,267
======== ======== =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
DENDREON CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------- ------------------
1997 1998 1999 1999 2000
------- -------- -------- ------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Collaborative and license
revenue.................... $ 260 $ 629 $ 3,458 $ 1,467 $ 1,850
Grant revenue............... 533 237 261 145 435
------- -------- -------- ------- ---------
Total revenue................ 793 866 3,719 1,612 2,285
Operating expenses:
Research and development.... 5,290 8,064 10,222 5,391 7,321
General and administrative.. 2,894 2,893 6,110 2,715 2,897
------- -------- -------- ------- ---------
Total operating expenses..... 8,184 10,957 16,332 8,106 10,218
------- -------- -------- ------- ---------
Loss from operations......... (7,391) (10,091) (12,613) (6,494) (7,933)
Interest income.............. 267 361 414 142 497
Interest expense............. (47) (41) (351) (82) (314)
Other income (loss), net..... 8 (2) 32 -- --
------- -------- -------- ------- ---------
Interest and other income,
net......................... 228 318 95 60 183
------- -------- -------- ------- ---------
Loss before income taxes..... (7,163) (9,773) (12,518) (6,434) (7,750)
Provision for income taxes... -- 600 -- -- 100
------- -------- -------- ------- ---------
Net loss..................... (7,163) (10,373) (12,518) (6,434) (7,850)
Deemed dividend upon issuance
of convertible preferred
stock....................... -- -- (285) -- (4,110)
------- -------- -------- ------- ---------
Net loss attributable to
common stockholders......... $(7,163) $(10,373) $(12,803) $(6,434) $ (11,960)
======= ======== ======== ======= =========
Basic and diluted net loss
per share................... $(21.37) $ (16.48) $ (13.54) $ (8.09) $ (3.97)
======= ======== ======== ======= =========
Shares used in computation of
basic and diluted net loss
per share................... 335,117 629,562 945,761 795,120 3,008,813
======= ======== ======== ======= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
DENDREON CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Deferred Total
------------------- ----------------- Paid-in Stock-Based Accumulated Stockholders'
Shares Amount Shares Amount Capital Compensation Deficit Equity
----------- ------ ---------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997................... 4,764,345 $ 5 231,682 $-- $ 25,106 $ -- $(21,513) $ 3,598
Exercise of stock
options for cash...... -- -- 383,759 1 177 -- -- 178
Issuance of Series C
convertible preferred
stock for cash and
technology licenses at
$3.60 per share (net
of issuance costs of
$217)................. 3,308,179 3 -- -- 11,690 -- -- 11,693
Net loss............... -- -- -- -- -- -- (7,163) (7,163)
----------- ---- ---------- ---- -------- ------- -------- --------
Balance, December 31,
1997................... 8,072,524 8 615,441 1 36,973 -- (28,676) 8,306
Exercise of stock
options for cash...... -- -- 79,041 -- 47 -- -- 47
Issuance of Series D
convertible preferred
stock for cash at
$5.00 per share (net
of issuance costs of
$35).................. 937,000 1 -- -- 4,649 -- -- 4,650
Deferred stock-based
compensation.......... -- -- -- -- 589 (589) -- --
Amortization of
deferred stock-based
compensation.......... -- -- -- -- -- 149 -- 149
Net loss............... -- -- -- -- -- -- (10,373) (10,373)
----------- ---- ---------- ---- -------- ------- -------- --------
Balance, December 31,
1998................... 9,009,524 9 694,482 1 42,258 (440) (39,049) 2,779
Exercise of stock
options for cash...... -- -- 416,576 -- 217 -- -- 217
Issuance of Series E
convertible preferred
stock for cash at
$4.25 per share (net
of issuance costs of
$27).................. 3,098,845 3 -- -- 13,140 -- -- 13,143
Issuance of stock
warrants.............. -- -- -- -- 1,104 -- -- 1,104
Deferred stock-based
compensation.......... -- -- -- -- 2,119 (2,119) -- --
Amortization of
deferred stock-based
compensation.......... -- -- -- -- -- 844 -- 844
Net loss............... -- -- -- -- -- -- (12,518) (12,518)
----------- ---- ---------- ---- -------- ------- -------- --------
Balance, December 31,
1999................... 12,108,369 12 1,111,058 1 58,838 (1,715) (51,567) 5,569
Exercise options for
cash (unaudited)...... -- -- 648,796 -- 342 -- -- 342
Issuance of Series E
convertible preferred
stock for cash at
$4.25 per share (net
of issuance costs of
$15) (unaudited)...... 970,708 1 -- -- 4,109 -- -- 4,110
Conversion of preferred
stock into common
stock (unaudited)..... (13,079,077) (13) 14,386,945 14 (1) -- -- --
Deferred stock-based
compensation
(unaudited)........... -- -- -- -- 3,136 (3,136) -- --
Initial public offering
(net of issuance costs
of $4,703)
(unaudited)........... -- -- 4,500,000 5 40,293 -- -- 40,298
Issuance of common
stock in a concurrent
private placement
(unaudited)........... -- -- 500,000 1 4,999 -- -- 5,000
Amortization of
deferred stock-based
compensation
(unaudited)........... -- -- -- -- -- 1,107 -- 1,107
Net loss (unaudited)... -- -- -- -- -- -- (7,850) (7,850)
----------- ---- ---------- ---- -------- ------- -------- --------
Balance, June 30, 2000
(unaudited)............ -- $-- 21,146,799 $ 21 $111,716 $(3,744) $(59,417) $ 48,576
=========== ==== ========== ==== ======== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
DENDREON CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- -------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net loss..................... $(7,163) $(10,373) $(12,518) $(6,434) $ (7,850)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation............... 483 370 485 212 317
Non-cash stock-based
compensation expense...... -- 149 844 391 1,107
Non-cash interest expense.. -- -- 38 -- 46
Non-cash research and
development expense....... 270 -- 190 -- --
Changes in assets and
liabilities:
Accounts receivable........ (424) 213 (514) (181) 119
Other current assets....... (64) 49 (303) (218) (1,294)
Deposits and other assets.. 45 (393) (79) (240) (265)
Deferred revenue........... 264 6,690 (294) (648) 250
Accounts payable........... 254 112 (187) 67 (94)
Accrued liabilities and
compensation.............. 199 256 235 (109) 840
------- -------- -------- ------- --------
Net cash used in
operating activities.... (6,136) (2,927) (12,103) (7,160) (6,824)
Investing Activities:
Purchases of short-term
investments................. (7,461) -- (6,211) -- (15,266)
Maturities of short-term
investments................. -- 4,414 2,530 2,053 18,238
Purchases of property and
equipment................... (285) (658) (850) (510) (559)
------- -------- -------- ------- --------
Net cash provided by
(used in) investing
activities.............. (7,746) 3,756 (4,531) 1,543 2,413
Financing Activities:
Proceeds from equipment
financing arrangement....... -- 800 700 386 486
Proceeds from (payments on)
long term debt.............. -- -- 3,000 -- (447)
Payments on capital lease
obligations................. (353) (205) (224) (89) (150)
Proceeds from sale of common
stock....................... -- -- -- -- 45,298
Proceeds from sale of
preferred stock............. 11,423 4,650 13,143 -- 4,110
Proceeds from exercise of
stock options............... 177 47 217 188 251
------- -------- -------- ------- --------
Net cash provided by
financing activities.... 11,247 5,292 16,836 485 49,548
------- -------- -------- ------- --------
Net increase (decrease) in cash
and cash equivalents.......... (2,635) 6,121 202 (5,132) 45,137
Cash and cash equivalents at
beginning of period........... 3,397 762 6,883 6,883 7,085
------- -------- -------- ------- --------
Cash and cash equivalents at
end of period................. $ 762 $ 6,883 $ 7,085 $ 1,751 $ 52,222
======= ======== ======== ======= ========
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period
for interest................ $ 47 $ 41 $ 308 $ 25 $ 133
======= ======== ======== ======= ========
Cash paid during the period
for foreign income taxes.... $ -- $ 600 $ -- $ -- $ 100
======= ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited)
1. Organization and Summary of Significant Accounting Policies
Organization
Dendreon Corporation (the Company) was founded in 1992 as a Delaware-based
corporation headquartered in Mountain View, California. The Company relocated
to Seattle, Washington in 1999.
