Filed
pursuant to Rule 424(b)(5)
Registration
No. 333-139975
PROSPECTUS
SUPPLEMENT NO. 1
(TO
PROSPECTUS DATED JANUARY 23, 2007)
30,000,000 Shares
Common
Stock
We
are
offering on a “best
efforts”
basis
up to 30,000,000 shares of our common stock to certain institutional
investors for gross proceeds of up to $22,500,000. The shares of common stock
will be purchased at the negotiated price of $0.75 per share.
Our
common stock is listed and traded on The Nasdaq Capital Market under the symbol
“PPHM”. On June 28, 2007, the last reported sale price of our common stock
on The Nasdaq Capital Market was $0.90 per share.
Our
business and an investment in our securities involve significant risks. These
risks are described under the headings “Risk Factors” on page S-3 of this
prospectus supplement and beginning on page 3 of the accompanying
prospectus.
Rodman &
Renshaw, LLC has been retained to act as agent for us in connection with the
arrangement of this transaction. We have agreed to pay the placement agent
placement agent fees (of up to $1,540,000 assuming the maximum proposed offering
is completed) upon the closing of the transaction. The Placement Agent is not
required to sell any specific number or dollar amount of these shares but will
use commercially reasonable efforts to arrange for the sale of all of the shares
offered hereby. See “Plan of Distribution” in this prospectus supplement.
We
estimate that aggregate net proceeds to the Company will be up to approximately
$20.9 million after deducting placement agent fees and other expenses of the
offering of approximately $60,000. Because there is no minimum offering amount
required as a condition to closing in this offering, the actual public offering
amount, placement agent fees and proceeds to us, if any, are not presently
determinable and may be less than the maximum amounts set forth above
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 supplement or the accompanying prospectus Any
representation to the contrary is a criminal offense.
Rodman &
Renshaw, LLC
As
Placement Agent
The
date
of this prospectus supplement is June 29, 2007
TABLE
OF CONTENTS
Prospectus
Supplement
|
ABOUT
THIS PROSPECTUS SUPPLEMENT
|
S-1
|
|
|
RISK
FACTORS
|
S-3
|
|
|
FORWARD-LOOKING
INFORMATION
|
S-13
|
|
|
USE
OF PROCEEDS
|
S-14
|
|
|
PLAN
OF DISTRIBUTION
|
S-14
|
|
|
LEGAL
MATTERS
|
S-15
|
|
|
EXPERTS
|
S-15
|
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
S-15
|
|
Prospectus
|
|
|
ABOUT
THIS PROSPECTUS
|
1
|
|
OUR
BUSINESS
|
1
|
|
RISK
FACTORS
|
4
|
|
FORWARD-LOOKING
STATEMENTS
|
15
|
|
USE
OF PROCEEDS
|
15
|
|
DESCRIPTION
OF COMMON STOCK
|
15
|
|
PLAN
OF DISTRIBUTION
|
16
|
|
LEGAL
MATTERS
|
17
|
|
EXPERTS
|
17
|
|
WHERE
TO LEARN MORE ABOUT US
|
17
|
|
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
|
18
|
|
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
|
19
|
This
prospectus supplement is an offer to sell only the securities offered hereby,
but only under circumstances and in jurisdictions where it is lawful to do
so.
You should assume that the information contained in this prospectus supplement
and in the accompanying prospectus is accurate only as of their respective
dates
and that any information we have incorporated by reference is accurate only
as
of the date of the document incorporated by reference, regardless of the time
of
delivery of this prospectus supplement or the accompanying prospectus or any
sale of securities.
This
prospectus supplement and the base prospectus are part of a “shelf” registration
statement on Form S-3 that we filed with the Securities and Exchange Commission,
or Commission. Under the shelf registration statement and in accordance with
the
shelf registration process, we may sell shares of our common stock with
aggregate proceeds from the sales of up to $30,000,000, from time to time after
the effectiveness of the shelf registration statement of which this prospectus
supplement is a part. The shelf registration statement has been declared
effective by the Commission. This prospectus supplement describes the specific
details regarding this offering, including the price, the amount of common
stock
being offered, the risks of investing in our common stock and the underwriting
arrangements. The base prospectus provides general information about us, some
of
which, such as the section entitled “Plan of Distribution,” may not apply to
this offering. If information in this prospectus supplement is inconsistent
with
the base prospectus or the information incorporated by reference, you should
rely on this prospectus supplement. You should read both this prospectus
supplement and the base prospectus together with the additional information
about Peregrine Pharmaceuticals in this prospectus supplement in the section
below entitled “Where You Can Find More Information.”
You
should rely only on the information contained or incorporated by reference
in
this prospectus supplement. We have not authorized anyone to provide you with
different information. You should assume that the information appearing in
this
prospectus supplement is accurate only as of the date on the front cover of
this
prospectus supplement. Our business, financial condition, results of operations
and prospects may have changed since that date.
As
used
in this prospectus supplement, the terms “we”, “us”, “our”, “Company” and
“Peregrine” refer to Peregrine Pharmaceuticals, Inc., and its wholly-owned
subsidiary, Avid Bioservices, Inc.
OUR
BUSINESS
We
are a
biopharmaceutical company with a portfolio of clinical stage and preclinical
product candidates using monoclonal antibodies for the treatment of cancer
and viral diseases. We are advancing three separate clinical programs
encompassing two platform technologies: Anti-Phosphatidylserine (“Anti-PS”)
Immunotherapeutics and Tumor Necrosis Therapy (“TNT”).
Our
lead
Anti-PS product, bavituximab, is in separate clinical trials for the treatment
of solid cancers and hepatitis C virus (“HCV”) infection. We have completed a
total of three bavituximab clinical trials treating over 60 patients in these
completed studies with chronic HCV infection or advanced solid cancers. We
have
completed Phase Ia and Phase Ib clinical trials in patients with chronic HCV
infection. We are in the process of initiating a new clinical study to evaluate
bavituximab in patients co-infected with both HCV and human immunodeficiency
virus (“HIV”) based on data from the previous two studies In addition, we are
running a bavituximab Phase I monotherapy trial in patients with advanced solid
cancers and we recently completed a Phase Ib trial in which bavituximab was
administered in combination with chemotherapy in patients with solid cancers.
Data from this Phase Ib study is being used to plan phase II bavituximab solid
cancer clinical studies expected to start later this year.
Under
our
TNT technology platform, our lead candidate is Cotara®. We have completed
several clinical trials in patients with advanced solid cancers totaling over
85
patients. Early clinical trials in patients with brain cancer resulted in
particularly promising results. We are currently running two Cotara brain cancer
studies including a Phase II clinical trial in which up to 40 patients with
glioblastoma multiforme will be treated in order to better evaluate efficacy
of
Cotara and a dose confirmation and dosimetry clinical trial in up to 12 patients
with glioblastoma multiforme in order to further characterize the distribution
characteristics of Cotara. These two studies are currently open for enrollment.
In addition to our clinical programs, we are conducting internal research and
collaborating with researchers at top academic institutions to extend our
product pipeline to include new therapeutics, therapeutic adjuvants and
diagnostic agents to expand the potential of our technology pipeline.
In
addition to our research efforts, we also operate a wholly owned cGMP contract
manufacturing subsidiary, Avid Bioservices, Inc. (“Avid”) Avid provides several
critical functions for Peregrine including the manufacturing of all clinical
supplies, commercial scale-up of products in clinical trials and assisting
with
the advancement of new clinical candidates. In addition to Peregrine-related
activities, Avid provides contract manufacturing services for outside
biotechnology and biopharmaceutical companies on a fee-for-service
basis.
S-1
About
the Offering
|
Common
stock offered in this Prospectus Supplement
|
30,000,000
shares
|
|
Common
stock outstanding before this
offering
|
196,165,617 shares (1) |
| Use of proceeds | See “Use of Proceeds” |
| Nasdaq Capital Market symbol | PPHM |
(1)
The
number set forth above does not include approximately 21,535,000 shares of
our
common stock that, as of June 28, 2007, are reserved for issuance under shelf
registration statements, stock option plans and warrant agreements, calculated
as follows:
|
|
Number
of Shares
of
Common Stock Reserved For
Issuance
|
|||
|
Shares
reserved under shelf registration statements
|
5,030,634
|
|||
|
Options
issued, outstanding and reserved for future issuance
|
16,144,355
|
|||
|
Warrants
issued and outstanding
|
360,000
|
|||
|
Total
shares reserved
|
21,534,989
|
|||
In
addition, we could issue additional shares of our common stock for aggregate
gross proceeds of up to $7,500,000 pursuant to the shelf registration statement
to which the prospectus supplement and the accompanying prospectus
relate.
S-2
RISK
FACTORS
An
investment in our securities involves risk. Prior to making a
decision about investing in our securities, you should consider carefully the
following risk factors, the risk factors discussed in the section entitled
“Risk
Factors‘ contained in our Annual Report on Form 10-K for the year ended
April 30, 2006, as filed with the Securities and Exchange Commission, or SEC,
on
July 14, 2006, which is incorporated herein by reference in its entirety, as
well as any amendment or updates to our risk factors reflected in subsequent
filings with the SEC. These risks and uncertainties are not the only risks
and
uncertainties we face. Additional risks and uncertainties not presently known
to
us, or that we currently view as immaterial, may also impair our business.
If
any of the following risks actually occurs, our business, financial conditions
or operating results could be materially adversely affected. In such case,
the
trading price of our common stock could decline, and you may lose all or part
of
your investment.
Our
Management Will Have Broad Discretion In How We Use the Net Proceeds >From
This Offering, And We May Use The Proceeds In Ways With Which You
Disagree.
We
have
not allocated specific amounts of the net proceeds from this offering for any
specific purpose. Our management will have significant flexibility in applying
the net proceeds of this offering and, accordingly, you will be relying on
the
judgment of our management with regard to the use of these net proceeds and
will
not have the opportunity, as part of your investment decision, to assess whether
the proceeds will be used in ways with which you disagree. It is possible that
our management may invest the net proceeds in ways that our stockholders may
not
desire, or may not yield a favorable, or any, return for our company. The
failure of our management to use the net proceeds from this offering effectively
could have a material adverse effect on our business, financial condition,
operating results and cash flow.
The
Sale Of Substantial Shares Of Our Common Stock May Depress Our Stock Price
And
Make It Difficult For You To Recover The Full Value Of Your Investment In Our
Shares.
As
of
June 28, 2007, we had approximately 196,165,617 shares of our common stock
outstanding excluding the 30,000,000 shares that are being offered and sold
by
this prospectus supplement. Substantially
all of these shares are available for public sale, subject in some cases to
volume and other limitations or delivery of a prospectus. The market price
of
our common stock may decline if our common stockholders sell a large number
of
shares of our common stock in the public market, or the market perceives that
such sales may occur.
We
could
also issue up to approximately 21,534,989 additional shares of our common stock
that are reserved for future issuance under our shelf registration statements,
stock option plans and outstanding warrants, as further described in the
following table:
|
Number
of Shares
of
Common Stock Reserved For Issuance
|
||||
|
Shares
reserved for under two effective shelf
registration statements
|
5,030,634
|
|||
|
Common
shares reserved for issuance upon exercise of outstanding options
or
reserved for future option grants under our stock option
plans
|
16,144,355
|
|||
|
Common
shares issuable upon exercise of outstanding warrants
|
360,000
|
|||
|
Total
|
21,534,989
|
|||
The
above
table does not include shares of common stock that we could issue under the
registration statement we filed during January 2007 on Form S-3, File Number
333-139975, due to the indeterminable number of shares that could potentially
be
issued under this shelf, which, presently, allows us to issue, from time to
time, in one or more offerings, shares of common stock for proceeds up to
$30,000,000, for which, this prospectus supplement relates.
S-3
Of
the
total warrants and options outstanding as of June 28, 2007, approximately
1,443,000 options would be considered dilutive to stockholders because we would
receive an amount per share which is less than the market price of our common
stock at June 28, 2007.
In
addition, we will need to raise substantial additional capital in the future
to
fund our operations. If we raise additional funds by issuing equity securities,
the market price of our securities may decline and our existing stockholders
may
experience significant dilution.
The
Liquidity Of Our Common Stock Will Be Adversely Affected If Our Common Stock
Is
Delisted From The Nasdaq Capital Market.
Our
common stock is presently traded on The Nasdaq Capital Market. To maintain
inclusion on The Nasdaq Capital Market, we must continue to meet the following
six listing requirements:
|
1.
|
Net
tangible assets of at least $2,500,000 or market capitalization of
at
least $35,000,000 or net income of at least $500,000 in either our
latest
fiscal year or in two of our last three fiscal
years;
|
|
2.
|
Public
float of at least 500,000 shares;
|
|
3.
|
Market
value of our public float of at least
$1,000,000;
|
|
4.
|
A
minimum closing bid price of $1.00 per share of common stock, without
falling below this minimum bid price for a period of thirty consecutive
trading days;
|
|
5.
|
At
least two market makers; and
|
|
6.
|
At
least 300 stockholders, each holding at least 100 shares of common
stock.
|
We
cannot
guarantee that we will be able to maintain the minimum closing bid price
requirement or maintain any of the other requirements in the future. The market
price of our common stock has generally been highly volatile. During the fiscal
year ended April 30, 2007, the trading price of our common stock on The Nasdaq
Capital Market ranged from $0.86 per share to $1.99 per share. Most recently,
the closing bid price of our common stock has been below $1.00 since June 12,
2007 or 13 consecutive trading days as of June 28, 2007. If the closing bid
price of our common stock is below $1.00 per share for a period of thirty
consecutive trading days, we will receive a deficiency notice from
NASDAQ®,
and we
will automatically be afforded a "compliance period" of 180 calendar days within
which to regain compliance. To demonstrate compliance with the minimum closing
bid price requirement, we must maintain a closing bid price of at least $1.00
per share for 10 consecutive trading days. If we are still not in compliance
with the minimum closing bid price requirement after the initial 180 calendar
day period but we are in compliance with all initial listing requirements other
than the bid requirement, we will be afforded an additional "compliance period"
of 180 calendar days within which to regain compliance. If we fail to regain
compliance with the minimum closing bid price requirement or fail to comply
with
any other The Nasdaq Capital Market listing requirements, the market value
of
our common stock could fall and holders of common stock would likely find it
more difficult to dispose of the common stock.
