Snell
& Wilmer L.L.P.
600 Anton
Boulevard
Suite
1400
Costa
Mesa, California 92626-7689
TELEPHONE:
(714) 427-7000
FACSIMILE:
(714) 427-7799
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Mark
R. Ziebell
714.427.7402
mziebell@swlaw.com
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March
22, 2010
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Via Federal
Express
Division
of Corporation Finance
Securities
and Exchange Commission
100 F.
Street, N.E.
Washington,
D.C. 20549-7010
Mail Stop
4720
Attn.: Jim
B. Rosenberg, Senior Assistant Chief Accountant
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RE:
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Peregrine
Pharmaceuticals, Inc.
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Form
10-K for the Year Ended April 30,
2009
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Filed
on July 14, 2009
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File
No.: 001-32839
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Dear Mr.
Rosenberg:
On behalf of our client, Peregrine
Pharmaceuticals, Inc. (the “Company”), we are responding to the comments of the
Staff of the Securities and Exchange Commission (the “Commission”) as set forth
in your letter dated March 8, 2010 to Paul J. Lytle, Chief Financial Officer of
the Company, with respect to the Company’s Form 10-K for the year ended April
30, 2009 (the "Form 10-K") which was filed with the Commission on July 14,
2009. For your convenience, the Commission’s comments have been
repeated herein in bold, with the Company’s response immediately following each
of the Commission’s comments. All page numbers refer to the Edgar
version of the Form 10-K.
Item 1. Business,
page 1
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1.
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We
note your disclosure on pages 7 and 8 of the filing which discusses
various in-licensing and out-licensing collaborations to which the company
is a party. Please revise to discuss the term and termination
dates of each collaboration agreement and to quantify all fees paid to
date, the total potential milestone payments due under each agreement
individually and the royalty rates. Also, please file copies of
the agreements as exhibits pursuant to Item 601(b)(10) of Regulation
S-K. In the event you do not believe you are substantially
dependent on any of these agreements, please provide us with an analysis
supporting your determination.
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March 22,
2010
Page 2 of
11
The
Company notes the Commission’s comments and advises the Commission as
follows.
With
respect to the Company’s in-licensing collaborations for its
Anti-Phosphatidylserine (“Anti-PS”) program, although the Company entered into
these agreements in the ordinary course of its business, the Company is
substantially dependent on its two license agreements with the University of
Texas Southwestern Medical Center at Dallas, and its other licensing agreements
with Lonza Biologics (“Lonza”), Avanir Pharmaceuticals, Inc, and Genentech,
Inc. Although the Company had not previously filed these license
agreements as exhibits, it has historically disclosed in its periodic reports
the payments made pursuant to these license agreements as well as its potential
known aggregate future payment obligations based on the achievement of
development milestones. For example, the Company disclosed in its
Form 10-K for the year ended April 30, 2009, that its potential aggregate future
milestone payments under the above in-licensing agreements are $6,850,000
assuming the achievement of all development milestones under the agreements
through commercialization of products, of which, $6,400,000 is due upon approval
of the first Anti-PS product, including bavituximab, in addition to the payment
of certain royalties. The Company will file these five license
agreements as exhibits with certain confidential financial information redacted
(along with appropriate requests for confidential treatment of certain financial
terms contained therein, for example the royalty rates) with its next periodic
filing, its Form 10-K for the fiscal year ending April 30, 2010 (the “FY2010
Form 10-K”). The Company intends to seek confidential treatment of
the royalty rates because such rates where the subject of much negotiation with
the respective licensors and public disclosure of the royalty rates would
provide the Company’s competitors with information that they could use to the
Company’s disadvantage.
With
respect to the Company’s in-licensing collaborations for its Tumor Necrosis
Therapy (“TNT”) program, the Company is dependent on its license agreement with
Lonza. Although the Company had not previously filed this license
agreement as an exhibit, it has historically disclosed in its periodic reports
the payments made pursuant to this license agreement as well as its potential
known aggregate future payment obligations. The Company will file
this agreement as an exhibit with certain confidential information redacted
(along with appropriate requests for confidential treatment of certain financial
terms contained therein) with its FY2010 Form 10-K.