The Company is engaged in research and development of immunologically-based
therapeutic products for the treatment of cancer. The Company combines
expertise in immunology and antigen engineering with its proprietary cell
separation technologies to develop therapeutic vaccines that stimulate cancer-
fighting cells.
Unaudited Interim Financial Information
The unaudited interim financial statements as of June 30, 2000 and for the
six months ended June 30, 1999 and 2000 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. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. The results of the interim periods are not necessarily indicative
of future results.
Cash, Cash Equivalents, and Short-Term Investments
The Company considers investments in highly liquid instruments purchased
with a remaining maturity of 90 days or less to be cash equivalents. The
Company's cash equivalents and short-term investments consist principally of
commercial paper, money market securities, and certificates of deposit.
The Company has classified its entire investment portfolio as available-for-
sale. Available-for-sale securities are carried at fair value with unrealized
gains and losses reported as a separate component of stockholders' equity.
Unrealized gains and losses at December 31, 1998 and 1999 are not material,
based on the short-term nature of the Company's investments.
The cost of securities sold is based on the specific identification method.
There were no gross realized gains or losses on available-for-sale securities.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, which is
generally three to four years. Computers and equipment leased under capital
leases are amortized over the shorter of the useful lives of the related assets
or the lease term. Leasehold improvements are stated at cost and amortized
using the straight-line method over the remaining life of the lease or five
years, whichever is shorter.
Concentrations of Credit Risk
The Company is subject to concentration of credit risk, primarily from its
investments. Credit risk for investments is managed by purchase of investment
grade securities, A1/P1 for money market instruments and A or better for debt
instruments, and diversification of the investment portfolio among issuers and
maturities.
F-7
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Revenue Recognition
Non-refundable, up-front payments received in connection with collaborative
research and development agreements are deferred and recognized on a straight-
line basis over the relevant periods specified in the agreement, generally the
research term.
Revenue related to collaborative research with the Company's corporate
collaborators is recognized as research services are performed over the related
funding periods for each agreement. Under these agreements, the Company is
required to perform research and development activities as agreed or specified
in each agreement. The payments received under research collaboration
agreements are not refundable if the research effort is not successful.
Payments received in advance of the services provided are deferred and
recognized as revenue over the future performance periods.
Revenue related to grant agreements is recognized as related research and
development expenses are incurred.
Milestone and royalty payments are recognized in full at such time as the
specified milestone has been achieved. Revenue from product supply agreements
is recorded when the product is shipped or when all obligations under the
agreements are met.
Research and Development Expenses
Research and development expenses consist of costs incurred for proprietary
and collaborative research and development and costs incurred under product
supply agreements prior to product approval. These costs are expensed as
incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, in accounting for employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation." Under APB
No. 25, compensation expense related to the Company's employee stock options is
measured based on the intrinsic value of the stock option. SFAS No. 123
requires companies that continue to follow APB No. 25 to provide pro forma
disclosure of the impact of applying the fair value method of SFAS No. 123. The
Company recognizes compensation expense for options granted to non-employees in
accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force consensus Issue 96-18, "Accounting for Equity Instruments that are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services," which require using a Black-Scholes option pricing model and
remeasuring such stock options to the current fair market value as the
underlying option vests.
Deferred stock-based compensation consists of amounts recorded when the
exercise price of an option is lower than the subsequently determined fair
value of the underlying common stock on the date of grant. Deferred stock-based
compensation is amortized over the vesting period of the underlying option
using the graded vesting method.
F-8
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Net Loss Per Share
Basic and diluted net loss per share of common stock are presented in
conformity with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (FAS 128). The Company has not issued or granted shares for nominal
consideration, as defined in the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. The calculation of basic and diluted net loss per
share has been detailed in Note 8.
Fair Value of Financial Instruments
At December 31, 1999, the Company had the following financial instruments:
cash, cash equivalents, short-term investments, accounts receivable, accounts
payable, accrued liabilities, and long-term debt. The carrying value of cash,
cash equivalents, short-term investments, accounts receivable, accounts
payable, and accrued liabilities approximates their fair value based on the
liquidity of these financial instruments or based on their short-term nature.
The carrying value of debt approximates fair value based on the market interest
rates available to the Company for debt of similar risk and maturities.
Segment Reporting
As of January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
annual and interim reporting standards for a company's operating segments and
related disclosures about products, services, geographic areas, and major
customers. The Company has determined that it operates in only one segment, and
thus, the adoption of this statement had no impact on the Company financial
statements.
Comprehensive Loss
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements and requires reclassification of financial statements for
earlier periods to be provided for comparative purposes. Total comprehensive
loss was not different than net loss.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 is based upon existing accounting rules and provided specific
guidance on how those accounting rules should be applied and specifically
addresses revenue recognition for non-refundable technology access fees in the
biotechnology industry. SAB 101 is effective for fiscal years beginning after
December 15, 1999. SAB 101 is not expected to have a material impact on the
financial position or results of operations of the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which will be
effective for the year ending 2001. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. The
Company believes the adoption of SFAS 133 will not have a material effect on
the financial statements, since it currently does not hold derivative
instruments or engage in hedging activities.