If
our
common stock is delisted, we would apply to have our common stock quoted on
the
over-the-counter electronic bulletin board. Upon any such delisting, our common
stock would become subject to the regulations of the Securities and Exchange
Commission relating to the market for penny stocks. A penny stock, as defined
by
the Penny Stock Reform Act, is any equity security not traded on a national
securities exchange that has a market price of less than $5.00 per share. The
penny stock regulations generally require that a disclosure schedule explaining
the penny stock market and the risks associated therewith be delivered to
purchasers of penny stocks and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors. The broker-dealer must make a suitability
determination for each purchaser and receive the purchaser’s written agreement
prior to the sale. In addition, the broker-dealer must make certain mandated
disclosures, including the actual sale or purchase price and actual bid offer
quotations, as well as the compensation to be received by the broker-dealer
and
certain associated persons. The regulations applicable to penny stocks may
severely affect the market liquidity for our common stock and could limit your
ability to sell your securities in the secondary market.
S-4
Our
Highly Volatile Stock Price And Trading Volume May Adversely Affect The
Liquidity Of Our Common Stock.
The
market price of our common stock and the market prices of securities of
companies in the biotechnology sector have generally been highly volatile and
are likely to continue to be highly volatile.
The
following table shows the high and low sales price and trading volume of our
common stock for each quarter in the three fiscal years ended April 30, 2007:
|
Common
Stock
Sales
Price
|
Common
Stock Daily
Trading
Volume
(000’s
omitted)
|
||||||||||||||
|
High
|
Low
|
High
|
Low
|
||||||||||||
|
Fiscal
Year 2007
|
|||||||||||||||
|
Quarter
Ended April 30, 2007
|
$1.26
|
$0.86
|
6,214
|
408
|
|||||||||||
|
Quarter
Ended January 31, 2007
|
$1.39
|
$1.09
|
4,299
|
203
|
|||||||||||
|
Quarter
Ended October 31, 2006
|
$1.48
|
$1.12
|
3,761
|
277
|
|||||||||||
|
Quarter
Ended July 31, 2006
|
$1.99
|
$1.30
|
23,790
|
429
|
|||||||||||
|
Fiscal
Year 2006
|
|||||||||||||||
|
Quarter
Ended April 30, 2006
|
$1.76
|
$1.20
|
9,922
|
391
|
|||||||||||
|
Quarter
Ended January 31, 2006
|
$1.40
|
$0.88
|
12,152
|
251
|
|||||||||||
|
Quarter
Ended October 31, 2005
|
$1.28
|
$0.91
|
4,619
|
156
|
|||||||||||
|
Quarter
Ended July 31, 2005
|
$1.31
|
$0.92
|
7,715
|
178
|
|||||||||||
|
Fiscal
Year 2005
|
|||||||||||||||
|
Quarter
Ended April 30, 2005
|
$1.64
|
$1.11
|
5,945
|
223
|
|||||||||||
|
Quarter
Ended January 31, 2005
|
$1.45
|
$0.99
|
6,128
|
160
|
|||||||||||
|
Quarter
Ended October 31, 2004
|
$1.96
|
$0.95
|
2,141
|
148
|
|||||||||||
|
Quarter
Ended July 31, 2004
|
$1.92
|
$0.88
|
1,749
|
131
|
|||||||||||
The
market price of our common stock may be significantly impacted by many factors,
including, but not limited to:
|
·
|
announcements
of technological innovations or new commercial products by us or
our
competitors;
|
|
·
|
publicity
regarding actual or potential clinical trial results relating to
products
under development by us or our
competitors;
|
|
·
|
our
financial results or that of our
competitors;
|
|
·
|
the
offering and sale of shares of our common stock under an equity
transaction;
|
|
·
|
published
reports by securities analysts;
|
|
·
|
announcements
of licensing agreements, joint ventures, strategic alliances, and
any
other transaction that involves the sale or use of our technologies
or
competitive technologies;
|
|
·
|
developments
and/or disputes concerning our patent or proprietary
rights;
|
|
·
|
regulatory
developments and product safety
concerns;
|
|
·
|
general
stock trends in the biotechnology and pharmaceutical industry
sectors;
|
|
·
|
public
concerns as to the safety and effectiveness of our
products;
|
|
·
|
economic
trends and other external factors, including but not limited to,
interest
rate fluctuations, economic recession, inflation, foreign market
trends,
national crisis, and disasters; and
|
|
·
|
healthcare
reimbursement reform and cost-containment measures implemented by
government agencies.
|
These
and
other external factors have caused and may continue to cause the market price
and demand for our common stock to fluctuate substantially, which may limit
or
prevent investors from readily selling their shares of common stock, and may
otherwise negatively affect the liquidity of our common stock.
S-5
Successful
Development Of Our Products Is Uncertain. To Date, No Revenues Have Been
Generated From The Commercial Sale Of Our Products And Our Products May Not
Generate Revenues In The Future.
Our
development of current and future product candidates is subject to the risks
of
failure inherent in the development of new pharmaceutical products and products
based on new technologies. These risks include:
|
·
|
delays
in product development, clinical testing or
manufacturing;
|
|
·
|
unplanned
expenditures in product development, clinical testing or
manufacturing;
|
|
·
|
failure
in clinical trials or failure to receive regulatory
approvals;
|
|
·
|
emergence
of superior or equivalent products;
|
|
·
|
inability
to manufacture on our own, or through others, product candidates
on a
commercial scale;
|
|
·
|
inability
to market products due to third party proprietary rights;
and
|
|
·
|
failure
to achieve market acceptance.
|
Because
of these risks, our research and development efforts or those of our partners
may not result in any commercially viable products. If significant portions
of
these development efforts are not successfully completed, required regulatory
approvals are not obtained, or any approved products are not commercially
successful, our business, financial condition and results of operations may
be
materially harmed.
Because
we have not begun commercial sales of our products, our revenue and profit
potential is unproven and our limited operating history makes it difficult
for
an investor to evaluate our business and prospects. Our technology may not
result in any meaningful benefits to our current or potential partners. No
revenues have been generated from the commercial sale of our products, and
our
products may not generate revenues in the future. Our business and prospects
should be considered in light of the heightened risks and unexpected expenses
and problems we may face as a company in an early stage of development in a
new
and rapidly evolving industry.
We
Have Had Significant Losses And We Anticipate Future
Losses.
We
have
incurred net losses in most fiscal years since we began operations in 1981.
While we expect to continue to generate revenues from Avid’s contract
manufacturing services, in order to achieve and sustain profitable operations,
we must successfully develop and obtain regulatory approval for our products,
either alone or with others, and must also manufacture, introduce, market and
sell our products. The costs associated with clinical trials and product
manufacturing is very expensive and the time frame necessary to achieve market
success for our products is long and uncertain. We do not expect to generate
product or royalty revenues
for at least the next two years, and we may never generate product revenues
sufficient to become profitable or to sustain profitability.
Our
Product Development Efforts May Not Be Successful.
Since
our
inception, we have been engaged in the development of drugs and related
therapies for the treatment of patients with cancer. Our product candidates
have
not received regulatory approval and are generally in research, pre-clinical
and
clinical stages of development. If the results from any of the clinical trials
are poor, those results may adversely affect our ability to raise additional
capital, which will affect our ability to continue full-scale research and
development for our antibody technologies. In addition, our product candidates
may take longer than anticipated to progress through clinical trials, or patient
enrollment in the clinical trials may be delayed or prolonged significantly,
thus delaying the clinical trials. Patient enrollment is a function of many
factors, including the size of the patient population, the nature of the
protocol, the proximity of patients to the clinical sites, and the eligibility
criteria for the study. In addition, because our Cotara® product currently in
clinical trials represents a departure from more commonly used methods for
cancer treatment, potential patients and their doctors may be inclined to use
conventional therapies, such as chemotherapy, rather than enroll patients in
our
clinical study.
S-6
Clinical
Trials Required For Our Product Candidates Are Expensive And Time Consuming,
And
Their Outcome Is Uncertain.
In
order
to obtain FDA approval to market a new drug product, we or our potential
partners must demonstrate proof of safety and efficacy in humans. To meet these
requirements, we or our potential partners will have to conduct extensive
pre-clinical testing and “adequate and well-controlled” clinical trials.
Conducting clinical trials is a lengthy, time-consuming and expensive process.
The length of time may vary substantially according to the type, complexity,
novelty and intended use of the product candidate, and often can be several
years or more per trial. Delays associated with products for which we are
directly conducting pre-clinical or clinical trials may cause us to incur
additional operating expenses. Moreover, we may continue to be affected by
delays associated with the pre-clinical testing and clinical trials of certain
product candidates conducted by our partners over which we have no control.
The
commencement and rate of completion of clinical trials may be delayed by many
factors, including, for example:
| · |
slower
than expected rates of patient recruitment due to narrow screening
requirements;
|
| · |
the
inability of patients to meet FDA imposed protocol
requirements;
|
|
·
|
the
inability to manufacture sufficient quantities of qualified materials
under current good manufacturing practices, or cGMPs, for use in
clinical
trials;
|
| · |
the
need or desire to modify our manufacturing
processes;
|
| · |
the
inability to adequately observe patients after
treatment;
|
| · |
changes
in regulatory requirements for clinical
trials;
|
| · |
the
lack of effectiveness during the clinical
trials;
|
| · |
unforeseen
safety issues;
|
|
·
|
delays,
suspension, or termination of the clinical trials due to the institutional
review board responsible for overseeing the study at a particular
study
site; and
|
| · |
government
or regulatory delays or “clinical holds” requiring suspension or
termination of the trials.
|
Even
if
we obtain positive results from pre-clinical or initial clinical trials, we
may
not achieve the same success in future trials. Clinical trials may not
demonstrate statistically sufficient safety and effectiveness to obtain the
requisite regulatory approvals for product candidates employing our
technology.
Clinical
trials that we conduct or that third-parties conduct on our behalf may not
demonstrate sufficient safety and efficacy to obtain the requisite regulatory
approvals for any of our product candidates. We expect to commence new clinical
trials from time to time in the course of our business as our product
development work continues. The failure of clinical trials to demonstrate safety
and effectiveness for our desired indications could harm the development of
that
product candidate as well as other product candidates. Any change in, or
termination of, our clinical trials could materially harm our business,
financial condition and results of operations.
Success
In Early Clinical Trials May Not Be Indicative Of Results Obtained In Later
Trials.
A
number
of new drugs and biologics have shown promising results in initial clinical
trials, but subsequently failed to establish sufficient safety and effectiveness
data to obtain necessary regulatory approvals. Data obtained from pre-clinical
and clinical activities are subject to varying interpretations, which may delay,
limit or prevent regulatory approval.
Positive
results from pre-clinical studies and our Phase I clinical trials should not
be
relied upon as evidence that later or larger-scale clinical trials will succeed.
The Phase Ia and Ib clinical trials of bavituximab for the treatment of the
Hepatitis C virus (“HCV”) infection have been conducted only in small numbers of
patients that may not fully represent the diversity present in larger
populations infected with HCV. The limited results we have obtained may not
predict results from studies in larger numbers of patients drawn from more
diverse populations and also may not predict the ability of bavituximab to
achieve a sustained anti-viral response or the ability to provide a long-term
therapeutic benefit. These initial trials in HCV have not been designed to
assess the long-term therapeutic utility of bavituximab. We will be required
to
demonstrate through larger-scale clinical trials that bavituximab is safe and
effective for use in a diverse population before we can seek regulatory approval
for its commercial sale. There is typically an extremely high rate of attrition
from the failure of drug candidates proceeding through clinical trials.
S-7
In
addition, regulatory delays or rejections may be encountered as a result of
many
factors, including changes in regulatory policy during the period of product
development.
If
We Successfully Develop Products But Those Products Do Not Achieve And Maintain
Market Acceptance, Our Business Will Not Be
Profitable.
Even
if
bavituximab, Cotara®, or any future product candidate is approved for commercial
sale by the FDA or other regulatory authorities, the degree of market acceptance
of any approved product candidate by physicians, healthcare professionals and
third-party payors and our profitability and growth will depend on a number
of
factors, including:
| · |
our
ability to provide acceptable evidence of safety and
efficacy;
|
| · |
relative
convenience and ease of
administration;
|
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the
prevalence and severity of any adverse side
effects;
|
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availability
of alternative treatments;
|
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pricing
and cost effectiveness;
|
| · |
effectiveness
of our or our collaborators’ sales and marketing strategy;
and
|
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our
ability to obtain sufficient third-party insurance coverage or
reimbursement.
|
In
addition, if bavituximab, Cotara®, or any future product candidate that we
discover and develop does not provide a treatment regimen that is more
beneficial than the current standard of care or otherwise provide patient
benefit, that product likely will not be accepted favorably by the market.
If
any products we may develop do not achieve market acceptance, then we may not
generate sufficient revenue to achieve or maintain profitability.
In
addition, even if our products achieve market acceptance, we may not be able
to
maintain that market acceptance over time if new products or technologies are
introduced that are more favorably received than our products, are more cost
effective or render our products obsolete.
If
We Cannot License Or Sell Cotara®, It May Be Delayed Or Never Be Further
Developed.
We
have
completed Phase I and Phase I/II studies with Cotara® for the treatment of
recurrent glioblastoma multiforme (“GBM”), a deadly form of brain cancer. In
addition, we are currently working directly with several clinical sites
associated with New Approaches to Brain Tumor Therapy (“NABTT”) in addition to
the Medical Center of South Carolina to complete the dose confirmation and
dosimetry clinical trial in
patients with recurrent glioblastoma multiforme (“GBM”). The next step in the
development of Cotara® is to treat a group of approximately 40 patients with GBM
in a Phase II safety and efficacy study in India, which we initiated during
June
2007, using a single administration of the drug through an optimized delivery
method. Taken
together, the current U.S. study along with data collected from the Phase II
safety and efficacy study in India should provide the safety, dosimetry and
efficacy data that will support the final design of the larger Phase III study.