With
respect to the Company’s out-licensing collaborations, the Company hereby
advises the Commission that the Company, to date, considers the out-licensing of
certain technologies and the granting to third parties of the freedom to operate
under certain patents, in each case with respect to technologies or fields that
the Company has determined that it will not actively pursue as part of its own
product development efforts, to be its ordinary course of
business. In addition, for the reasons set forth below, it is the
Company’s position that it is not substantially dependent on any of the
disclosed licensing agreements.
Regarding
the license agreement with Cancer Therapeutics, Inc. (“CTL”) entered into during
September 1995, the agreement was terminated as part of a settlement agreement
entered into by the Company and CTL in June 2009 as disclosed in its Form 10-K
for the year ended April 30, 2009.
With
regard to the license agreement with Merck KGaA (“Merck”), the Company licensed
to Merck a segment of the Company’s TNT technology which is insignificant to the
Company’s on-going product development efforts. Merck is still at a very early
stage of clinical development with respect to the product for which it obtained
this license and approval of a commercial product is not anticipated for several
years, if at all. Given that the licensed technology is not
significant to the Company’s current development efforts and the fact that the
Company does not expect to receive any royalties from Merck from product sales
for several years, if ever, it is the Company’s position that it is not
substantially dependent on this license agreement.
March 22,
2010
Page 3 of
11
With
regard to the license agreements with SuperGen, Inc. and Schering A.G., both
licenses were for technology platforms (e.g. VEGF and VTA) that the Company is
not actively pursuing. In addition, during FY2010 both license
agreements were terminated by the respective licensees as later disclosed in the
Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2010
as filed with the Commission on March 11, 2010.
With
regard to the Company’s disclosure of its in-licensing and out-licensing
collaborations, the Company plans to include the following revised disclosure in
its FY2010 Form 10-K:
“In-Licensing
Collaborations
The
following discussions cover our collaborations and in-licensing obligations
related to our products in clinical trials:
Anti-Phosphatidylserine
(“Anti-PS”) Program - In August 2001 and August 2005, we exclusively
in-licensed the worldwide rights to this technology platform from the University
of Texas Southwestern Medical Center at Dallas (“UTSWMC”). During
November 2003, we entered into a non-exclusive license agreement with Genentech,
Inc. to license certain intellectual property rights covering methods and
processes for producing antibodies used in connection with the development of
our Anti-PS program. During December 2003, we entered into an
exclusive commercial license agreement with Avanir Pharmaceuticals, Inc,
(“Avanir”) covering the generation of the chimeric monoclonal antibody,
bavituximab. In March 2005, we entered into a worldwide non-exclusive
license agreement with Lonza Biologics (“Lonza”) for intellectual property and
materials relating to the expression of recombinant monoclonal antibodies for
use in the manufacture of bavituximab.
Under our
in-licensing agreements relating to the Anti-PS program, including the
development of bavituximab, we typically pay an up-front license fee, annual
maintenance fees, and are obligated to pay future milestone payments based on
development progress, plus a royalty on net sales and/or a percentage of
sublicense income. The following table provides certain information
with respect to each of the Company’s in-licensing agreements relating to its
Anti-PS program.
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Licensor
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Agreement
Date
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Expiration
Date
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Total
Payments
To
Date
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Potential
Future Milestone
Obligations
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UTSWMC
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August
2001
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(1) | $ | 97,500 | $ | 375,000 | |||||||
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UTSWMC
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August
2005
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(1) | $ | 35,000 | $ | 425,000 | |||||||
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Lonza
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March
2005
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(2) | - | (3) | |||||||||
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Avanir
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December
2003
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(4) | - | $ | 1,050,000 | ||||||||
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Genentech,
Inc.