F-9
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Significant Agreements
In December 1998, the Company and Kirin Brewery Co., Ltd. (Kirin) entered
into a collaborative license agreement. The Company issued Kirin an exclusive
license to employ the Company's dendritic cell technology in the development of
therapeutic products for commercialization in Japan and certain other Asian
countries. The Company also granted Kirin an option to obtain an exclusive
license to commercialize in those countries, other products developed by the
Company. In exchange, Kirin has granted the company an option to obtain an
exclusive license to commercialize in North America any products developed by
Kirin under this agreement. The Company received a nonrefundable, upfront fee
of $5,000,000 on signing the agreement for the license rights granted under the
agreement. In February 1999, the Company and Kirin also entered into a joint
research agreement relating to dendritic cell product development. Under the
terms of the agreement, Kirin will fund a minimum of $1,350,000 per year for up
to five years. In July 1999, the Company and Kirin entered into a manufacturing
and supply agreement. Under the agreement, each party may supply the other with
antigens or other supplies. In 1999, the Company recognized $576,000 under this
agreement.
In December 1998, Kirin exercised an option under the agreement to receive
rights to the Company's prostate program. Kirin is solely responsible for the
development and clinical trials of the prostate program in Japan. The Company
received a $1 million non-refundable, up-front option fee on exercise of the
option. The up-front option fee has been deferred and is being recognized on a
straight-line basis over the five year research term. The Company will also
receive royalties on sales of any products that utilize the licensed
technology.
Under the terms of the agreement, Kirin made a $2,000,000 equity investment
in the Company as part of the Series D offering (see Note 6). The Company has
the option, through December 31, 2000, to require Kirin to purchase up to
1,000,000 shares of stock at the most recent offering price, but not to exceed
$5,000,000 in the aggregate. In February 2000, the Company exercised its right
to require Kirin to purchase $5 million of the Company's common stock. The
purchase closed concurrent with the closing of the Company's initial public
offering at the initial public offering price.
During the years ended December 31, 1998 and 1999, the Company recognized
revenue of $100,000 and $3,115,000, respectively, related to the Kirin
agreements.
In March 1995, the Company entered into a one-year research agreement with
Stanford University (Stanford), in the field of cellular immunotherapy. The
agreement was subsequently extended through June 1997 under the same terms and
conditions as provided for in the original agreement. Under the terms of the
agreement, the Company performed specific research related to HIV-specific
allogenic cellular immunotherapy. In consideration, Stanford reimbursed the
Company for certain costs incurred in this effort. The Company recognized
revenue of $176,000 for the year ended December 31, 1997, related to this
agreement with associated costs approximating the amounts recognized as
revenue. In September 1996, the Company entered into two further research
agreements with Stanford University with initial terms of one year. The
agreements were extended through September 2000. Under the agreements, the
Company is being reimbursed for certain costs incurred in providing research
services to Stanford. During 1997, 1998, and 1999, the Company recognized
$357,000, $237,000, and $261,000 respectively, related to these agreements with
associated costs approximating the amounts recognized as revenue. At December
31, 1998 and 1999, the Company had receivables from Stanford amounting to
$78,000 and $65,000, respectively.
In August 1996, the Company entered into an agreement with BioTransplant
under which the Company granted BioTransplant a ten-year exclusive license to
use the Company's proprietary cell separation technology for use in combination
with solid organ transplantation. The Company received an up-front fee and will
receive royalties on future sales. In addition, BioTransplant is obligated to
annual minimum purchase amounts and payments to maintain exclusivity. During
the year ended December 31, 1997, 1998 and 1999, the Company recognized revenue
of $180,000, $210,000 and $150,000, respectively related to BioTransplant.
F-10
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Significant Agreements (continued)
In February 1997, the Company entered into a seven-year agreement with
Osiris under which the Company granted Osiris a non-exclusive license to use
the Company's proprietary cell separation technology for use in the separation
of mesenchymal stem cells. The Company received fees and will receive royalties
on future sales. During the year ended December 31, 1997, 1998 and 1999, the
Company recognized revenue of $47,000, $43,000 and $43,000, respectively,
related to the Osiris agreement.
3. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
---------------
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Furniture and office equipment............................ $ 167 $ 295
Laboratory and manufacturing equipment.................... 2,048 2,382
Computer equipment........................................ 250 328
Leasehold improvements.................................... 733 746
------- -------
3,198 3,751
Less accumulated depreciation and amortization............ 2,064 2,252
------- -------
$1,134 $ 1,499
======= =======
</TABLE>
Property and equipment include assets under capitalized leases of $1,188,000
and $1,500,000 at December 31, 1998 and 1999, respectively. Accumulated
amortization related to assets under capital leases was $490,000 and $412,000
at December 31, 1998 and 1999, respectively.
4. Employee Notes Receivable
The Company has made loans to certain employees in connection with
individual employment agreements. The loans bear interest at annual rates from
4.7% to 5.5% per year and are either forgiven over five years based on
continued employment, or due immediately upon each employee's termination.
During the years ended December 31, 1997, 1998, 1999, the Company recognized
$38,000, $31,000, and $24,000, respectively, as an expense associated with
these notes. The balance at December 31, 1998 and 1999 was $15,000 and
$105,000, respectively, and have been classified in deposits and other assets
on the balance sheet.
5. Long-Term Debt and Capital Lease Obligations
In December 1997, the Company entered into a $1,000,000 lease line agreement
with a term of four years. The lease line was extended to $3,000,000 in
December 1999. As of December 31, 1999, $1,500,000 was advanced under the
agreement December 31, 1999, and $1,500,000 was available under the agreement.
All of the assets leased under the agreement were sold and leased back by the
Company. No gains or losses were recognized as a result of the sale or
leaseback. The Company has the right to repurchase the leased assets at the end
of the lease term for 10% of the original equipment cost. In connection with
the original lease line in 1997, the Company issued a warrant to purchase 9,167
shares of common stock exercisable for ten years at a price of $3.27 per share.
In connection with the lease extension in 1999, the Company issued a warrant to
purchase 3,300 shares of common stock exercisable for seven years at a price of
$4.55 per share. Both warrants were valued using the Black-Scholes valuation
method and the resulting fair values were determined to be insignificant.
F-11
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Long-Term Debt and Capital Lease Obligations (continued)
In June 1999, the Company obtained a term loan in an amount of $3,000,000
from a financial lender. The loan bears interest at an annual rate of 13.3% and
is collateralized by the Company's assets including receivables and equipment.
Interest-only payments shall be paid monthly for six months and 24 payments of
principal and interest are due monthly thereafter. In connection with the term
loan, the Company issued a warrant to purchase 85,800 shares of common stock at
an exercise price of $4.55. The warrant is exercisable for seven years from the
date of issuance. The Company has valued the warrant using the Black-Scholes
valuation method with the following assumptions: no dividend yield; expected
life of seven years; risk-free interest rate of 6.1%; and volatility of 0.75.
The fair value assigned to the warrant of $232,000 is being amortized using the
effective interest method, as additional interest expense over the term of the
loan.