Once we complete the initial two parts of the Cotara® study for brain cancer,
substantial financial resources will be needed to complete the final part of
the
trial and any additional supportive clinical studies necessary for potential
product approval. We do not presently have the financial resources internally
to
complete the larger Phase III study. We therefore intend to continue to seek
a
licensing or funding partner for Cotara®, and hope that the data from the U.S.
studies together with other data from the additional 40 patients to be treated
in the Phase II study in India, will enhance our opportunities of finding such
partner. If a partner is not found for this technology, we may not be able
to
advance the project past its current state of development. Because there are
a
limited number of companies which have the financial resources, the internal
infrastructure, the technical capability and the marketing infrastructure to
develop and market a radiopharmaceutical based anti-cancer drug, we may not
find
a suitable partnering candidate for Cotara®. We also cannot assure you that we
will be able to find a suitable licensing partner for this technology
Furthermore, we cannot assure you that if we do find a suitable licensing
partner, the financial terms that they propose will be acceptable to the
Company.
S-8
Our
Dependency On One Radiolabeling Supplier May Negatively Impact Our Ability
To
Complete Clinical Trials And Market Our Products.
We
have
procured our antibody radioactive isotope combination services (“radiolabeling”)
with Iso-tex Diagnostics, Inc. for all U.S. clinical trials using Cotara® and
with the Board of Radiation & Isotope Technology (“BRIT”) for our Phase II
Indian study. If either of these suppliers are unable to continue to qualify
their respective facility or radiolabel and supply our antibody in a timely
manner, our current clinical trials using radiolabeling technology could be
adversely affected and significantly delayed. While there are other suppliers
for radioactive isotope combination services in the U.S., our clinical trial
would be delayed for up to twelve to eighteen months because it may take that
amount of time to certify a new facility under current Good Manufacturing
Practices and qualify the product, plus we would incur significant costs to
transfer our technology to another vendor. In addition, the number of companies
in India that could perform these radiolabeling services is very limited. Prior
to commercial distribution of any of our products, if approved, we will be
required to identify and contract with a company for commercial antibody
manufacturing and radioactive isotope combination services. An antibody that
has
been combined with a radioactive isotope, such as Iodine 131, cannot be stored
for long periods of time, as it must be used within one week of being
radiolabeled to be effective. Accordingly, any change in our existing or future
contractual relationships with, or an interruption in supply from, any such
third-party service provider or antibody supplier could negatively impact our
ability to complete ongoing clinical trials conducted by us or a potential
licensing partner.
Our
Manufacturing Facilities May Not Continue To Meet Regulatory Requirements And
Have Limited Capacity.
Before
approving a new drug or biologic product, the FDA requires that the facilities
at which the product will be manufactured be in compliance with current Good
Manufacturing Practices, or cGMP requirements. To be successful, our therapeutic
products must be manufactured for development and, following approval, in
commercial quantities, in compliance with regulatory requirements and at
acceptable costs. Currently, we manufacture all pre-clinical and clinical
material through Avid Bioservices, our wholly owned subsidiary. While we believe
our current facilities are adequate for the manufacturing of product candidates
for clinical trials, our facilities may not be adequate to produce sufficient
quantities of any products for commercial sale.
If
we are
unable to establish and maintain a manufacturing facility or secure third-party
manufacturing capacity within our planned time frame and cost parameters, the
development and sales of our products, if approved, may be materially harmed.
We
may
also encounter problems with the following:
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production
yields;
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quality
control and quality assurance;
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shortages
of qualified personnel;
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compliance
with FDA regulations, including the demonstration of purity and
potency;
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|
changes
in FDA requirements;
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production
costs; and/or
|
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development
of advanced manufacturing techniques and process
controls.
|
In
addition, we or any third-party manufacturer will be required to register the
manufacturing facilities with the FDA and other regulatory authorities. The
facilities will be subject to inspections confirming compliance with cGMP or
other regulations. If any of our third-party manufacturers or we fail to
maintain regulatory compliance, the FDA can impose regulatory sanctions
including, among other things, refusal to approve a pending application for
a
new drug product or biologic product, or revocation of a pre-existing approval.
As a result, our business, financial condition and results of operations may
be
materially harmed.
S-9
We
May Have Significant Product Liability Exposure Because We Maintain Only Limited
Product Liability Insurance.
We
face
an inherent business risk of exposure to product liability claims in the event
that the administration of one of our drugs during a clinical trial adversely
affects or causes the death of a patient. Although we maintain product liability
insurance for clinical studies in the amount of $3,000,000 per occurrence or
$3,000,000 in the aggregate on a claims-made basis, this coverage may not be
adequate. Product liability insurance is expensive, difficult to obtain and
may
not be available in the future on acceptable terms, if at all. Our inability
to
obtain sufficient insurance coverage on reasonable terms or to otherwise protect
against potential product liability claims in excess of our insurance coverage,
if any, or a product recall, could negatively impact our financial position
and
results of operations.
In
addition, the contract manufacturing services that we offer through Avid expose
us to an inherent risk of liability as the antibodies or other substances
manufactured by Avid, at the request and to the specifications of our customers,
could possibly cause adverse effects or have product defects. We obtain
agreements from our customers indemnifying and defending us from any potential
liability arising from such risk. There can be no assurance that such
indemnification agreements will adequately protect us against potential claims
relating to such contract manufacturing services or protect us from being named
in a possible lawsuit. Although Avid has procured insurance coverage, there
is
no guarantee that we will be able to maintain our existing coverage or obtain
additional coverage on commercially reasonable terms, or at all, or that such
insurance will provide adequate coverage against all potential claims to which
we might be exposed. A partially successful or completely uninsured claim
against Avid would have a material adverse effect on our consolidated
operations.
If
We Are Unable To Obtain, Protect And Enforce Our Patent Rights, We May Be Unable
To Effectively Protect Or Exploit Our Proprietary Technology, Inventions And
Improvements.
Our
success depends in part on our ability to obtain, protect and enforce
commercially valuable patents. We try to protect our proprietary positions
by
filing United States and foreign patent applications related to our proprietary
technology, inventions and improvements that are important to developing our
business. However, if we fail to obtain and maintain patent protection for
our
proprietary technology, inventions and improvements, our competitors could
develop and commercialize products that would otherwise infringe upon our
patents.
Our
patent position is generally uncertain and involves complex legal and factual
questions. Legal standards relating to the validity and scope of claims in
the
biotechnology and biopharmaceutical fields are still evolving. Accordingly,
the
degree of future protection for our patent rights is uncertain. The risks and
uncertainties that we face with respect to our patents include the
following:
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·
|
the
pending patent applications we have filed or to which we have exclusive
rights may not result in issued patents or may take longer than we
expect
to result in issued patents;
|
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·
|
the
claims of any patents that issue may not provide meaningful
protection;
|
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|
we
may be unable to develop additional proprietary technologies that
are
patentable;
|
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|
the
patents licensed or issued to us may not provide a competitive
advantage;
|
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·
|
other
parties may challenge patents licensed or issued to
us;
|
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·
|
disputes
may arise regarding the invention and corresponding ownership rights
in
inventions and know-how resulting from the joint creation or use
of
intellectual property by us, our licensors, corporate partners and
other
scientific collaborators; and
|
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·
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other
parties may design around our patented
technologies.
|
We
May Become Involved In Lawsuits To Protect Or Enforce Our Patents That Would
Be
Expensive And Time Consuming.
In
order
to protect or enforce our patent rights, we may initiate patent litigation
against third parties. In addition, we may become subject to interference or
opposition proceedings conducted in patent and trademark offices to determine
the priority and patentability of inventions. The defense of intellectual
property rights, including patent rights through lawsuits, interference or
opposition proceedings, and other legal and administrative proceedings, would
be
costly and divert our technical and management personnel from their normal
responsibilities. An adverse determination of any litigation or defense
proceedings could put our pending patent applications at risk of not being
issued.
S-10
Furthermore,
because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation.
For example, during the course of this kind of litigation, confidential
information may be inadvertently disclosed in the form of documents or testimony
in connection with discovery requests, depositions or trial testimony This
disclosure could materially adversely affect our business and financial
results.
We
May Not Be Able To Compete With Our Competitors In The Biotechnology Industry
Because Many Of Them Have Greater Resources Than We Do And They Are Further
Along In Their Development Efforts.
The
pharmaceutical and biotechnology industry is intensely competitive and subject
to rapid and significant technological change. Many of the drugs that we are
attempting to discover or develop will be competing with existing therapies.
In
addition, we are aware of several pharmaceutical and biotechnology companies
actively engaged in research and development of antibody-based products that
have commenced clinical trials with, or have successfully commercialized,
antibody products. Some or all of these companies may have greater financial
resources, larger technical staffs, and larger research budgets than we have,
as
well as greater experience in developing products and running clinical trials.
We expect to continue to experience significant and increasing levels of
competition in the future. In addition, there may be other companies which
are
currently developing competitive technologies and products or which may in
the
future develop technologies and products that are comparable or superior to
our
technologies and products.
We
are
conducting the Cotara® dose confirmation and dosimetry clinical trial for the
treatment of recurrent brain cancer as a stand-alone study directly with several
New Approaches to Brain Tumor Therapy (“NABTT”) sponsored university clinical
sites together with additional centers in the U.S. such as the Medical Center
of
South Carolina and we recently initiated a Phase II study in India using Cotara®
to treat up to 40 patients for the treatment of recurrent brain cancer. Existing
treatments for brain cancer include the Gliadel® Wafer (polifeprosan 20 with
carmustine implant) from MGI Pharma, Inc. and Temodar® (temozolomide) from
Schering-Plough Corporation. Gliadel® is inserted in the tumor cavity following
surgery and releases a chemotherapeutic agent over time. Temodar® is
administered orally to patients with brain cancer.
Because
Cotara® targets brain tumors from the inside out, it is a novel treatment
dissimilar from other drugs in development for this disease. Some products
in
development may compete with Cotara® should they become approved for marketing.
These products include, but are not limited to CDX-110, a peptide vaccine under
development by Celldex. Celldex recently announced data from a Phase II clinical
trial showing an increase in survival over the current standard of care.
Enrollment in the Phase II trial is expected to be completed by the beginning
of
2008. Merck KGaA is evaluating cilengitide in an open-label, U. S. Phase I/IIa
clinical trial in newly diagnosed GBM patients. Although cilengitide missed
its
clinical endpoint of 25% Progression Free Survival (PFS) after six moths, a
separate European trial of 52 patients met its primary endpoint. AstraZeneca
recently announced interim Phase II results of cediranib following treatment
of
31 patients with recurrent GBM. After six months of treatment with cediranib
eight patients remained remained alive and progression free. In addition,
oncology products marketed for other indications such as Gleevec® (Novartis),
Tarceva® (Genentech/OSI), Avastin® (Genentech) and Nexavar® (Bayer), are being
tested in clinical trials for the treatment of brain cancer.
Bavituximab
for the treatment of advanced solid cancers is currently in a Phase Ia clinical
trial in the U.S. and we recently completed a Phase Ib clinical trial in India
for the treatment of patients with advanced solid tumors in combination with
chemotherapy. There are a number of possible competitors with approved or
developmental targeted agents used in combination with standard chemotherapy
for
the treatment of cancer, including but not limited to, Avastin® by
Genentech, Inc., Gleevec® by Novartis, Tarceva® by OSI Pharmaceuticals, Inc. and
Genentech, Inc., Erbitux® by ImClone Systems Incorporated and Bristol-Myers
Squibb Company, Rituxan® and Herceptin® by Biogen Idec Inc. and Genentech, Inc.,
and Vectibix™ by Amgen. There are a significant number of companies developing
cancer therapeutics using a variety of targeted and non-targeted approaches.
A
direct comparison of these potential competitors will not be possible until
bavituximab advances to later-stage clinical trials.
S-11
In
addition, we have completed Phase Ia single-dose and Phase Ib multiple dose
clinical trials evaluating bavituximab for the treatment of HCV. Bavituximab
is
a first-in-class approach for the treatment of HCV. We are aware of no other
products in development targeting phosphatidylserine as a potential therapy
for
HCV. There are a number of companies that have products approved and on the
market for the treatment of HCV, including but not limited to: Peg-Intron®
(pegylated interferon-alpha-2b), Rebetol® (ribavirin), and Intron-A
(interferon-alpha-2a), which are marketed by Schering-Plough Corporation, and
Pegasys® (pegylated interferon-alpha-2a), Copegus® (ribavirin USP) and
Roferon-A® (interferon-alpha-2a), which are marketed by Roche Pharmaceuticals,
and Infergen® (interferon alfacon-1) now marketed by Valeant Pharmaceuticals
International. First line treatment for HCV has changed little since alpha
interferon was first introduced in 1991. The current standard of care for HCV
includes a combination of an alpha interferon (pegylated or non-pegylated)
with
ribavirin. This combination therapy is generally associated with considerable
toxicity including flu-like symptoms, hematologic changes and central nervous
system side effects including depression. It is not uncommon for patients to
discontinue alpha interferon therapy because they are unable to tolerate the
side effects of the treatment.
Future
treatments for HCV are likely to include a combination of these existing
products used as adjuncts with products now in development. Later-stage
developmental treatments include improvements to existing therapies, such as
Albuferon™ (albumin interferon) from Human Genome Sciences, Inc and Viramidine™
(taribavirin), a prodrug analog of ribavirin being developed by Valeant
Pharmaceuticals International. Other developmental approaches include, but
are
not limited to, protease inhibitors such as telaprevir from Vertex
Pharmaceuticals Incorporated, and SCH7 from Schering-Plough Corporation, and
valopicitabine, a polymerase inhibitor by Idenix Pharmaceuticals, Inc
New
And Potential New Accounting Pronouncements May Impact Our Future Financial
Position And Results Of Operations
There
may
be potential new accounting pronouncements or regulatory rulings, which may
have
an impact on our future financial position and results of operations. For
example, in December 2004, the FASB issued an amendment to SFAS No. 123,
Accounting
For Stock-Based Compensation
(“SFAS
No. 123R”), which we adopted May 1, 2006. SFAS No. 123R eliminates the
ability to account for share-based compensation transactions using Accounting
Principles Board Opinion No. 25 (“APB No. 25”), and instead requires
companies to recognize compensation expense using a fair-value based method
for
costs related to share-based payments including stock options. Our adoption
of
SFAS No. 123R is expected to materially impact our financial position and
results of operations for future periods. Also, a change in accounting
pronouncements or taxation rules or practices can have a significant effect
on
our reported results and may even affect our reporting of transactions completed
before the change is effective. Other new accounting pronouncements or taxation
rules and varying interpretations of accounting pronouncements or taxation
practice have occurred and may occur in the future. Changes to existing rules,
future changes, if any, or the questioning of current practices may adversely
affect our reported financial results or the way we conduct our business, which
may also adversely affect our stock price.