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November
2003
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December
2018
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$ | 400,000 | $ | 5,000,000 | |||||||
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Total
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$ | 532,500 | $ | 6,850,000 | |||||||||
March 22,
2010
Page 4 of
11
______________
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(1)
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Expiration
date of the license agreement occurs upon expiry of underlying
patents. These patents, and certain related patent applications
that may issue as patents, are currently set to expire between 2023 and
2025.
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(2)
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Expiration
date of the license agreement is 15 years from first commercial sale or
upon expiry of underlying patents, whichever, occurs last. To
date, we have no commercial sales under the license agreement nor do we
expect any commercial sales in the near future. The last patent
covered under this license agreement expires in November
2016.
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(3)
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We
are required to pay future milestone payments upon the completion of Phase
II clinical trial enrollment in the amount of 75,000 pounds sterling, the
amount of which will continue as an annual license fee
thereafter. In the event we utilize an outside contract
manufacturer other than Lonza to manufacture bavituximab for commercial
purposes, we would owe Lonza 300,000 pounds sterling per
year. We expect to complete Phase II clinical trial enrollment
in 2011.
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(4)
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Expiration
date of license agreement is 10 years from first commercial sale in each
respective country. To date we have no commercial sales under
the license agreement nor do we expect any commercial sales in the near
future.
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Of the
total potential future milestone obligations of $6,850,000, $6,400,000 would be
due upon the first commercial approval of a drug candidate developed under our
Anti-PS program, including bavituximab, with the technologies licensed pursuant
to such license agreements.
During
fiscal year 2008, we expensed $50,000 under in-licensing agreements covering our
Anti-PS program, which is included in research and development expense in the
accompanying consolidated statements of operations. We did not incur
any milestone related expenses during fiscal years 2010 and 2009.
Tumor Necrosis Therapy
(“TNT”) - We acquired the rights to the TNT technology in July 1994 after
the merger between Peregrine and Cancer Biologics, Inc. was approved by our
stockholders. The assets acquired from Cancer Biologics, Inc.
primarily consisted of patent rights to the TNT technology, including
Cotara®. To date, no product revenues have been generated from our
TNT technology.
In
October 2004, we entered into a worldwide non-exclusive license agreement with
Lonza for intellectual property and materials relating to the expression of
recombinant monoclonal antibodies for use in the manufacture of
Cotara®. Under the terms of the agreement, we will pay a royalty on
net sales of any products we market that utilize the underlying
technology. In the event a product is approved and we or Lonza do not
manufacture Cotara®, we would owe Lonza 300,000 pounds sterling per year in
addition to an increased royalty on net sales.
Out-Licensing
Collaborations
In
October 2000, we entered into a licensing agreement with Merck KGaA to
out-license a segment of our TNT technology for use in the application of
cytokine fusion proteins. During January 2003, we entered into an
amendment to the license agreement, whereby we received an extension to the
royalty period from six years to ten years from the date of the first commercial
sale. Under the terms of the agreement, we would receive a royalty on
net sales if a product is approved under the agreement. Merck KGaA
has not publicly disclosed the development status of its program.”
March 22,
2010
Page 5 of
11
Patents and Trade Secrets,
page 13
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2.
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Please
revise to include a more robust discussion of your material patents,
including which product groups they relate to, the expiration dates for
each and the jurisdictions in which each was granted. See Item
101(c)(1)(iv) of Regulation S-K for
guidance.
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The
Company notes the Commission’s comment and advises the Commission that the
Company intends to revise its disclosure under “Patents and Trade Secrets” in
connection with its FY2010 Form 10-K, as follows:
“Patents and Trade
Secrets
Peregrine continues to seek patents on
inventions originating from ongoing research and development activities within
the Company and in collaboration with other companies and university
researchers. In addition to seeking patent protection in the United
States, we typically file patent applications in Europe, Canada, Japan and
additional countries on a selective basis. Patents, issued or applied
for, cover inventions relating in general to cancer therapy and anti-viral
therapy and in particular to different proteins, peptides, antibodies and
conjugates, methods and devices for labeling antibodies, and therapeutic and
diagnostic uses of the peptides, antibodies and conjugates. We intend
to pursue opportunities to license these technologies and any advancements or
enhancements, as well as to pursue the incorporation of our technologies in the
development of our own products.