Future principal payments under the term loan agreement and the future
minimum lease payments under capital lease obligations are as follows as of
December 31, 1999:
<TABLE>
<CAPTION>
Capital
Term Lease
Loan Obligations
------ ------------
(in thousands)
<S> <C> <C>
Year ending December 31:
2000.................................................. $1,033 $ 437
2001.................................................. 1,547 437
2002.................................................. 420 313
2003.................................................. -- 115
------ ------
Total payments......................................... 3,000 1,302
Less amount representing interest...................... -- 112
------ ------
Present value of payments.............................. 3,000 1,190
Less current portion of obligations.................... 1,033 358
------ ------
Long term portion of obligations....................... $1,967 $ 832
====== ======
</TABLE>
6. Stockholders' Equity
Convertible Preferred Stock
Convertible preferred stock designated and outstanding as of December 31,
1999 is as follows:
<TABLE>
<CAPTION>
Number of Shares
---------------------- Aggregate
Issued and Net Liquidation
Designated Outstanding Proceeds Preference
---------- ----------- -------- -----------
(in thousands, except share information)
<S> <C> <C> <C> <C>
Series A....................... 507,500 500,000 $ 9,964 $10,000
Series B....................... 4,264,375 4,264,345 14,459 14,542
Series C....................... 3,308,179 3,308,179 11,693 11,909
Series D....................... 937,000 937,000 4,650 4,685
Series E....................... 4,705,882 3,098,845 13,143 13,170
---------- ---------- ------- -------
13,722,936 12,108,369 $53,909 $54,306
========== ========== ======= =======
</TABLE>
In August 1999, the Company offered Series E preferred stock at a per-share
price of $4.25. Through December 31, 1999, 3,098,845 shares were issued, net of
$27,000 in issuance costs. The offering was completed in February 2000 when an
additional 970,708 shares of preferred stock were issued for proceeds of
$4,126,000, net of $15,000 in issuance costs.
F-12
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Stockholders' Equity (continued)
At the date of issuance, the Company believed the per share price of $4.25
represented the fair value of the preferred stock. The subsequently determined
fair value of the Company's common stock ranged from $5.45 to $9.09 per share,
and was in excess of the fair value of the preferred stock. Accordingly, the
incremental fair value determined on the date of issuance for each closing of
Series E preferred stock, is deemed to be the equivalent of a preferred stock
dividend, limited to the extent of the proceeds from the issuance for each
closing. The Company recorded a deemed dividend of $285,000 for the year ended
December 31, 1999 by offsetting charges and credits to additional paid-in
capital, without any effect on total stockholders' equity. The amount increased
the loss attributable to common stockholders in the calculation of basic net
loss for the year ended December 31, 1999. An additional deemed dividend upon
the issuance of Series E preferred stock of $4,110,000 was recognized for the
three months ended March 31, 2000 for the 970,708 shares issued in February
2000.
Each share of Series A, B, C, D, and E preferred stock (preferred stock) is
entitled to voting rights equivalent to the number of shares of common stock
into which each share can be converted.
In the event of any voluntary or involuntary liquidation, the holders of
preferred stock will be entitled to receive, prior and in preference to any
distributions of any assets or surplus funds of the Company to the holders of
common stock, an amount equal to the original purchase price of the preferred
stock plus all declared and unpaid dividends, if any. If the assets and funds
to be distributed are insufficient to permit the payment of the full
preferential amounts to the preferred stockholders, the entire assets and funds
of the Company will be distributed ratably among the preferred stockholders in
proportion to the preferential amount each such stockholder is otherwise
entitled to receive.
In the event funds are sufficient to make a complete distribution to the
preferred stockholders as described above, the remaining assets of the Company
will be distributed to the holders of common stock and preferred stock pro rata
based on the number of shares of common stock held by each stockholder or the
number of shares of common stock into which shares of preferred stock are
convertible.
Shares are convertible, at the option of the holder, into one share of
common stock, subject to certain antidilution adjustments (see Note 13).
Conversion is automatic upon the closing of an underwritten public offering
registered under the Securities Act of 1933, which results in gross proceeds to
the Company of not less than $15,000,000 and a market capitalization for the
outstanding shares of common stock immediately following the offering of not
less than $40,000,000. Conversion is required upon election by a majority of
the holders of preferred stock, voting as a single class.
All outstanding preferred stock converted into common stock upon the closing
of the Company's public offering in June 2000.
Warrants
In 1997, the Company issued a warrant to purchase 38,195 shares of common
stock in connection with an agreement for financial services provided to the
Company. The warrant was exercisable at a price of $3.27 per share for a ten-
year period. The Company has valued the warrant issued in 1997 using the Black-
Scholes valuation method with the following assumptions: no dividend yields,
expected life of 10 years, risk-free interest rate of 6% and volatility of 0.5.
The value of the warrant was determined to be insignificant, and consequently,
no expense has been recorded.
In February 1998, the Company issued an exclusive license for its cell
collection and isolation technology for the use in the field of hematopoetic
stem cell reconstitution of cancer patients. The Company received a non-
refundable, up front fee of $1,000,000. The agreement was terminated in October
1999. In connection with the termination, the Company issued a warrant to
purchase 275,000 shares of the Company's common stock for
F-13
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Stockholders' Equity (continued)
nominal consideration. The warrant is exercisable for five years at an exercise
price of $4.55 per share. The warrant has been valued using the Black-Scholes
valuation method with the following assumptions: no dividend yield; expected
life of five years; risk-free interest rate of 6.1%; and volatility of 0.75. As
of the date of the termination, the Company had recognized $317,000 in revenue
under the agreement during 1998 and 1999. The fair value assigned to the
warrant of $873,000 has been offset against the remaining deferred revenue of
$683,000 and the remainder of $190,000 has been charged to research and
development expense.
Additional warrants for 112,831 shares of common stock and 7,500 shares of
Series A preferred stock were issued in 1995 and are still outstanding and
exercisable at December 31, 1999.
Stock Option Plans
In May 1996, the Company adopted a stock option plan (the 1996 Plan) and, as
of December 31, 1999, had reserved a total of 3,850,000 shares for issuance
thereunder. The options granted under the 1996 Plan may be either incentive
stock options or nonqualified stock options. Options granted under the 1996
Plan expire no later than 10 years from the date of grant. The option price
shall be at least 100% of the fair value on the date of grant for incentive
stock options, and no less than 85% of the fair value for nonqualified stock
options. If, at the time the Company grants an option, the optionee directly or
by attribution owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, the option price shall be at
least 110% of the fair value and shall not be exercisable more than five years
after the date of grant. The fair value of the Company's common stock is
determined by the board of directors based upon various factors, including the
progression of research and development, equity financings and estimated
proximity to a public offering of the Company's common stock. The options
generally become exercisable in increments over a period of four years from the
date of grant, with the first increment vesting after one year. Options may be
granted with different vesting terms from time to time.
At December 31, 1999, the Company had 8,224 options outstanding under a
prior stock option plan. The Company also had outstanding options to purchase
69,494 shares of common stock which were granted to founders in 1992 at $0.20
per share. These options were granted outside of the above plans.