If
We Lose Qualified Management And Scientific Personnel Or Are Unable To Attract
And Retain Such Personnel, We May Be Unable To Successfully Develop Our Products
Or We May Be Significantly Delayed In Developing Our
Products.
Our
success is dependent, in part, upon a limited number of key executive officers,
each of whom is an at-will employee, and also upon our scientific researchers.
For example, because of his extensive understanding of our technologies and
product development programs, the loss of Mr. Steven W. King, our President
and
Chief Executive Officer, would adversely affect our development efforts and
clinical trial programs during the six to twelve month period that we estimate
it would take to find and train a qualified replacement.
We
also
believe that our future success will depend largely upon our ability to attract
and retain highly-skilled research and development and technical personnel.
We
face intense competition in our recruiting activities, including competition
from larger companies with greater resources. We do not know if we will be
successful in attracting or retaining skilled personnel. The loss of certain
key
employees or our inability to attract and retain other qualified employees
could
negatively affect our operations and financial performance.
S-12
Our
Governance Documents And State Law Provide Certain Anti-Takeover Measures Which
Will Discourage A Third Party From Seeking To Acquire Us Unless Approved By
the
Board of Directors.
We
adopted a shareholder rights plan, commonly referred to as a “poison pill,” on
March 16, 2006. The purpose of the shareholder rights plan is to protect
stockholders against unsolicited attempts to acquire control of us that do
not
offer a fair price to our stockholders as determined by our Board of Directors.
Under the plan, the acquisition of 15% or more of our outstanding common stock
by any person or group, unless approved by our board of directors, will trigger
the right of our stockholders (other than the acquiror of 15% or more of our
common stock) to acquire additional shares of our common stock, and, in certain
cases, the stock of the potential acquiror, at a 50% discount to market price,
thus significantly increasing the acquisition cost to a potential acquiror.
In
addition, our certificate of incorporation and by-laws contain certain
additional anti-takeover protective devices. For example,
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no
stockholder action may be taken without a meeting, without prior
notice
and without a vote; solicitations by consent are thus
prohibited;
|
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·
|
special
meetings of stockholders may be called only by our Board of Directors;
and
|
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·
|
our
Board of Directors has the authority, without further action by the
stockholders, to fix the rights and preferences, and issue shares,
of
preferred stock. An issuance of preferred stock with dividend and
liquidation rights senior to the common stock and convertible into
a large
number of shares of common stock could prevent a potential acquiror
from
gaining effective economic or voting
control.
|
Further,
we are subject to Section 203 of the Delaware General Corporation Law which,
subject to certain exceptions, restricts certain transactions and business
combinations between a corporation and a stockholder owning 15% or more of
the
corporation’s outstanding voting stock for a period of three years from the date
the stockholder becomes a 15% stockholder.
Although
we believe these provisions and our rights plan collectively provide for an
opportunity to receive higher bids by requiring potential acquirers to negotiate
with our Board of Directors, they would apply even if the offer may be
considered beneficial by some stockholders. In addition, these provisions may
frustrate or prevent any attempts by our stockholders to replace or remove
our
current management by making it more difficult for stockholders to replace
members of our Board of Directors, which is responsible for appointing the
members of our management.
This
prospectus supplement, the accompanying prospectus and the documents that we
incorporate by reference contain some forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, or the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, regarding, among other things, our business,
our
financial position and the research and development of biopharmaceutical
products. Forward-looking statements include all statements that are not
historical
facts and can be identified by terms such as “anticipates,” “believes,” “could,”
“estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,”
“projects,” “should,” “will,” “would” or similar expressions. Such statements
are based largely upon our expectations and projections about future events,
and
so are subject to certain risks and uncertainties, particularly those inherent
in the process of developing and commercializing biopharmaceutical products,
that could cause actual results to differ materially from those expressed in
or
implied by the forward-looking statements. Among the factors that could cause
actual results to differ materially from those expressed in or implied by the
forward-looking statements are risks and uncertainties incorporated by reference
under “Risk Factors” in this prospectus supplement, the accompanying prospectus
and the documents we incorporate by reference.
Although
our forward-looking statements reflect good faith beliefs of our management,
these statements are based only on facts and circumstances currently known
to
us. As a result, we cannot guarantee future results, events, levels of activity,
performance or achievement as expressed in or implied by our forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, unless required by law.
S-13
USE
OF PROCEEDS
We
estimate that the net proceeds from this offering will be approximately
$20.9 million, assuming we sell the maximum number of shares of common
stock offered hereby. “Net proceeds” is what we expect to receive after paying
the placement agent fees and other expenses of the offering. Because there
is no
minimum offering amount required as a condition to closing this offering, the
actual public offering amount, placement fees and proceeds to us, if any, are
not presently determinable and may be substantially less than the maximum amount
set forth above.
We
currently
intend
to use
the net proceeds from the sale of the sale of common stock offered hereby for
general corporate purposes, which may include research and development expenses,
clinical trial expenses, manufacturing expenses and increasing our working
capital. Pending the application of the net proceeds, we expect to invest the
proceeds in investment grade, interest bearing securities.
We
are
offering the shares of common stock through a placement agent. Subject to the
terms and conditions contained in the placement agent agreement, dated
June 27, 2007, Rodman & Renshaw, LLC has agreed to act as
placement agent for the sale of up to 30,000,000 shares of our common
stock. The placement agent is not purchasing or selling any shares by this
prospectus supplement and the accompanying prospectus, nor is it required to
arrange the purchase or sale of sell any specific number or dollar amount of
the
shares, but has agreed to use reasonable efforts to arrange for the sale of
all
of the shares offered hereby.
The
placement agent proposes to arrange for the sale to one or more purchasers
of
the shares of common stock offered pursuant to this prospectus supplement and
the accompanying prospectus through direct purchase agreements between the
purchasers and us. In exchange for these placement agent services, we will
pay
the placement agent a commission of 6% of the gross proceeds from the sale
of
the shares offered under this prospectus supplement and accompanying prospectus
for purchasers introduced to the Company directly by Rodman and a commission
of
7% of the gross proceeds from the sale of the shares offered under this
prospectus supplement and accompanying prospectus for purchasers introduced
to
the Company through selected dealers engaged by Rodman. Rodman may allow a
concession of up to 5% of gross offering proceeds to such selected dealers.
Assuming the maximum number of shares of common stock are sold pursuant to
this
prospectus supplement, the placement agent will receive $1,460,000 in cash.
In
addition, we will also reimburse the placement agent for up to $25,000 of legal
and out of pocket expenses incurred by it.
Because
there is no minimum offering amount required as a condition to closing in this
offering, the actual total offering commissions, if any, are not presently
determinable and may be substantially less than the maximum amount set forth
above.
Our
obligation to issue and sell shares to the purchasers is subject to the
conditions set forth in the purchase agreements, which may be waived by us
in
our discretion. A purchaser’s obligation to purchase shares is subject to
conditions set forth in the purchase agreement as well, which also may be
waived.
We
currently anticipate that the sale of up to 30,000,000 shares will be completed
on or about July 3, 2007. We estimate the total expenses of this offering which
will be payable by us, excluding the commissions to the placement agent, will
be
approximately $60,000.
We
have
agreed to indemnify the placement agent and purchasers against liabilities
under
the Securities Act.
In
the
event that we do a debt or equity financing or other capital raising activity
within ten months and two weeks following the termination or expiration of
the
placement agent agreement with any purchaser introduced to us by the placement
agent we have agreed to pay the placement agent an additional fee at the same
rate as is paid in this offering, as more particularly described in the
placement agent agreement.
The
placement agent agreement with Rodman & Renshaw, LLC is included as an
exhibit to our Current Report on Form 8-K that was filed with the SEC on
June 28, 2007 in connection with the consummation of this offering.
S-14
In
order
to facilitate the offering of the securities, the placement agent may engage
in
transactions that stabilize, maintain or otherwise affect the market price
of
our securities. Any of these activities may maintain the market price of our
securities at a level above that which might otherwise prevail in the open
market. The placement agent is not required to engage in these activities and
if
commenced, may end any of these activities at any time. Neither we nor the
placement agent make any representation or prediction as to the effect that
these transactions may have on the market price of our securities. These
transactions may occur on The Nasdaq Capital Market or otherwise. Any such
transactions will be conducted in compliance with Regulation M under the
Securities Exchange Act of 1934.
LEGAL
MATTERS
Snell
& Wilmer LLP, Costa Mesa, California has passed on the validity of the
shares offered by this prospectus supplement.
EXPERTS
Ernst
& Young LLP, independent registered public accounting firm, has audited our
consolidated financial statements and schedule included in our Annual Report
on
Form 10-K for the year ended April 30, 2006, and management’s assessment of the
effectiveness of our internal control over financial reporting as of April
30,
2006, as set forth in their reports, which are incorporated by reference in
the
accompanying prospectus and elsewhere in the registration statement. Our
financial statements and schedule and management’s assessment are incorporated
by reference in reliance on Ernst & Young LLP’s reports, given on their
authority as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
are
subject to the informational requirements of the Exchange Act. Therefore, we
file annual, quarterly and current reports, proxy statements and other
information with the SEC. We have filed with the SEC a registration statement
on
Form S-3 under the Securities Act with respect to the shares of common
stock we are offering under this prospectus supplement and accompanying
prospectus. This prospectus supplement and accompanying prospectus do not
contain all of the information set forth in the registration statement and
the
exhibits to the registration statement. For further information with respect
to
us and the securities we are offering under this prospectus supplement and
accompanying prospectus, we refer you to the registration statement and the
exhibits and schedules filed as a part of the registration statement. You may
read and copy the registration statement, as well as our reports, proxy
statements and other information at the SEC’s public reference rooms in
maintained by the SEC at
100 F
Street N.E., Washington, D.C. 20549, and at the SEC's Midwest Regional Offices
at 500 West Madison Street, Chicago, Illinois 60606. You
can
request copies of these documents by writing to the SEC and paying a fee for
the
copying cost. Please call the SEC at 1-800-SEC-0330 for more information about
the operation of the public reference rooms. Our SEC filings are also available
at the SEC’s website at http://www.sec.gov. In addition, you can read and copy
our SEC filings at the office of the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
S-15
This
filing is made pursuant to Rule 424(b)(2) under the Securities Act of
1933
in
connection with Registration Statement No. 333-139975
PROSPECTUS
$30,000,000
Common
Stock
This
prospectus will allow us to sell, from time to time in one or more offerings,
shares of our common stock. In this prospectus, we sometimes refer to our
common
stock as the “securities.” Each time we sell securities:
|
·
|
we
will provide a prospectus supplement;
and
|
|
·
|
the
prospectus supplement will inform you about the specific terms
of that
offering and may also add, update or change information contained
in this
document.
|
You
should read this document and any prospectus supplement carefully before
you
invest.
Our
common stock is registered under Section 12(b) of the Securities Exchange
Act of
1934 and is listed on The Nasdaq Capital Market under the symbol “PPHM”. On
January 11, 2007, the last reported sale price of our common stock on The
Nasdaq
Capital Market was $1.15 per share. You are urged to obtain current market
quotations for our common stock.
__________________________________
See
“Risk
Factors”
beginning on page 4 to read about the risks you should
consider
before buying shares of our common stock.
_________________________________
This
prospectus may not be used to offer or sell any securities unless accompanied
by
a prospectus supplement.
The
securities may be sold directly by us to investors, through agents designated
from time to time or to or through underwriters or dealers. For additional
information on the methods of sale, you should refer to the section entitled
“Plan of Distribution.” If any underwriters are involved in the sale of any
securities with respect to which this prospectus is being delivered, the
names
of such underwriters and any applicable commissions or discounts will be
set
forth in a prospectus supplement. The net proceeds we expect to receive from
such sale will also be set forth in a prospectus supplement.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this Prospectus is January 23, 2007
TABLE
OF CONTENTS
|
ABOUT
THIS PROSPECTUS
|
1
|
|
OUR
BUSINESS
|
1
|
|
RISK
FACTORS
|
4
|
|
FORWARD-LOOKING
STATEMENTS
|
15
|
|
USE
OF PROCEEDS
|
15
|
|
DESCRIPTION
OF COMMON STOCK
|
15
|
|
PLAN
OF DISTRIBUTION
|
16
|
|
LEGAL
MATTERS
|
17
|
|
EXPERTS
|
17
|
|
WHERE
TO LEARN MORE ABOUT US
|
17
|
|
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
|
18
|
|
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
|
19
|
You
should rely only on the information contained in this document or to which
we
have referred you. We have not authorized anyone to provide you with information
that is different. This document may only be used where it is legal to sell
these securities. The information in this document may only be accurate on
the
date of this document. However, in the event of a material change, this
prospectus will be amended or supplemented accordingly.
i
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement on Form S-3 that we filed
with
the SEC utilizing a “shelf” registration process. Under this shelf process, we
may from time to time offer and sell shares of our common stock in one or
more
offerings for total gross proceeds of up to $30,000,000. This prospectus
provides you with a general description of the shares we may offer hereunder.
Each time we sell shares hereunder, we will provide a prospectus supplement
that
will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained
in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described below under the
heading “Where You Can Find More Information.” THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE A SALE OF SECURITIES UNLESS IT IS ACCOMPANIED BY A PROSPECTUS
SUPPLEMENT.
We
may
sell shares to or through underwriters, dealers or agents. For additional
information on the method of sale, you should refer to the section entitled
“Plan of Distribution.” The names of any underwriters, dealers or agents
involved in the sale of any shares and the specific manner in which they
may be
offered will be set forth in the prospectus supplement covering the sale
of
those shares.
You
should rely only upon the information provided in this document or incorporated
in this document by reference. We have not authorized anyone to provide you
with
different information. You should not assume that the information in this
document, including any information incorporated by reference, is accurate
as of
any date other than the date indicated on the front cover.
As
used
in this prospectus, the terms “we”, “us”, “our”, “Company” and “Peregrine” refer
to Peregrine Pharmaceuticals, Inc., and its wholly-owned subsidiary, Avid
Bioservices, Inc.
OUR
BUSINESS
This
is only a summary and does not contain all of the information that you should
consider before investing in our Common Stock. You should read the entire
prospectus carefully, including the “Risk Factors” section as well as the
information incorporated by reference into this prospectus under “Where You Can
Find More Information.”
Peregrine
Pharmaceuticals, Inc. is a clinical stage biopharmaceutical company developing
targeted therapeutics for the treatment of cancer and hepatitis C virus
infection using monoclonal antibodies. We are organized into two reportable
operating segments: (i) Peregrine Pharmaceuticals, Inc. (“Peregrine”), the
parent company, is engaged in the research and development of targeted
therapeutics and (ii) Avid Bioservices, Inc. (“Avid”), our wholly owned
subsidiary, is engaged in manufacturing and related development services
for
Peregrine and outside customers on a fee-for-service basis.
All
of
our product candidates are being evaluated in clinical trials and pre-clinical
studies or are in early stages of development. To date, we have not obtained
regulatory approval for or commercialized any products. We have incurred
significant losses since our inception and we expect to incur annual losses
for
at least
the
next two years
as we
continue with our drug discovery, development and commercialization efforts.
1
The
following table provides you with an overview of our products in clinical
trials
and the current status of each trial:
|
Product
|
Indication
|
Trial
Design
|
Status
|
||
|
Bavituximab
|
Solid
tumor cancers
|
Phase
Ia repeat dose monotherapy safety study to treat up to 28
patients.
|
Patients
are currently being screened and enrolled at up to 5 centers in
the
U.S.
|
||
|
Bavituximab
plus chemotherapy
|
Solid
tumor cancers
|
Phase
Ib repeat dose combination therapy safety study to treat up to
12
evaluable patients with 8 weekly doses of bavituximab in combination
with
chemotherapy agents.
|
Patients
are currently being screened and enrolled at up to 3 centers in
India.
|
||
|
Cotara®
|
Brain
cancer (glioblastoma multiforme)
|
Dosimetry
and dose confirmation study designed to treat up to 12 evaluable
patients
at 1st and 2nd relapse in collaboration with New Approaches to
Brain Tumor
Therapy.
|
Patients
are currently being screened and enrolled at up to 4 centers in
the
U.S.
|
||
|
Cotara®
|
Brain
cancer (glioblastoma multiforme)
|
Phase
II safety and efficacy study to treat up to 40 patients at 1st
relapse.
|
Regulatory
approval has been received for the protocol in India. Manufacturing
development is proceeding in India and approval is anticipated
in the near
term.
|
||
|
Bavituximab
|
Chronic
Hepatitis C Virus ("HCV") infection
|
Phase
Ib repeat dose safety study in 24 patients.
|
All
patients have been enrolled at U.S. sites and are currently completing
the
12-week follow-up period.
|
For
a
more detailed discussion of our proprietary platforms, please refer to our
Form
10-K for the fiscal year ended April 30, 2006, filed with the SEC on July
14,
2006, and our Form 10-Q for the fiscal quarter ended October 31, 2006, filed
with the SEC on December 8, 2006.
Company
Information
We
are a
Delaware corporation. Our principal offices are located at 14272 Franklin
Avenue, Tustin, California 92780. The telephone number of our principal offices
is 714-508-6000. Our internet addresses are www.peregrineinc.com
and
www.avidbio.com.
The
information contained on our websites is not incorporated by reference and
should not be considered a part of this prospectus. Our website address is
included in this prospectus as an inactive textual reference
only.
2
About
the Offering
|
Common
stock offered in this prospectus
|
$30,000,000
aggregate gross sales proceeds
|
|
Common
stock outstanding before this offering
|
196,112,201
shares (1)
|
|
Use
of proceeds
|
See
“Use of Proceeds”
|
|
Nasdaq
Capital Market symbol
|
PPHM
|
___________________________
(1)
The
number set forth above does not include approximately 22,178,000 shares of
our
common stock that, as of January 11, 2007, are reserved for issuance under
shelf
registration statements, stock option plans and warrant agreements, calculated
as follows:
|
|
Number
of Shares
of
Common Stock
Reserved
For
Issuance
|
|||
|
Shares
reserved under shelf registration statements
|
5,030,634
|
|||
|
Options
issued, outstanding and reserved for future issuance
|
16,449,833
|
|||
|
Warrants
issued and outstanding
|
697,865
|
|||
|
Total
shares reserved
|
22,178,332
|
|||
3
RISK
FACTORS
An
investment in our securities being offered in this prospectus is very risky.
You
should carefully consider the risk factors described below, together with
all
other information in this prospectus or incorporated herein by reference,
before
making an investment decision. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations. If any of the following risks actually occurs, our business,
financial conditions or operating results could be materially adversely
affected. In such case, the trading price of our common stock could decline,
and
you may lose all or part of your investment.
If
We Cannot Obtain Additional Funding, Our Product Development And
Commercialization Efforts May Be Reduced Or Discontinued And We May Not Be
Able
To Continue Operations.
At
December 31, 2006, we had $21.2 million in cash and cash equivalents. We
have
expended substantial funds on (i) the research, development and clinical
trials
of our product candidates, and (ii) funding the operations of our wholly
owned
subsidiary, Avid Bioservices, Inc. As a result, we
have
historically experienced negative cash flows from operations since our inception
and we expect the negative cash flows from operations to continue for the
foreseeable future, unless and until we are able to generate sufficient revenues
from Avid’s contract manufacturing services and/or from the sale and/or
licensing of our products under development. While we expect Avid to generate
revenues in the foreseeable future, we expect our monthly negative cash flow
to
continue for the foreseeable future due to our clinical trial activities
using
Cotara® for the treatment of brain cancer, our ongoing clinical studies of
bavituximab for the treatment of both solid tumors and hepatitis C virus
infection, our anticipated research and development costs associated with
the
possible expansion of our clinical indications using bavituximab for
the
treatment of other viral indications, including supporting trials outside
the
U.S., our continued research directed towards our other technologies in
pre-clinical development, and our possible expansion of our manufacturing
capabilities. We believe we have sufficient cash on hand to meet our obligations
on a timely basis through
at least July 2007.
In
addition to the operations of Avid, we plan to obtain any necessary financing
through one or more methods including either equity or debt financing and/or
negotiating additional licensing or collaboration agreements for our technology
platforms. As of December 31, 2006, we had
an
aggregate of approximately 5,893,000 shares available under our existing
Form
S-3 registration statements for possible future registered transactions.
There
can
be no assurances that we will be successful in raising such funds on terms
acceptable to us, or at all, or that sufficient additional capital will be
raised to complete the research, development, and clinical testing of our
product candidates.
Successful
Development Of Our Products Is Uncertain. To Date, No Revenues Have Been
Generated From The Commercial Sale Of Our Products And Our Products May Not
Generate Revenues In The Future.
Our
development of current and future product candidates is subject to the risks
of
failure inherent in the development of new pharmaceutical products and products
based on new technologies. These risks include:
|
·
|
delays
in product development, clinical testing or
manufacturing;
|
|
·
|
unplanned
expenditures in product development, clinical testing or
manufacturing;
|
|
·
|
failure
in clinical trials or failure to receive regulatory
approvals;
|
|
·
|
emergence
of superior or equivalent products;
|
|
·
|
inability
to manufacture on our own, or through others, product candidates
on a
commercial scale;
|
|
·
|
inability
to market products due to third party proprietary rights;
and
|
|
·
|
failure
to achieve market acceptance.
|
Because
of these risks, our research and development efforts or those of our partners
may not result in any commercially viable products. If significant portions
of
these development efforts are not successfully completed, required regulatory
approvals are not obtained, or any approved products are not commercially
successful, our business, financial condition and results of operations may
be
materially harmed.
4
Because
our licensing partners and we have not begun commercial sales of our products,
our revenue and profit potential is unproven and our limited operating history
makes it difficult for an investor to evaluate our business and prospects.
Our
technology may not result in any meaningful benefits to our current or potential
partners. No revenues have been generated from the commercial sale of our
products, and our products may not generate revenues in the future. Our business
and prospects should be considered in light of the heightened risks and
unexpected expenses and problems we may face as a company in an early stage
of
development in a new and rapidly evolving industry.
We
Have Had Significant Losses And We Anticipate Future
Losses.
We
have
incurred net losses in most fiscal years since we began operations in 1981.
The
following table represents net losses incurred during the past three fiscal
years and during the six months ended October 31, 2006:
|
Net
Loss
|
||||
|
Six
months ended October 31, 2006 (unaudited)
|
$
|
10,527,000
|
||
|
Fiscal
Year 2006
|
$
|
17,061,000
|
||
|
Fiscal
Year 2005
|
$
|
15,452,000
|
||
|
Fiscal
Year 2004
|
$
|
14,345,000
|
||
As
of
October 31, 2006, we had an accumulated deficit of $197,391,000. While we
expect
to continue to generate revenues from Avid’s contract manufacturing services, in
order to achieve and sustain profitable operations, we must successfully
develop
and obtain regulatory approval for our products, either alone or with others,
and must also manufacture, introduce, market and sell our products. The costs
associated with clinical trials and product manufacturing is very expensive
and
the time frame necessary to achieve market success for our products is long
and
uncertain. We do not expect to generate product or royalty revenues
for at least the next two years, and we may never generate product revenues
sufficient to become profitable or to sustain profitability.
Our
Product Development Efforts May Not Be Successful.
Since
our
inception, we have been engaged in the development of drugs and related
therapies for the treatment of people with cancer. During fiscal year 2005,
we
began exploring the use of one of our product candidates, bavituximab, for
the
treatment of viral infections. We recently completed a single dose Phase
Ia
trial for the treatment of people with the hepatitis C virus (“HCV”) infection,
including an extension of the Phase Ia study to test an additional six patients
at a higher dose, and we initiated and completed patient enrollment of the
Phase
Ib HCV repeat dose study. These patients are currently in the 12-week follow-up
period. In addition, we are planning a combination therapy study using
bavituximab with standard anti-viral therapies. Our product candidates have
not
received regulatory approval and are generally in research, pre-clinical
and
clinical stages of development. If the results from any of the clinical trials
are poor, those results may adversely affect our ability to raise additional
capital, which will affect our ability to continue full-scale research and
development for our antibody technologies. In addition, our product candidates
may take longer than anticipated to progress through clinical trials, or
patient
enrollment in the clinical trials may be delayed or prolonged significantly,
thus delaying the clinical trials. Patient enrollment is a function of many
factors, including the size of the patient population, the nature of the
protocol, the proximity of patients to the clinical sites, and the eligibility
criteria for the study. In addition, because our Cotara® product currently in
clinical trials represents a departure from more commonly used methods for
cancer treatment, potential patients and their doctors may be inclined to
use
conventional therapies, such as chemotherapy, rather than enroll patients
in our
clinical study.
Clinical
Trials Required For Our Product Candidates Are Expensive And Time Consuming,
And
Their Outcome Is Uncertain.
In
order
to obtain FDA approval to market a new drug product, we or our potential
partners must demonstrate proof of safety and efficacy in humans. To meet
these
requirements, we or our potential partners will have to conduct extensive
pre-clinical testing and “adequate and well-controlled” clinical trials.
Conducting clinical trials is a lengthy, time-consuming and expensive process.
The length of time may vary substantially according to the type, complexity,
novelty and intended use of the product candidate, and often can be several
years or more per trial. Delays associated with products for which we are
directly conducting pre-clinical or clinical trials may cause us to incur
additional operating expenses. Moreover, we may continue to be affected by
delays associated with the pre-clinical testing and clinical trials of certain
product candidates conducted by our partners over which we have no control.
The
commencement and rate of completion of clinical trials may be delayed by
many
factors, including, for example:
5
|
·
|
slower
than expected rates of patient recruitment due to narrow screening
requirements;
|
|
·
|
the
inability of patients to meet FDA imposed protocol
requirements;
|
|
·
|
the
inability to manufacture sufficient quantities of qualified materials
under current good manufacturing practices, or cGMPs, for use in
clinical
trials;
|
|
·
|
the
need or desire to modify our manufacturing processes;
|
|
·
|
the
inability to adequately observe patients after
treatment;
|
|
·
|
changes
in regulatory requirements for clinical trials;
|
|
·
|
the
lack of effectiveness during the clinical trials;
|
|
·
|
unforeseen
safety issues;
|
|
·
|
delays,
suspension, or termination of the clinical trials due to the institutional
review board responsible for overseeing the study at a particular
study
site; and
|
|
·
|
government
or regulatory delays or “clinical holds” requiring suspension or
termination of the trials.
|
Even
if
we obtain positive results from pre-clinical or initial clinical trials,
we may
not achieve the same success in future trials. Clinical trials may not
demonstrate statistically sufficient safety and effectiveness to obtain the
requisite regulatory approvals for product candidates employing our
technology.
Clinical
trials that we conduct or that third-parties conduct on our behalf may not
demonstrate sufficient safety and efficacy to obtain the requisite regulatory
approvals for any of our product candidates. We expect to commence new clinical
trials from time to time in the course of our business as our product
development work continues. The failure of clinical trials to demonstrate
safety
and effectiveness for our desired indications could harm the development
of that
product candidate as well as other product candidates. Any change in, or
termination of, our clinical trials could materially harm our business,
financial condition and results of operations.
Success
In Early Clinical Trials May Not Be Indicative Of Results Obtained In Later
Trials.
A
number
of new drugs and biologics have shown promising results in initial clinical
trials, but subsequently failed to establish sufficient safety and effectiveness
data to obtain necessary regulatory approvals. Data obtained from pre-clinical
and clinical activities are subject to varying interpretations, which may
delay,
limit or prevent regulatory approval.
Positive
results from pre-clinical studies and our Phase I clinical trial should not
be
relied upon as evidence that later or larger-scale clinical trials will succeed.