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------------- Six Months Ended
1997 1998 1999 June 30, 2000
------------------------- ------------------------- ------------------------- -------------------
Weighted
Shares Weighted- Shares Weighted- Shares Weighted- Shares Average
Under Average Under Average Under Average Under Exercise
Option Exercise Price Option Exercise Price Option Exercise Price Option Price
--------- -------------- --------- -------------- --------- -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of period.............. 1,595,911 $0.48 1,494,988 $0.45 1,876,199 $0.54 1,888,873 $0.67
Options granted at fair
value.................. 323,949 0.47 -- -- -- -- -- --
Options granted at less
than fair value........ -- -- 625,900 0.75 665,720 0.95 506,559 2.53
Options exercised....... (383,759) 0.60 (79,041) 0.49 (416,576) 0.55 (648,796) 0.52
Options forfeited....... (41,113) 0.50 (165,648) 0.55 (236,470) 0.62 (22,951) 0.85
--------- --------- --------- ---------
Outstanding--end of
period................. 1,494,988 0.45 1,876,199 0.54 1,888,873 0.67 1,723,685 1.27
========= ========= ========= =========
Exercisable at end of
period................. 598,965 0.42 1,125,582 0.47 881,075 0.50 605,781 0.57
========= ========= ========= =========
Weighted-average fair
value of options
granted during the
period................. 0.08 1.84 4.34 9.89
</TABLE>
At December 31, 1999 and June 30, 2000, there were 1,101,503 shares and
1,167,895 shares, respectively, available for future grant under the equity
incentive plan.
F-14
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Stockholders' Equity (continued)
Information regarding the weighted-average remaining contractual life and
weighted-average exercise price of options outstanding and options exercisable
at December 31, 1999 for selected price ranges is as follows:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
----------------------------------- -----------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Contractual Exercise Exercise
Exercise Prices Shares Life (in years) Price Shares Price
--------------- --------- -------------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.18............... 80,383 2.8 $0.18 80,383 $0.02
$0.46--$0.68........ 979,505 7.0 0.50 677,092 0.49
$0.73--$0.90........ 69,209 8.2 0.75 63,984 0.75
$0.91............... 726,776 9.1 0.91 59,616 0.91
$1.82............... 33,000 10.0 1.82 -- --
--------- -------
1,888,873 7.9 0.67 881,075 0.50
========= =======
</TABLE>
During the years ended December 31, 1998 and 1999, and during the six months
ended June 30, 2000, in connection with the grant of certain options to
employees, the Company recorded deferred stock-based compensation of $589,000,
$2,119,000, and $3,136,000, respectively, representing the difference between
the exercise price and the subsequently determined fair value of the Company's
common stock on the date such stock options were granted. The subsequently
determined fair value of the Company's common stock ranged from $0.91 to $3.32
in 1998, $3.36 to $7.27 in 1999, and $8.18 to $11.82 in the six months ended
June 30, 2000. Deferred stock-based compensation is being amortized on a graded
vesting method. During the years ended December 31, 1998 and 1999, the Company
recorded non-cash deferred stock-based compensation expense of $149,000 and
$844,000, respectively.
Pro Forma Information
Pro forma information regarding net loss is required by SFAS No. 123 as if
the Company had accounted for its employee stock options under the fair value
method. The fair value of the Company's options was estimated at the date of
grant using the minimum value method with the following assumptions for 1997,
1998, and 1999 and no dividend yields; expected lives of the options of four
years; and risk-free interest rates of 5.5%, 6.0%, and 6.1%, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The following
table illustrates what net loss would have been had the Company accounted for
its stock options under the provisions of FAS 123.
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1997 1998 1999
------- -------- --------
(in thousands)
<S> <C> <C> <C>
Pro forma net loss attributable to common
stockholders.............................. $(7,364) $(10,403) $(12,882)
======= ======== ========
Pro forma net loss per share............... $(21.97) $ (16.52) $ (13.62)
======= ======== ========
</TABLE>
F-15
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Stockholders' Equity (continued)
Common Stock Reserved
As of December 31, 1999, common stock was reserved as follows:
<TABLE>
<S> <C>
Preferred stock................................................. 15,095,230
Preferred stock warrants........................................ 8,250
Common stock warrants........................................... 524,293
Common stock options............................................ 3,007,395
----------
18,635,168
==========
</TABLE>
7. Income Taxes
Due to operating losses and the inability to recognize the benefits
therefrom, there was no federal or state provision for income taxes. In 1998,
the Company was subject to a $600,000 withholding tax in Japan related to
certain payments received from Kirin.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $28,524,000. The Company also had federal
research and development tax credit carryforwards of approximately $1,209,000.
The net operating loss and credit carryforwards will expire at various dates
beginning on 2009 through 2012, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of the Company's deferred
tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Net operating loss carryforwards....................... $ 8,236 $ 10,886
Deferred revenue....................................... 2,770 2,381
Research credits....................................... 723 1,209
Capitalized research and development................... 4,087 5,824
Other.................................................. 542 927
-------- --------
Total deferred tax assets.............................. 16,358 21,227
Valuation allowance.................................... (16,358) (21,227)
-------- --------
Net deferred tax assets................................ $ -- $ --
======== ========
</TABLE>
The net deferred tax asset has been fully offset by a valuation allowance.
The valuation allowance increased by $4,258,000 and $4,869,000 during the years
ended December 31, 1998 and 1999, respectively. Deferred tax assets relate
primarily to net operating loss carryforwards, research credits and capitalized
research and development costs.
F-16
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. 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. Pro forma basic and diluted net loss per share
of common stock gives effect to the conversion of the convertible preferred
stock which will automatically convert to common stock immediately prior to the
completion of the Company's initial public offering from the original date of
issuance using the if-converted method.
The following table presents the calculation of basic, diluted, and pro
forma basic and diluted net loss per share:
<TABLE>
<CAPTION>
June 30,
-------------------
1997 1998 1999 1999 2000
------- -------- ---------- ------- ----------
(in thousands except share and per share
information)
<S> <C> <C> <C> <C> <C>
Net loss attributable to
common shareholders....... $(7,163) $(10,373) $ (12,803) $(6,434) $ (11,960)
======= ======== ========== ======= ==========
Basic and diluted:
Weighted-average number of
shares used for basic and
diluted per share
amounts.................. 335,117 629,562 945,761 795,120 3,008,813
======= ======== ========== ======= ==========
Basic and diluted net loss
per share................. $(21.37) $ (16.48) $ (13.54) $ (8.09) $ (3.97)
======= ======== ========== ======= ==========
Pro forma (unaudited):
Shares used above......... 945,761 3,008,813
Pro forma adjustment to
reflect weighted effect
of assumed conversion of
convertible preferred
stock.................... 11,017,615 13,036,606
---------- ----------
Shares used in computing
pro forma basic and
diluted net loss per
share.................... 11,963,376 16,008,355
========== ==========
Pro forma basic and
diluted net loss per
share.................... $ (1.07) $ (0.75)
========== ==========
</TABLE>
The Company has excluded all convertible preferred stock and outstanding
stock options from the calculation of diluted loss per common share because all
such securities are antidilutive for the periods presented. The total number of
shares excluded from the calculations of diluted net loss per common share,
prior to the application of the treasury stock method for options, was
10,468,348, 11,868,158, and 15,662,818 for the years ended December 31, 1997,
1998, and 1999, respectively.