The Phase I clinical trial of bavituximab for the treatment of the Hepatitis
C
virus (“HCV”) infection has been conducted only in small numbers of patients
that may not fully represent the diversity present in larger populations
infected with HCV. The limited results we have obtained may not predict results
from studies in larger numbers of patients drawn from more diverse populations
and also may not predict the ability of bavituximab to achieve a sustained
anti-viral response or the ability to provide a long-term therapeutic benefit.
These initial trials in HCV have not been designed to assess the long-term
therapeutic utility of bavituximab. We will be required to demonstrate through
larger-scale clinical trials that bavituximab is safe and effective for use
in a
diverse population before we can seek regulatory approval for its commercial
sale. There is typically an extremely high rate of attrition from the failure
of
drug candidates proceeding through clinical trials.
In
addition, regulatory delays or rejections may be encountered as a result
of many
factors, including changes in regulatory policy during the period of product
development.
6
If
We Successfully Develop Products But Those Products Do Not Achieve And Maintain
Market Acceptance, Our Business Will Not Be
Profitable.
Even
if
bavituximab, Cotara®, or any future product candidate is approved for commercial
sale by the FDA or other regulatory authorities, the degree of market acceptance
of any approved product candidate by physicians, healthcare professionals
and
third-party payors and our profitability and growth will depend on a number
of
factors, including:
·
our
ability to provide acceptable evidence of safety and efficacy;
·
relative
convenience and ease of administration;
·
the
prevalence and severity of any adverse side effects;
·
availability
of alternative treatments;
·
pricing
and cost effectiveness;
·
effectiveness
of our or our collaborators’ sales and marketing strategy; and
·
our
ability to obtain sufficient third-party insurance coverage or
reimbursement.
In
addition, if bavituximab, Cotara®, or any future product candidate that we
discover and develop does not provide a treatment regimen that is more
beneficial than the current standard of care or otherwise provide patient
benefit, that product likely will not be accepted favorably by the market.
If
any products we may develop do not achieve market acceptance, then we may
not
generate sufficient revenue to achieve or maintain profitability.
In
addition, even if our products achieve market acceptance, we may not be able
to
maintain that market acceptance over time if new products or technologies
are
introduced that are more favorably received than our products, are more cost
effective or render our products obsolete.
If
We Cannot License Or Sell Cotara®, It May Be Delayed Or Never Be Further
Developed.
We
have
completed Phase I and Phase I/II studies with Cotara® for the treatment of
malignant brain cancer. We are currently collaborating with various universities
that are members of the New Approaches to Brain Tumor Therapy (“NABTT”)
consortium to complete the dose confirmation and dosimetry clinical trial
in
patients with recurrent glioblastoma multiforme (“GBM”), a deadly form of brain
cancer. The next step in the development of Cotara® is to treat a group of
approximately 40 patients using a single administration of the drug with
an
optimized delivery using two catheters which we are pursuing to initiate
in
India.
To
date
we have received regulatory approval for the protocol in India and manufacturing
approval is anticipated in the near term. Taken
together, the NABTT study along with data collected from the treatment of
the
approximate 40 additional patients should provide the safety, dosimetry and
efficacy data that will support the final design of the larger Phase III
study.
Once we complete the initial two parts of the Cotara® study for brain cancer,
substantial financial resources will be needed to complete the final part
of the
trial and any additional supportive clinical studies necessary for potential
product approval. We do not presently have the financial resources internally
to
complete the larger Phase III study. We therefore intend to continue to seek
a
licensing or funding partner for Cotara®, and hope that the data from this
collaboration with members of NABTT together with other data from additional
40
patients, will enhance our opportunities of finding such partner. If a partner
is not found for this technology, we may not be able to advance the project
past
its current state of development. Because there are a limited number of
companies which have the financial resources, the internal infrastructure,
the
technical capability and the marketing infrastructure to develop and market
a
radiopharmaceutical based anti-cancer drug, we may not find a suitable
partnering candidate for Cotara®. We also cannot assure you that we will be able
to find a suitable licensing partner for this technology. Furthermore, we
cannot
assure you that if we do find a suitable licensing partner, the financial
terms
that they propose will be acceptable to the Company.
7
Our
Dependency On One Radiolabeling Supplier May Negatively Impact Our Ability
To
Complete Clinical Trials And Market Our Products.
We
have
procured our antibody radioactive isotope combination services (“radiolabeling”)
with Iso-tex Diagnostics, Inc. for all U.S. clinical trials using Cotara®. If
this supplier is unable to continue to qualify its facility or radiolabel
and
supply our antibody in a timely manner, our current clinical trial or potential
licensing partner’s clinical trials using radiolabeling technology could be
adversely affected and delayed. While there are other suppliers for radioactive
isotope combination services, our clinical trial would be delayed for up
to
twelve to eighteen months because it may take that amount of time to certify
a
new facility under current Good Manufacturing Practices and qualify the product,
plus we would incur significant costs to transfer our technology to another
vendor. Prior to commercial distribution of any of our products, if approved,
we
will be required to identify and contract with a company for commercial antibody
manufacturing and radioactive isotope combination services. An antibody that
has
been combined with a radioactive isotope, such as Iodine 131, cannot be stored
for long periods of time, as it must be used within one week of being
radiolabeled to be effective. Accordingly, any change in our existing or
future
contractual relationships with, or an interruption in supply from, any such
third-party service provider or antibody supplier could negatively impact
our
ability to complete ongoing clinical trials conducted by us or a potential
licensing partner.
Our
Manufacturing Facilities May Not Continue To Meet Regulatory Requirements
And
Have Limited Capacity.
Before
approving a new drug or biologic product, the FDA requires that the facilities
at which the product will be manufactured be in compliance with current Good
Manufacturing Practices, or cGMP requirements. To be successful, our therapeutic
products must be manufactured for development and, following approval, in
commercial quantities, in compliance with regulatory requirements and at
acceptable costs. Currently, we manufacture all pre-clinical and clinical
material through Avid Bioservices, our wholly owned subsidiary. While we
believe
our current facilities are adequate for the manufacturing of product candidates
for clinical trials, our facilities may not be adequate to produce sufficient
quantities of any products for commercial sale.
If
we are
unable to establish and maintain a manufacturing facility or secure third-party
manufacturing capacity within our planned time frame and cost parameters,
the
development and sales of our products, if approved, may be materially harmed.
We
may
also encounter problems with the following:
|
·
|
production
yields;
|
|
·
|
quality
control and quality assurance;
|
|
·
|
shortages
of qualified personnel;
|
|
·
|
compliance
with FDA regulations, including the demonstration of purity and
potency;
|
|
·
|
changes
in FDA requirements;
|
|
·
|
production
costs; and/or
|
|
·
|
development
of advanced manufacturing techniques and process
controls.
|
In
addition, we or any third-party manufacturer will be required to register
the
manufacturing facilities with the FDA and other regulatory authorities. The
facilities will be subject to inspections confirming compliance with cGMP
or
other regulations. If any of our third-party manufacturers or we fail to
maintain regulatory compliance, the FDA can impose regulatory sanctions
including, among other things, refusal to approve a pending application for
a
new drug product or biologic product, or revocation of a pre-existing approval.
As a result, our business, financial condition and results of operations
may be
materially harmed.
We
May Have Significant Product Liability Exposure Because We Maintain Only
Limited
Product Liability Insurance.
We
face
an inherent business risk of exposure to product liability claims in the
event
that the administration of one of our drugs during a clinical trial adversely
affects or causes the death of a patient. Although we maintain product liability
insurance for clinical studies in the amount of $3,000,000 per occurrence
or
$3,000,000 in the aggregate on a claims-made basis, this coverage may not
be
adequate. Product liability insurance is expensive, difficult to obtain and
may
not be available in the future on acceptable terms, if at all. Our inability
to
obtain sufficient insurance coverage on reasonable terms or to otherwise
protect
against potential product liability claims in excess of our insurance coverage,
if any, or a product recall, could negatively impact our financial position
and
results of operations.
8
In
addition, the contract manufacturing services that we offer through Avid
expose
us to an inherent risk of liability as the antibodies or other substances
manufactured by Avid, at the request and to the specifications of our customers,
could possibly cause adverse effects or have product defects. We obtain
agreements from our customers indemnifying and defending us from any potential
liability arising from such risk. There can be no assurance that such
indemnification agreements will adequately protect us against potential claims
relating to such contract manufacturing services or protect us from being
named
in a possible lawsuit. Although Avid has procured insurance coverage, there
is
no guarantee that we will be able to maintain our existing coverage or obtain
additional coverage on commercially reasonable terms, or at all, or that
such
insurance will provide adequate coverage against all potential claims to
which
we might be exposed. A partially successful or completely uninsured claim
against Avid would have a material adverse effect on our consolidated
operations.
The
Liquidity Of Our Common Stock Will Be Adversely Affected If Our Common Stock
Is
Delisted From The Nasdaq Capital Market.
Our
common stock is presently traded on The Nasdaq Capital Market. To maintain
inclusion on The Nasdaq Capital Market, we must continue to meet the following
six listing requirements:
|
1.
|
Net
tangible assets of at least $2,500,000 or market capitalization
of at
least $35,000,000 or net income of at least $500,000 in either
our latest
fiscal year or in two of our last three fiscal years;
|
|
2.
|
Public
float of at least 500,000 shares;
|
|
3.
|
Market
value of our public float of at least $1,000,000;
|
|
4.
|
A
minimum closing bid price of $1.00 per share of common stock, without
falling below this minimum bid price for a period of thirty consecutive
trading days;
|
|
5.
|
At
least two market makers; and
|
|
6.
|
At
least 300 stockholders, each holding at least 100 shares of common
stock.
|
We
cannot
guarantee that we will be able to maintain the minimum closing bid price
requirement or maintain any of the other requirements in the future The market
price of our common stock has generally been highly volatile. During the
six
months ended October 31, 2006, the trading price of our common stock on The
Nasdaq Capital Market ranged from $1.12 per share to $1.99 per share. If
we fail
to meet any of The Nasdaq Capital Market listing requirements, the market
value
of our common stock could fall and holders of common stock would likely find
it
more difficult to dispose of the common stock.
If
our
common stock is delisted, we would apply to have our common stock quoted
on the
over-the-counter electronic bulletin board. Upon any such delisting, our
common
stock would become subject to the regulations of the Securities and Exchange
Commission relating to the market for penny stocks. A penny stock, as defined
by
the Penny Stock Reform Act, is any equity security not traded on a national
securities exchange that has a market price of less than $5.00 per share.
The
penny stock regulations generally require that a disclosure schedule explaining
the penny stock market and the risks associated therewith be delivered to
purchasers of penny stocks and impose various sales practice requirements
on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors. The broker-dealer must make a suitability
determination for each purchaser and receive the purchaser’s written agreement
prior to the sale. In addition, the broker-dealer must make certain mandated
disclosures, including the actual sale or purchase price and actual bid offer
quotations, as well as the compensation to be received by the broker-dealer
and
certain associated persons. The regulations applicable to penny stocks may
severely affect the market liquidity for our common stock and could limit
your
ability to sell your securities in the secondary market.
9
The
Sale Of Substantial Shares Of Our Common Stock May Depress Our Stock
Price.
As
of
December 31, 2006, we had approximately 195,249,000 shares of our common
stock
outstanding, and for that date the last reported sales price of our common
stock
was $1.16 per share.
We
could
also issue up to approximately 23,041,000 additional shares of our common
stock
that are reserved for future issuance under our shelf registration statements,
stock option plans and outstanding warrants, as further described in the
following table:
|
Number
of Shares
of
Common Stock
Reserved
For
Issuance
|
||||
|
Shares
reserved for under two effective shelf
registration statements
|
5,893,466
|
|||
|
Common
shares reserved for issuance under stock option plans
|
11,495,000
|
|||
|
Common
shares available for future grant under option plans
|
4,954,833
|
|||
|
Common
shares issuable upon exercise of outstanding warrants
|
697,865
|
|||
|
Total
|
23,041,164
|
|||
Of
the
total warrants and options outstanding as of December 31, 2006, approximately
3,503,000 options and warrants would be considered dilutive to stockholders
because we would receive an amount per share which is less than the market
price
of our common stock at December 31, 2006.
Our
Highly Volatile Stock Price And Trading Volume May Adversely Affect The
Liquidity Of Our Common Stock.
The
market price of our common stock and the market prices of securities of
companies in the biotechnology sector have generally been highly volatile
and
are likely to continue to be highly volatile.
The
following table shows the high and low sales price and trading volume of
our
common stock for each quarter in the three years ended April 30, 2006, and
our
two fiscal quarters ended October 31, 2006:
|
Common
Stock
Sales
Price
|
Common
Stock
Daily
Trading Volume
(000’s
omitted)
|
|||||||
|
High
|
Low
|
High
|
Low
|
|||||
|
Fiscal
Year 2007
|
||||||||
|
Quarter
Ended October 31, 2006
|
$1.49
|
$1.12
|
3,761
|
277
|
||||
|
Quarter
Ended July 31, 2006
|
$1.99
|
$1.30
|
23,790
|
429
|
||||
|
Fiscal
Year 2006
|
||||||||
|
Quarter
Ended April 30, 2006
|
$1.76
|
$1.20
|
9,922
|
391
|
||||
|
Quarter
Ended January 31, 2006
|
$1.40
|
$0.88
|
12,152
|
251
|
||||
|
Quarter
Ended October 31, 2005
|
$1.28
|
$0.91
|
4,619
|
156
|
||||
|
Quarter
Ended July 31, 2005
|
$1.31
|
$0.92
|
7,715
|
178
|
||||
|
Fiscal
Year 2005
|
||||||||
|
Quarter
Ended April 30, 2005
|
$1.64
|
$1.11
|
5,945
|
223
|
||||
|
Quarter
Ended January 31, 2005
|
$1.45
|
$0.99
|
6,128
|
160
|
||||
|
Quarter
Ended October 31, 2004
|
$1.96
|
$0.95
|
2,141
|
148
|
||||
|
Quarter
Ended July 31, 2004
|
$1.92
|
$0.88
|
1,749
|
131
|
||||
|
Fiscal
Year 2004
|
||||||||
|
Quarter
Ended April 30, 2004
|
$2.85
|
$1.56
|
3,550
|
320
|
||||
|
Quarter
Ended January 31, 2004
|
$3.14
|
$2.01
|
6,062
|
201
|
||||
|
Quarter
Ended October 31, 2003
|
$2.44
|
$1.25
|
18,060
|
314
|
||||
|
Quarter
Ended July 31, 2003
|
$2.19
|
$0.60
|
12,249
|
255
|
||||
10
The
market price of our common stock may be significantly impacted by many factors,
including, but not limited to:
|
·
|
announcements
of technological innovations or new commercial products by us or
our
competitors;
|
|
·
|
publicity
regarding actual or potential clinical trial results relating to
products
under development by us or our
competitors;
|
|
·
|
our
financial results or that of our
competitors;
|
|
·
|
published
reports by securities analysts;
|
|
·
|
announcements
of licensing agreements, joint ventures, strategic alliances, and
any
other transaction that involves the sale or use of our technologies
or
competitive technologies;
|
|
·
|
developments
and/or disputes concerning our patent or proprietary
rights;
|
|
·
|
regulatory
developments and product safety
concerns;
|
|
·
|
general
stock trends in the biotechnology and pharmaceutical industry
sectors;
|
|
·
|
public
concerns as to the safety and effectiveness of our
products;
|
|
·
|
economic
trends and other external factors, including but not limited to,
interest
rate fluctuations, economic recession, inflation, foreign market
trends,
national crisis, and disasters; and
|
|
·
|
healthcare
reimbursement reform and cost-containment measures implemented
by
government agencies.
|
These
and
other external factors have caused and may continue to cause the market price
and demand for our common stock to fluctuate substantially, which may limit
or
prevent investors from readily selling their shares of common stock, and
may
otherwise negatively affect the liquidity of our common stock.
If
We Are Unable To Obtain, Protect And Enforce Our Patent Rights, We May Be
Unable
To Effectively Protect Or Exploit Our Proprietary Technology, Inventions
And
Improvements.
Our
success depends in part on our ability to obtain, protect and enforce
commercially valuable patents. We try to protect our proprietary positions
by
filing United States and foreign patent applications related to our proprietary
technology, inventions and improvements that are important to developing
our
business. However, if we fail to obtain and maintain patent protection for
our
proprietary technology, inventions and improvements, our competitors could
develop and commercialize products that would otherwise infringe upon our
patents.
Our
patent position is generally uncertain and involves complex legal and factual
questions. Legal standards relating to the validity and scope of claims in
the
biotechnology and biopharmaceutical fields are still evolving. Accordingly,
the
degree of future protection for our patent rights is uncertain. The risks
and
uncertainties that we face with respect to our patents include the
following:
|
·
|
the
pending patent applications we have filed or to which we have exclusive
rights may not result in issued patents or may take longer than
we expect
to result in issued patents;
|
|
·
|
the
claims of any patents that issue may not provide meaningful
protection;
|
|
·
|
we
may be unable to develop additional proprietary technologies that
are
patentable;
|
|
·
|
the
patents licensed or issued to us may not provide a competitive
advantage;
|
|
·
|
other
parties may challenge patents licensed or issued to
us;
|
|
·
|
disputes
may arise regarding the invention and corresponding ownership rights
in
inventions and know-how resulting from the joint creation or use
of
intellectual property by us, our licensors, corporate partners
and other
scientific collaborators; and
|
|
·
|
other
parties may design around our patented
technologies.
|
11
We
May Become Involved In Lawsuits To Protect Or Enforce Our Patents That Would
Be
Expensive And Time Consuming.
In
order
to protect or enforce our patent rights, we may initiate patent litigation
against third parties. In addition, we may become subject to interference
or
opposition proceedings conducted in patent and trademark offices to determine
the priority and patentability of inventions. The defense of intellectual
property rights, including patent rights through lawsuits, interference or
opposition proceedings, and other legal and administrative proceedings, would
be
costly and divert our technical and management personnel from their normal
responsibilities. An adverse determination of any litigation or defense
proceedings could put our pending patent applications at risk of not being
issued.
Furthermore,
because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation.
For example, during the course of this kind of litigation, confidential
information may be inadvertently disclosed in the form of documents or testimony
in connection with discovery requests, depositions or trial testimony. This
disclosure could materially adversely affect our business and financial
results.
We
May Not Be Able To Compete With Our Competitors In The Biotechnology Industry
Because Many Of Them Have Greater Resources Than We Do And They Are Further
Along In Their Development Efforts.
The
pharmaceutical and biotechnology industry is intensely competitive and subject
to rapid and significant technological change. Many of the drugs that we
are
attempting to discover or develop will be competing with existing therapies.
In
addition, we are aware of several pharmaceutical and biotechnology companies
actively engaged in research and development of antibody-based products that
have commenced clinical trials with, or have successfully commercialized,
antibody products. Some or all of these companies may have greater financial
resources, larger technical staffs, and larger research budgets than we have,
as
well as greater experience in developing products and running clinical trials.
We expect to continue to experience significant and increasing levels of
competition in the future. In addition, there may be other companies which
are
currently developing competitive technologies and products or which may in
the
future develop technologies and products that are comparable or superior
to our
technologies and products.
We
are
conducting the Cotara® dose confirmation and dosimetry clinical trial for the
treatment of recurrent brain cancer as a stand-alone study in collaboration
with
New Approaches to Brain Tumor Therapy (“NABTT”) consortium. Existing treatments
for brain cancer include the Gliadel® Wafer (polifeprosan 20 with carmustine
implant) from MGI Pharma, Inc. and Temodar® (temozolomide) from Schering-Plough
Corporation. Gliadel® is inserted in the tumor cavity following surgery and
releases a chemotherapeutic agent over time. Temodar® is administered orally to
patients with brain cancer.
Because
Cotara® targets brain tumors from the inside out, it is a novel treatment
dissimilar from other drugs in development for this disease. Some of the
products that may compete within the brain cancer category include: enzastuarin
(oral serine-threonine kinase inhibitor) is in a Phase III trial for patients
with recurrent GBM sponsored by Eli Lilly and Company; TransMID (diphtheria
toxin), developed by Xenova Group plc, began a Phase III trial in May 2004
in
patients with progressive or recurrent non-operable GBM. In addition, Gleevec®
by Novartis, which is an oncology product marketed for other indications,
is
being tested in clinical trials for the treatment of brain cancer.
Bavituximab
for the treatment of advanced solid cancers is currently in Phase I clinical
trials. There are a number of possible competitors with approved or
developmental targeted agents used in combination with standard chemotherapy
for
the treatment of cancer, including but not limited to, Avastin® by
Genentech, Inc., Gleevec® by Novartis, Tarceva® by OSI Pharmaceuticals, Inc. and
Genentech, Inc., Erbitux® by ImClone Systems Incorporated and Brystol-Myers
Squibb Company, Rituxan® and Herceptin® by Biogen Idec Inc. and Genentech, Inc.
and Vectibix™ by Amgen. There are a significant number of companies developing
cancer therapeutics using a variety of targeted and non-targeted approaches.
A
direct comparison of these potential competitors will not be possible until
bavituximab advances to later-stage clinical trials.
12
In
addition, we have completed Phase Ia single-dose and Phase Ib repeat dose
clinical trials evaluating bavituximab for the treatment of HCV. Bavituximab
is
a first-in-class approach for the treatment of HCV. We are aware of no other
products in development targeting phosphatidylserine as a potential therapy
for
HCV. There are a number of companies that have products approved and on the
market for the treatment of HCV, including but not limited to: Peg-Intron®
(pegylated interferon-alpha-2b), Rebetol® (ribavirin), and Intron-A
(interferon-alpha-2a), which are marketed by Schering-Plough Corporation,
and
Pegasys® (pegylated interferon-alpha-2a), Copegus® (ribavirin USP) and
Roferon-A® (interferon-alpha-2a), which are marketed by Roche Pharmaceuticals,
and Infergen® (interferon alfacon-1) now marketed by Valeant Pharmaceuticals
International. First line treatment for HCV has changed little since alpha
interferon was first introduced in 1991. The current standard of care for
HCV
includes a combination of an alpha interferon (pegylated or non-pegylated)
with
ribavirin. This combination therapy is generally associated with considerable
toxicity including flu-like symptoms, hematologic changes and central nervous
system side effects including depression. It is not uncommon for patients
to
discontinue alpha interferon therapy because they are unable to tolerate
the
side effects of the treatment.
Future
treatments for HCV are likely to include a combination of these existing
products used as adjuncts with products now in development. Later-stage
developmental treatments include improvements to existing therapies, such
as
Albuferon™ (albumin interferon) from Human Genome Sciences, Inc. and Viramidine™
(taribavirin), a pro-drug analog of ribavirin being developed by Valeant
Pharmaceuticals International. Other developmental approaches include protease
inhibitors such as VX-950 from Vertex Pharmaceuticals Incorporated, and SCH7
from Schering-Plough Corporation, and NM283, a polymerase inhibitor by Idenix
Pharmaceuticals, Inc.
New
And Potential New Accounting Pronouncements May Impact Our Future Financial
Position And Results Of Operations
There
may
be potential new accounting pronouncements or regulatory rulings, which may
have
an impact on our future financial position and results of operations. For
example, in December 2004, the Financial Accounting Standards Board issued
an
amendment to Statement of Financial Accounting Standards No. 123,
Accounting
For Stock-Based Compensation
(“SFAS
No. 123R”), which we adopted May 1, 2006, as discussed in Note 3, “Stock-Based
Compensation,” in the notes to the condensed consolidated financial statements
included in our Form 10-Q for the fiscal quarter ended October 31, 2006.
SFAS
No. 123R eliminates the ability to account for share-based compensation
transactions using Accounting Principles Board Opinion No. 25 (“APB No.
25”), and instead requires companies to recognize compensation expense using
a
fair-value based method for costs related to share-based payments including
stock options. Our adoption of SFAS No. 123R is expected to materially
impact our financial position and results of operations for future periods.
During the three and six months ended October 31, 2006, our loss from operations
included non-cash stock-based compensation expense of $310,000 and $609,000,
respectively, related to the adoption of SFAS No. 123R. In addition, we believe
that non-cash stock-based compensation expense for the remainder of fiscal
year
2007 may be up to approximately $400,000 based on actual shares granted and
unvested as of October 31, 2006. However, the actual share-based compensation
expense recorded during the remaining six months of fiscal year 2007 may
differ
materially from this estimate as a result of changes in a number of factors
that
affect the amount of non-cash compensation expense, including the number
of
options granted by our Board of Directors during the remainder of fiscal
year
2007, the price of our common stock on the date of grant, the volatility
of our
stock price, the estimate of the expected life of options granted and the
risk
free interest rates. Also, a change in accounting pronouncements or taxation
rules or practices can have a significant effect on our reported results
and may
even affect our reporting of transactions completed before the change is
effective. Other new accounting pronouncements or taxation rules and varying
interpretations of accounting pronouncements or taxation practice have occurred
and may occur in the future. Changes to existing rules, future changes, if
any,
or the questioning of current practices may adversely affect our reported
financial results or the way we conduct our business, which may also adversely
affect our stock price.
If
We Lose Qualified Management And Scientific Personnel Or Are Unable To Attract
And Retain Such Personnel, We May Be Unable To Successfully Develop Our Products
Or We May Be Significantly Delayed In Developing Our
Products.
Our
success is dependent, in part, upon a limited number of key executive officers,
each of whom is an at-will employee, and also upon our scientific researchers.
For example, because of his extensive understanding of our technologies and
product development programs, the loss of Mr. Steven W. King, our President
and
Chief Executive Officer, would adversely affect our development efforts and
clinical trial programs during the six to twelve month period that we estimate
it would take to find and train a qualified replacement.
13
We
also
believe that our future success will depend largely upon our ability to attract
and retain highly-skilled research and development and technical personnel.
We
face intense competition in our recruiting activities, including competition
from larger companies with greater resources. We do not know if we will be
successful in attracting or retaining skilled personnel. The loss of certain
key
employees or our inability to attract and retain other qualified employees
could
negatively affect our operations and financial performance.
Our
Governance Documents And State Law Provide Certain Anti-Takeover Measures
Which
Will Discourage A Third Party From Seeking To Acquire Us Unless Approved
By the
Board of Directors.
We
adopted a shareholder rights plan, commonly referred to as a “poison pill,” on
March 16, 2006. The purpose of the shareholder rights plan is to protect
stockholders against unsolicited attempts to acquire control of us that do
not
offer a fair price to our stockholders as determined by our Board of Directors.
Under the plan, the acquisition of 15% or more of our outstanding common
stock
by any person or group, unless approved by our board of directors, will trigger
the right of our stockholders (other than the acquiror of 15% or more of
our
common stock) to acquire additional shares of our common stock, and, in certain
cases, the stock of the potential acquiror, at a 50% discount to market price,
thus significantly increasing the acquisition cost to a potential acquiror.
In
addition, our certificate of incorporation and by-laws contain certain
additional anti-takeover protective devices. For example,
|
·
|
no
stockholder action may be taken without a meeting, without prior
notice
and without a vote; solicitations by consent are thus
prohibited;
|
|
·
|
special
meetings of stockholders may be called only by our Board of Directors;
and
|
|
·
|
our
Board of Directors has the authority, without further action by
the
stockholders, to fix the rights and preferences, and issue shares,
of
preferred stock. An issuance of preferred stock with dividend and
liquidation rights senior to the common stock and convertible into
a large
number of shares of common stock could prevent a potential acquiror
from
gaining effective economic or voting
control.
|
Further,
we are subject to Section 203 of the Delaware General Corporation Law which,
subject to certain exceptions, restricts certain transactions and business
combinations between a corporation and a stockholder owning 15% or more of
the
corporation’s outstanding voting stock for a period of three years from the date
the stockholder becomes a 15% stockholder.
Although
we believe these provisions and our rights plan collectively provide for
an
opportunity to receive higher bids by requiring potential acquirers to negotiate
with our Board of Directors, they would apply even if the offer may be
considered beneficial by some stockholders. In addition, these provisions
may
frustrate or prevent any attempts by our stockholders to replace or remove
our
current management by making it more difficult for stockholders to replace
members of our Board of Directors, which is responsible for appointing the
members of our management.