9. Lease and Rental Commitments
In July 1993, the Company leased a facility in Mountain View, California
under a noncancelable operating lease. The lease term is eight years, and the
Company has the option to extend the lease term for one five-year period. Terms
of renewal are to be negotiated at the time of exercising the renewal option.
The Company has subleased a portion of this facility under a lease expiring in
June 2001.
In October 1998, the Company entered into a lease agreement for a facility
in Seattle, Washington under a noncancelable operating lease. The lease term is
ten years and the Company has the option to extend the lease term for two five-
year periods with the same terms and conditions except for rent, which adjusts
to market rate. The Company has subleased a portion of this facility under a
lease expiring March 2004. The lessor has also provided the Company a tenant
improvement allowance of up to $3.5 million. At December 31, 1999, the Company
had expended or committed $2.4 million, which will be repaid monthly as an
addition to the base rent expense over the term of the lease, with interest at
12.5% per year.
F-17
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Lease and Rental Commitments (continued)
Sublease rental income is accounted for as a deduction of rent expense. Rent
expense for the years ended December 31, 1997, 1998, and 1999 was $495,000,
$495,000, and $3,162,000, respectively, which is net of sublease rental income
of $0, $0, and $561,000, respectively.
Future minimum lease payments under noncancelable operating leases and
future minimum rentals to be received under noncancelable subleases at December
31, 1999, are as follows:
<TABLE>
<CAPTION>
Operating Noncancelable
Leases Subleases
--------- -------------
(in thousands)
<S> <C> <C>
Year ending December 31:
2000.............................................. $ 2,191 $ 844
2001.............................................. 2,108 605
2002.............................................. 1,872 394
2003.............................................. 1,872 404
2004.............................................. 1,872 101
Thereafter........................................ 8,478 --
------- ------
Total minimum lease payments....................... $18,393 $2,348
======= ======
</TABLE>
10. Related-Party Transactions
Two founders are providing consulting services to the Company. The Company
has the right to terminate these contracts at any time. The Company incurred
$150,000, $132,000 and $120,000 in consulting fees during the years ended
December 31, 1997, 1998, and 1999, respectively, under these agreements.
11. Employee Benefit Plan
The Company has a 401(k) plan for those employees who meet eligibility
requirements. Eligible employees may contribute up to 20% of their eligible
compensation, subject to IRS limitations. Company contributions to the plans
are discretionary as determined by the Board of Directors. There were no
employer contributions in 1997, 1998, or 1999.
The Company started a Flexible Benefit Plan in December 1999 for eligible
employees to defer their pretax earnings to pay for certain kinds of benefits
and expenses. There were no significant expenses for the year ended December
31, 1999.
12. Major Customers
Revenues from the following customers represented greater than 10% of total
revenues:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. 67% 27% 7%
Customer B.................................................. -- 12% 84%
Customer C.................................................. 23% 24% 4%
Customer D.................................................. -- 30% 4%
</TABLE>
F-18
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
13. Subsequent Events
Initial Public Offering
On March 1, 2000, the board of directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. The Company sold 4,500,000 shares of common stock at $10.00 per share
in its initial public offering, which closed on June 21, 2000. The Company
raised $40.3 million after deducting underwriting discounts, commissions, and
offering expenses. The Company also sold 500,000 shares of common stock at the
initial public offering price to Kirin in a private placement concurrent with
the closing of the initial public offering. Upon the closing of the initial
public offering, all of the outstanding preferred stock automatically converted
into 14,386,945 shares of common stock.
On May 20, 2000, the board of directors approved, subject to stockholder
consent, a 1.1-for-1 stock split of the common stock of the Company and an
increase in the number of authorized shares of common stock to 19,910,000. This
stock split and increase in authorized shares was effected on June 13, 2000.
The conversion ratio of the preferred stock was simultaneously adjusted to 1.1-
for-1. The number of shares of common stock and applicable per share
information presented in the accompanying financial statements has been
restated to reflect the stock split.
On March 1, 2000, the board of directors approved an increase in the
authorized number of shares of common stock to 80,000,000 and of preferred
stock to 10,000,000. The increase in the authorized number of shares was
approved by the stockholders of the Company on May 1, 2000 and was effective as
of the closing of the initial public offering. The authorized share amounts
have been restated with the accompanying financial statements.
On July 7, 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 resulting in net proceeds of $3,587,000 (unaudited).
2000 Equity Incentive Plan
On March 1, 2000, the board of directors adopted and the stockholders
approved on May 1, 2000, the 2000 Equity Incentive Plan (the 2000 Plan), which
amends and restates the 1996 Plan. A total of 4,400,000 shares of common stock
have been authorized and reserved for issuance under the 2000 Plan, an increase
of 550,000 shares over that previously authorized under the 1996 Plan. Each
year, the number of shares reserved for issuance under the 2000 Plan will
automatically be increased by the least of (i) 5% of the total number of shares
of the Company's common stock then outstanding, (ii) 550,000 shares, or (iii) a
number to be determined by the Company's Board of Directors.
Employee Stock Purchase Plan
Upon the completion of the initial public offering, the Company implemented
the 2000 Employee Stock Purchase Plan (the Purchase Plan), which was approved
by the board of directors on March 1, 2000 and approved by the stockholders on
May 1, 2000. A total of 1,485,000 shares of common stock have been reserved for
issuance under the Purchase Plan. Each year, the number of shares reserved for
issuance under the Purchase Plan will automatically be increased by the least
of (i) 1% of the total number of shares of the Company's common stock then
outstanding, (ii) 440,000 shares, or (iii) a number determined by the Company's
Board of Directors.
F-19
<PAGE>
DENDREON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
13. Subsequent Events (continued)
The Purchase Plan permits eligible employees to purchase common stock at a
discount, but only through payroll deductions during defined offering periods.
The price at which common stock is purchased under the Purchase Plan is equal
to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Research Collaboration and License Agreement (Unaudited)
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.
Supply and Marketing Agreement (Unaudited)
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 from the FDA in 1999.
F-20
<PAGE>
--------------------------------------------------------------------------------
[LOGO OF DENDREON CORPORATION]
Prudential Vector Healthcare
a unit of Prudential Securities
SG Cowen
Pacific Growth Equities, Inc.
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
SEC registration fee............................................... $ 16,122
NASD fee........................................................... 6,607
Nasdaq National Market listing fee................................. 17,500
Printing and engraving expenses.................................... 150,000
Legal fees and expenses............................................ 200,000
Accounting fees and expenses....................................... 75,000
Blue sky fees and expenses......................................... 2,500
Transfer agent fees................................................ 5,000
Miscellaneous expenses............................................. 27,271
--------
Total............................................................ $500,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933
(the "Act"). Dendreon's bylaws provides for mandatory indemnification of its
directors and officers and permissible indemnification of employees and other
agents to the maximum extent not prohibited by the Delaware General Corporation
Law. Dendreon's certificate of incorporation provides that, pursuant to
Delaware law, its directors shall not be liable for monetary damages for breach
of the directors' fiduciary duty as directors to Dendreon and its stockholders.
This provision in the certificate of incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to Dendreon for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. Dendreon has entered
into indemnification agreements with its officers and directors. The
indemnification agreements provide Dendreon's officers and directors with
further indemnification to the maximum extent permitted by the Delaware General
Corporation Law. We maintain liability insurance for our directors and
officers. Reference is also made to Section 9.8 of the Fourth Amended and
Restated Stockholders' Rights Agreement filed as an exhibit to the Registration
Statement on Form S-1 (File No. 333-31920), indemnifying certain of Dendreon's
stockholders, including controlling stockholders, against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
(a) The following securities of the Registrant have been sold or issued by
the Registrant during the past three years without registration under the
Securities Act of 1933, as amended (the "Securities Act").
(1) In December 1997, the Registrant issued a warrant to purchase 9,167
shares of the Registrant's common stock at an exercise price of $3.27 per
share to Transamerica Business Credit Corporation in connection with an
equipment lease agreement between the Registrant and Transamerica Business
Credit Corporation.
(2) In July 1998, the Registrant issued and sold in a private offering
an aggregate of 937,000 shares of Series D Preferred Stock at $5.00 per
share to eight investors, including Kirin Brewery Co., Ltd., Vulcan
Ventures Incorporated, New York Life Insurance Company, Shaw Venture
Partners and other accredited investors. The aggregate cash consideration
was $4,685,000.
II-1
<PAGE>
(3) In March 1999, the Registrant issued a warrant to purchase 3,300
shares of its common stock at an exercise price of $4.55 per share to
Transamerica Business Credit Corporation in connection with an equipment
lease agreement between the Registrant and Transamerica Business Credit
Corporation.
(4) In August 1999, the Registrant issued a warrant to purchase 85,800
shares of its common stock at an exercise price of $4.55 per share to TBCC
Funding Trust II in connection with a loan agreement between the Registrant
and Transamerica Business Credit Corporation.
(5) In October 1999, the Registrant issued a warrant to purchase 275,000
shares of its common stock at an exercise price of $4.55 per share to
Fresenius AG in connection with the termination of a license agreement
between the Registrant and Fresenius AG.
(6) From September 1999 to February 2000, the Registrant issued and sold
in a private offering an aggregate of 4,069,553 shares of Series E
Preferred Stock at $4.25 per share to 14 investors, including Vulcan
Ventures, Inc., HealthCare Ventures, Kummell Investments Limited, New York
Life Insurance Company, Sanderling Venture Partners, Shaw Venture Partners
and other accredited investors. The aggregate cash consideration was
$17,295,600.
(7) From March 10, 1997 to March 31, 1997, the Registrant granted
options to purchase an aggregate of 1,650 shares of common stock at an
exercise price of $0.46 per share to its employees and officers, pursuant
to its 1996 Equity Incentive Plan.
(8) From September 2, 1997 to November 17, 1997, the Registrant granted
options to purchase an aggregate of 51,150 shares of common stock at an
exercise price of $0.49 per share to its employees and officers and an
aggregate of 22,000 shares of common stock at an exercise price of $0.49
per share to its consultants and directors, pursuant to its 1996 Equity
Incentive Plan.
(9) From December 15, 1997 to February 2, 1998, the Registrant granted
options to purchase an aggregate of 348,150 shares of common stock at an
exercise price of $0.68 per share to its employees and officers, pursuant
to its 1996 Equity Incentive Plan.
(10) From March 2, 1998 to May 13, 1998, the Registrant granted options
to purchase an aggregate of 61,050 shares of common stock at an exercise
price of $0.75 per share to its employees and officers and an aggregate of
66,000 shares of common stock at an exercise price of $0.75 per share to
its consultants and directors, pursuant to its 1996 Equity Incentive Plan.
(11) From June 22, 1998 to December 1, 1999, the Registrant granted
options to purchase an aggregate of 725,120 shares of common stock at an
exercise price of $0.91 per share to its employees and officers and an
aggregate of 63,250 shares of common stock at an exercise price of $0.91
per share to its consultants and directors, pursuant to its 1996 Equity
Incentive Plan.
(12) From December 13, 1999 to March 1, 2000, the Registrant granted
options to purchase an aggregate of 354,200 shares of common stock at an
exercise price of $1.82 per share to its employees and officers and an
aggregate of 52,800 shares of common stock at an exercise price of $1.82
per share to its consultants and directors, pursuant to its 1996 Equity
Incentive Plan.
(13) From March 1, 2000 to March 31, 2000, the Registrant granted
options to purchase an aggregate of 38,500 shares of common stock at an
exercise price of $4.55 per share to its employees.
(14) On March 31, 2000, the Registrant granted options to purchase an
aggregate of 16,500 shares of common stock at an exercise price of $4.55
per share to a director.
(15) From April 1, 2000 to April 30, 2000, the Registrant granted
options to purchase an aggregate of 22,550 shares of common stock at an
exercise price of $4.55 per share to its employees.
(16) From May 1, 2000 to May 15, 2000, the Registrant granted options to
purchase an aggregate of 23,100 shares of common stock at an exercise price
of $4.55 per share to its employees.
(17) On May 5, 2000, the Registrant granted options to purchase an
aggregate of 13,200 shares of common stock at an exercise price of $4.55
per share to two directors.
(18) From June 1, 2000 to June 13, 2000, the Registrant granted options
to purchase an aggregate of 18,700 shares of common stock at an exercise
price of $4.55 per share to its employees.
II-2
<PAGE>
(19) On June 21, 2000, the Registrant issued and sold in a private
offering 500,000 shares of common stock to Kirin Brewery, Ltd. for
$5,000,000.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The sales and issuances of the above securities were deemed to be exempt
from registration under the Securities Act in reliance upon Section 4(2) of the
Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act as transactions by an issuer not
involving a public offering or transactions pursuant to compensation benefit
plans and contracts relating to compensation as provided under Rule 701. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates issued in such transactions. All recipients
had adequate access, through their relationships with us, to information about
Dendreon.
For Item 15(a)(18) above, the issuance of the securities to Kirin Brewery
Co., Ltd. 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.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation.
3.2 Bylaws.(1)
4.1 Specimen Common Stock certificate.(1)
5.1* Opinion of Cooley Godward LLP.
10.1* Indemnity Agreement between the Registrant and each of its directors
and certain of its officers.
10.2* 2000 Equity Incentive Plan.
10.3* 2000 Employee Stock Purchase Plan.