14
FORWARD-LOOKING
STATEMENTS
Some
of
the statements under “About Peregrine Pharmaceuticals, Inc.”, “Risk Factors” and
elsewhere in this prospectus constitute “forward-looking” statements. These
statements involve known and unknown risks, including, among others, risks
resulting from economic and market conditions, the regulatory environment
in
which we operate, pricing pressures, accurately forecasting operating and
capital expenditures and clinical trial costs, competitive activities,
uncertainties of litigation and other business conditions, and are subject
to
uncertainties and assumptions contained elsewhere in this prospectus. We
base
our forward-looking statements on information currently available to us,
and, in
accordance with the requirements of federal securities laws, we will disclose
to
you material developments affecting such statements. Our actual operating
results and financial performance may prove to be very different from what
we
have predicted as of the date of this prospectus due to certain risks and
uncertainties. The risks described above in the section entitled “Risk Factors”
specifically address some of the factors that may affect our future operating
results and financial performance.
USE
OF PROCEEDS
Except
as
otherwise provided in the applicable prospectus supplement, we will use the
net
proceeds from the sale of the securities for general corporate purposes,
which
may include research and development expenses, clinical trial expenses,
expansion of our contract manufacturing capabilities and increasing our working
capital. Pending the application of the net proceeds, we expect to invest
the
proceeds in investment grade, interest bearing securities.
The
principal purposes of this offering are to increase our operating and financial
flexibility. As of the date of this prospectus, we cannot specify with certainty
all of the particular uses for the net proceeds we will have upon completion
of
this offering. Accordingly, our management will have broad discretion in
the
application of net proceeds, if any.
DESCRIPTION
OF COMMON STOCK
As
of the
date of the prospectus, we are authorized to issue up to 250,000,000 shares
of
common stock, $.001 par value per share. As of January 11, 2007, 196,112,201
shares of our common stock were outstanding, and an additional 22,178,332
shares
were reserved for issuance under our shelf registration statements, stock
option
plans and warrant agreements.
Dividends
Our
Board
of Directors may, out of funds legally available, at any regular or special
meeting, declare dividends to the holders of shares of our common stock as
and
when they deem expedient, subject to the rights of holders of the preferred
stock, if any.
Voting
Each
share of common stock entitles the holders to one vote per share on all matters
requiring a vote of the stockholders, including the election of directors.
No
holders of shares of common stock shall have the right to vote such
shares cumulatively in any election for the Board of Directors.
Rights
Upon Liquidation
In
the
event of our voluntary or involuntary liquidation, dissolution, or winding
up,
the holders of our common stock will be entitled to share equally in our
assets
available for distribution after payment in full of all debts and after the
holders of preferred stock, if any, have received their liquidation preferences
in full.
15
Miscellaneous
No
holders of shares of our common stock shall have any preemptive rights to
subscribe for, purchase or receive any shares of any class, whether now or
hereafter authorized, or any options or warrants to purchase any such shares,
or
any securities convertible into or exchanged for any such shares, which may
at
any time be issued, sold or offered for sale by us.
PLAN
OF DISTRIBUTION
We
may
sell the securities from time to time pursuant to underwritten public offerings,
negotiated transactions, block trades or a combination of these methods.
We may
sell the securities (1) through underwriters or dealers, (2) through
agents, and/or (3) directly to one or more purchasers. We may distribute
the securities from time to time in one or more transactions at:
·
a
fixed
price or prices, which may be changed;
·
market
prices prevailing at the time of sale;
·
prices
related to the prevailing market prices; or
·
negotiated
prices.
We
may
solicit directly offers to purchase the securities being offered by this
prospectus. We may also designate agents to solicit offers to purchase the
securities from time to time. We will name in a prospectus supplement any
agent
involved in the offer or sale of our securities.
If
we
utilize a dealer in the sale of the securities being offered by this prospectus,
we will sell the securities to the dealer, as principal. The dealer may then
resell the securities to the public at varying prices to be determined by
the
dealer at the time of resale.
If
we
utilize an underwriter in the sale of the securities being offered by this
prospectus, we will execute an underwriting agreement with the underwriter
at
the time of sale and will provide the name of any underwriter in the prospectus
supplement which the underwriter will use to make resales of the securities
to
the public. In connection with the sale of the securities, we, or the purchasers
of securities for whom the underwriter may act as agent, may compensate the
underwriter in the form of underwriting discounts or commissions. The
underwriter may sell the securities to or through dealers, and the underwriter
may compensate those dealers in the form of discounts, concessions or
commissions.
With
respect to underwritten public offerings, negotiated transactions and block
trades, we will provide in the applicable prospectus supplement any compensation
we pay to underwriters, dealers or agents in connection with the offering
of the
securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers. Underwriters, dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters within the meaning of the Securities Act of 1933, as amended,
and
any discounts and commissions received by them and any profit realized by
them
on resale of the securities may be deemed to be underwriting discounts and
commissions. We may enter into agreements to indemnify underwriters, dealers
and
agents against civil liabilities, including liabilities under the Securities
Act, or to contribute to payments they may be required to make in respect
thereof.
Shares
of
common stock sold pursuant to the registration statement of which this
prospectus is a part will be authorized for quotation and trading on the
Nasdaq
Capital Market. To facilitate the offering of securities, certain persons
participating in the offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the securities. This may include
over-allotments or short sales of the securities, which involve the sale
by
persons participating in the offering of more securities than we sold to
them.
In these circumstances, these persons would cover such over-allotments or
short
positions by making purchases in the open market or by exercising their
over-allotment option. In addition, these persons may stabilize or maintain
the
price of the securities by bidding for or purchasing securities in the open
market or by imposing penalty bids, whereby selling concessions allowed to
dealers participating in the offering may be reclaimed if securities sold
by
them are repurchased in connection with stabilization transactions. The effect
of these transactions may be to stabilize or maintain the market price of
the
securities at a level above that which might otherwise prevail in the open
market. These transactions may be discontinued at any time.
16
The
underwriters, dealers and agents may engage in other transactions with us,
or
perform other services for us, in the ordinary course of their
business.
In
order
to comply with the securities laws of certain states, if applicable, the
securities offered by this prospectus may be sold in these jurisdictions
only
through registered or licensed brokers or dealers. In addition, in certain
states the securities offered by this prospectus may not be sold unless such
securities have been registered or qualified for sale in these states or
an
exemption from registration or qualification is available and complied
with.
Our
common stock is currently traded on the Nasdaq Capital Market under the symbol
“PPHM.”
LEGAL
MATTERS
The
validity of the securities offered by this prospectus has been passed upon
for
us by Snell & Wilmer LLP, Costa Mesa, California, counsel to Peregrine
Pharmaceuticals, Inc. Certain legal matters will be passed upon for any agents
or underwriters by counsel for such agents or underwriters identified in
the
applicable prospectus supplement.
EXPERTS
Ernst
& Young LLP, independent registered public accounting firm, has audited our
consolidated financial statements and schedule included in our Annual Report
on
Form 10-K for the year ended April 30, 2006, and management’s assessment of the
effectiveness of our internal control over financial reporting as of April
30,
2006, as set forth in their reports, which are incorporated by reference
in this
prospectus and elsewhere in the registration statement. Our financial
statements and schedule and management’s assessment are incorporated by
reference in reliance on Ernst & Young LLP’s reports, given on their
authority as experts in accounting and auditing.
WHERE
TO LEARN MORE ABOUT US
We
have
filed with the SEC a registration statement on Form S-3 under the Securities
Act
of 1933, relating to the securities being offered by this prospectus. For
further information pertaining to our securities being offered by this
prospectus, reference is made to such registration statement. This prospectus
constitutes the prospectus we filed as a part of the registration statement
and
it does not contain all information in the registration statement, certain
portions of which have been omitted in accordance with the rules and regulations
of the SEC. In addition, we are subject to the informational requirements
of the
Securities Exchange Act of 1934, and, in accordance with such requirements,
files reports, proxy statements and other information with the SEC relating
to
its business, financial statements and other matters. Reports and proxy and
information statements filed under Section 14(a) and 14(c) of the Securities
Exchange Act of 1934 and other information filed with the SEC as well as
copies
of the registration statement can be inspected and copied at the public
reference facilities maintained by the SEC at 100 F Street N.E., Washington,
D.C. 20549, and at the SEC's Midwest Regional Offices at 500 West Madison
Street, Chicago, Illinois 60606. Copies of such material can also be obtained
at
prescribed rates from the Public Reference Section of the SEC at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Such
material may also be obtained electronically by visiting the SEC’s web site on
the Internet at http://www.sec.gov. Our common stock is traded on the Nasdaq
Capital Market under the symbol “PPHM.” Reports, proxy statements and other
information concerning our Company may be inspected at the National Association
of Securities Dealers, Inc., at 1735 K Street, N.W., Washington D.C
20006.
17
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
Commission allows us to “incorporate by reference” into this prospectus the
documents we file with them, which means that we can disclose important
information to you by referring you to these documents. The information that
we
incorporate by reference into this prospectus is considered to be part of
this
prospectus, and information that we file later with the Commission automatically
updates and supersedes any information in this prospectus. We have filed
the
following documents with the Commission. These documents are incorporated
by
reference as of their respective dates of filing:
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1.
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our
Annual Report on Form 10-K for the fiscal year ended April 30,
2006, as
filed with the Commission on July 14, 2006, under Section 13(a)
of the
Securities Exchange Act of 1934;
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2.
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our
Quarterly
Reports on Form 10-Q for the quarters ended July 31, 2006 and
October 31,
2006 filed with the Commission on September 11, 2006 and December
8, 2006,
respectively;
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3.
|
our
Current Reports on Form 8-K as furnished to the Commission on
July 24,
2006, September 11, 2006, November 14, 2006 and December 8, 2006,
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4.
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our
Definitive Proxy Statement with respect to the Annual Meeting
of
Stockholders held on October 24, 2006, as filed with the Commission
on
August 28, 2006;
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5.
|
the
description of our common stock contained in our Registration
Statement on
Form 8-A and Form 8-B (Registration of Successor Issuers) filed
under the
Securities Exchange Act of 1934, including any amendment or report
filed
for the purpose of updating such description;
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6.
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the
description of our preferred stock purchase rights contained
in our Form
8-A filed under the Securities Exchange Act of 1934 on March
17, 2006,
including any amendment or report filed for the purpose of updating
such
descriptions; and
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7.
|
all
other reports filed by us under Section 13(a) of 15(d) of the
Securities
Exchange Act of 1934 since the end of our fiscal year ended April
30,
2006.
|
All
documents we have filed with the Commission under Sections 13(a), 13(c),
14 or
15(d) of the Securities Exchange Act of 1934 after the date of the initial
registration statement and prior to the effective date of the registration
statement or subsequent to the date of this prospectus and prior to the filing
of a post-effective amendment indicating that all securities offered have
been
sold (or which re-registers all securities then remaining unsold), are deemed
to
be incorporated in this prospectus by this reference and to be made a part
of
this prospectus from the date of filing of such documents.
We
will
provide, without charge, upon written or oral request of any person to whom
a
copy of this prospectus is delivered, a copy of any or all of the foregoing
documents and information that has been or may be incorporated in this
prospectus by reference, other than exhibits to such documents. Requests
for
such documents and information should be directed to Attention: Paul J. Lytle,
Chief Financial Officer, 14272 Franklin Avenue, Tustin, California 92780-7017,
telephone number (714) 508-6000. See also “Where to Learn More About
Us.”
18
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our
Bylaws provide that we will indemnify our directors and officers and may
indemnify our employees and other agents to the fullest extent permitted
by law.
We believe that indemnification under our Bylaws covers at least negligence
and
gross negligence by indemnified parties, and permits us to advance litigation
expenses in the case of stockholder derivative actions or other actions,
against
an undertaking by the indemnified party to repay such advances if it is
ultimately determined that the indemnified party is not entitled to
indemnification. We have liability insurance for our directors and
officers.
In
addition, our Certificate of Incorporation provides that, under Delaware
law,
our directors shall not be liable for monetary damages for breach of the
directors’ fiduciary duty as a director to us and our 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 our Company 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.
Provisions
of our Bylaws require us, among other things, to indemnify them against certain
liabilities that may arise by reason of their status or service as directors
or
officers (other than liabilities arising from actions not taken in good faith
or
in a manner the indemnitee believed to be opposed to our best interests)
to
advance their expenses incurred as a result of any proceeding against them
as to
which they could be indemnified and to obtain directors’ insurance if available
on reasonable terms. To the extent that indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers
or
persons controlling our Company as discussed in the foregoing provisions,
we
have been informed that in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933, and
is
therefore unenforceable. We believe that our Certificate of Incorporation
and
Bylaw provisions are necessary to attract and retain qualified persons as
directors and officers.
We
have
in place a directors’ and officers’ liability insurance policy that, subject to
the terms and conditions of the policy, insures our directors and officers
against losses arising from any wrongful act (as defined by the policy) in
his
or her capacity as a director or officer. The policy reimburses us for amounts,
which we lawfully indemnify or is required or permitted by law to indemnify
its
directors and officers.
19
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You
should rely only on the information contained in this document
or to which
we have referred you. We have not authorized anyone to provide
you with
information that is different. This document may only be used
where it is
legal to sell these securities. The information in this document
may only
be accurate on the date of this document.
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TABLE
OF CONTENTS
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ABOUT
THIS PROSPECTUS
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1
|
Common
Stock
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OUR
BUSINESS
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1
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RISK
FACTORS
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4
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FORWARD-LOOKING
STATEMENTS
|
15
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USE
OF PROCEEDS
|
15
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DESCRIPTION
OF COMMON STOCK
|
15
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|
PLAN
OF DISTRIBUTION
|
16
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|
LEGAL
MATTERS
|
17
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|
EXPERTS
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17
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WHERE
TO LEARN MORE ABOUT US
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17
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INCORPORATION
OF CERTAIN
DOCUMENTS
BY REFERENCE
|
18
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Prospectus
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| DISCLOSURE OF COMMISSION |
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|
POSITION
ON INDEMNIFICATION
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|
FOR
SECURITIES ACT LIABILITIES
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19
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Dated:
January 23, 2007
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