10.4 Fourth Amended and Restated Stockholders' Agreement, dated September
3, 1999, between the Registrant and certain holders of the
Registrant's securities.(1)
10.5 Series E Preferred Stock Purchase Agreement, dated September 3,
1999.(1)
10.6 Registration Rights and Shareholder's Agreement, dated October 18,
1999, between the Registrant and Fresenius AG.(1)
10.7 Warrant to purchase 250,000 shares of common stock issued by the
Registrant to Fresenius AG, dated October 18, 1999.(1)
10.8 Letter dated September 3, 1998 regarding employment arrangement of
Christopher S. Henney and David L. Urdal.(1)
10.9 Lease Agreement, dated October 27, 1992 and commencing July 1, 1993,
between the Registrant and Vanni Business Park General Partnership.(1)
10.10 Lease Agreement, dated July 31, 1998, between the Registrant and ARE-
3005 First Avenue, LLC.(1)
10.11 Loan and Security Agreement, dated July 30, 1999, between the
Registrant and Transamerica Business Credit Corporation.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.12 Amended and Restated Master Lease Agreement, dated May 28, 1999,
between the Registrant and Transamerica Business Credit
Corporation.(1)
10.13 Second Amendment to Master Lease Agreement, dated January 31, 2000,
between the Registrant and Transamerica Business Credit
Corporation.(1)
10.14 Collaborative License Agreement, dated December 10, 1998, between the
Registrant and Kirin Brewery Co., Ltd.(1)(2)
10.15 Research and License Agreement, dated February 1, 1999, between the
Registrant and Kirin Brewery Co., Ltd.(1)(2)
10.16 Manufacturing and Supply Agreement, dated July 27, 1999, between the
Registrant and Kirin Brewery Co., Ltd.(1)(2)
10.17 Joint Commercialization Agreement, dated February 1, 2000, between the
Registrant and Kirin Brewery Co., Ltd.(1)(2)
10.18* Stock Purchase Agreement, dated June 16, 2000, between the Registrant
and Kirin Brewery, Co., Ltd.
10.19+ Research Collaboration and License Agreement, dated October 1, 2000,
between the Registrant and The R.W. Johnson Pharmaceutical Research
Institute, a division of Ortho-McNeil Pharmaceutical, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP (see Exhibit 5.1).
24.1* Power of Attorney (contained on signature page).
</TABLE>
--------
(1) Filed as an exhibit to Registration Statement on Form S-1, File No. 333-
31920.
(2) Confidential treatment granted as to certain portions of this Exhibit.
+ Confidential treatment requested.
* Previously filed as an exhibit to this Registration Statement on Form S-1,
File No. 333-47706.
(b) Financial statement schedule
All financial statement schedules not listed are omitted because they are
inapplicable or the requested information is shown in the financial statements
of the Registrant or the related notes to the financial statements.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in
II-4
<PAGE>
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Dendreon Corporation has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Seattle, King County, State of Washington, on this 25th day of October, 2000.
Dendreon Corporation
*
By: _________________________________
Christopher S. Henney, Ph.D., D.Sc.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive October 25, 2000
______________________________________ Officer and Director
Christopher S. Henney, Ph.D., D.Sc. (Principal Executive
Officer)
/s/ Martin A. Simonetti Chief Financial Officer October 25, 2000
______________________________________ (Principal Financial and
Martin A. Simonetti Accounting Officer)
* Chairman of the Board of October 25, 2000
______________________________________ Directors
William Crouse
* Director October 25, 2000
______________________________________
Gerardo Canet
* Director October 25, 2000
______________________________________
Timothy Harris, Ph.D.
* Director October 25, 2000
______________________________________
Ruth Kunath
* Director October 25, 2000
______________________________________
Lowell E. Sears
* Director October 25, 2000
______________________________________
Ralph Shaw
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director October 25, 2000
______________________________________
David L. Urdal, Ph.D.
* Director October 25, 2000
______________________________________
Douglas Watson
*By:
/s/ Martin A. Simonetti
______________________________________
Martin A. Simonetti
(Attorney-In-Fact)
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation.
3.2 Bylaws.(1)
4.1 Specimen Common Stock certificate.(1)
5.1* Opinion of Cooley Godward LLP.
10.1* Indemnity Agreement between the Registrant and each of its directors
and certain of its officers.
10.2* 2000 Equity Incentive Plan.
10.3* 2000 Employee Stock Purchase Plan.
10.4 Fourth Amended and Restated Stockholders' Agreement, dated September
3, 1999, between the Registrant and certain holders of the
Registrant's securities.(1)
10.5 Series E Preferred Stock Purchase Agreement, dated September 3,
1999.(1)
10.6 Registration Rights and Shareholder's Agreement, dated October 18,
1999, between the Registrant and Fresenius AG.(1)
10.7 Warrant to purchase 250,000 shares of common stock issued by the
Registrant to Fresenius AG, dated October 18, 1999.(1)
10.8 Letter dated September 3, 1998 regarding employment arrangement of
Christopher S. Henney and David L. Urdal.(1)
10.9 Lease Agreement, dated October 27, 1992 and commencing July 1, 1993,
between the Registrant and Vanni Business Park General Partnership.(1)
10.10 Lease Agreement, dated July 31, 1998, between the Registrant and ARE-
3005 First Avenue, LLC.(1)
10.11 Loan and Security Agreement, dated July 30, 1999, between the
Registrant and Transamerica Business Credit Corporation.(1)
10.12 Amended and Restated Master Lease Agreement, dated May 28, 1999,
between the Registrant and Transamerica Business Credit
Corporation.(1)
10.13 Second Amendment to Master Lease Agreement, dated January 31, 2000,
between the Registrant and Transamerica Business Credit
Corporation.(1)
10.14 Collaborative License Agreement, dated December 10, 1998, between the
Registrant and Kirin Brewery Co., Ltd.(1)(2)
10.15 Research and License Agreement, dated February 1, 1999, between the
Registrant and Kirin Brewery Co., Ltd.(1)(2)
10.16 Manufacturing and Supply Agreement, dated July 27, 1999, between the
Registrant and Kirin Brewery Co., Ltd.(1)(2)
10.17 Joint Commercialization Agreement, dated February 1, 2000, between the
Registrant and Kirin Brewery Co., Ltd.(1)(2)
10.18* Stock Purchase Agreement, dated June 16, 2000, between the Registrant
and Kirin Brewery, Co., Ltd.
10.19+ Research Collaboration and License Agreement, dated October 1, 2000,
between the Registrant and The R.W. Johnson Pharmaceutical Research
Institute, a division of Ortho-McNeil Pharmaceutical, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP (see Exhibit 5.1).
24.1* Power of Attorney (contained on signature page).
</TABLE>
--------
(1) Filed as an exhibit to Registration Statement on Form S-1, File No. 333-
31920.
(2) Confidential treatment granted as to certain portions of this Exhibit.
+ Confidential treatment requested.
* Previously filed as an exhibit to this Registration Statement on Form S-1,
File No. 333-47706