Our
issued patents extend for varying periods according to the date of patent
application filing and/or grant and the legal term of patents in the various
countries where patent protection is obtained. In the United States,
patents issued on applications filed prior to June 8, 1995 have a term of
17 years from the issue date or 20 years from the earliest effective
filing date, whichever is longer. United States patents issued on
applications filed on or after June 8, 1995 have a term first calculated as
20 years from the earliest effective filing date. Certain United
States patents issued on applications filed on or after June 8, 1995, and
particularly on applications filed on or after May 29, 2000, are eligible for
Patent Term Adjustment (“PTA”), which extends the term of the patent to
compensate for delays in examination at the U.S. Patent and Trademark
Office. The term of foreign patents varies in accordance with
provisions of applicable local law, but is typically 20 years from the
effective filing date, which is often the filing date of an application under
the provisions of the Patent Cooperation Treaty (“PCT”).
In
addition, in certain cases, the term of United States and foreign patents can be
extended to recapture a portion of the term effectively lost as a result of
health authority regulatory review. As such, certain United States
patents may be eligible for Patent Term Extension under 35 U.S.C. § 156
(known as "the Hatch-Waxman Act") to restore the portion of the patent term that
has been lost as a result of review at the U.S. Food and Drug Administration
(“FDA”). Such extensions, which may be up to a maximum of five years
(but cannot extend the remaining term of a patent beyond a total of 14 years),
are potentially available to one United States patent that claims an approved
human drug product (including a human biological product), a method of using a
drug product, or a method of manufacturing a drug product.
March 22,
2010
Page 6 of
11
We
consider that in the aggregate our patents, patent applications and licenses
under patents owned by third parties are of material importance to our
operations. Of the patent portfolios that are owned, controlled by or
exclusively licensed to Peregrine, those concerning our PS-Targeting Technology
Platform and our TNT Technology Platform are of particular importance to our
operations.
Our
patent portfolios relating to the PS-Targeting Technology Platform in oncology
include United States and foreign patents and patent applications with claims
directed to methods, compositions and combinations for targeting tumor
vasculature and imaging and treating cancer using antibodies and conjugates that
localize to the aminophospholipids, PS (PhosphatidylSerine) and PE
(PhosphatidylEthanolamine), exposed on tumor vascular endothelial
cells. These patents, and any related patent applications that may
issue as patents, are currently set to expire in 2019 and 2020.
Our
patent portfolios relating to the PS-Targeting Technology Platform in the viral
field include United States and foreign patents and patent applications with
claims directed to methods, compositions and combinations for inhibiting viral
replication or spread and for treating viral infections and diseases using
antibodies and conjugates that localize to the aminophospholipids, PS and PE,
exposed on viruses and virally-infected cells. These patents, and
certain related patent applications that may issue as patents, are currently set
to expire in 2023.
Additionally,
we have United States and foreign patents and patent applications relating more
specifically to our product, bavituximab, including compositions, combinations
and methods of use in treating angiogenesis and cancer and in treating viral
infections and diseases. These patents, and certain related patent
applications that may issue as patents, are currently set to expire between 2023
and 2025.
Our
patent portfolios relating to the TNT Technology Platform, which includes our
Cotara® product, include United States and foreign patents with claims directed
to compositions of matter and claims directed to diagnostic methods, which
patents are currently set to expire in 2017 and 2016,
respectively. Our TNT Technology Platform and Cotara® product are
also protected by patents and patent applications that include claims directed
to methods and apparatus for radiolabeling and to the resultant radiolabeled
products. The radiolabeling patents in the United States and
overseas, and any related patent applications that may issue as patents, are
currently set to expire between 2024 and 2026.
The
information given above is based on our current understanding of the patents and
patent applications that we own, control or have exclusively
licensed. The information is subject to revision, for example, in the
event of changes in the law or legal rulings affecting our patents or if we
become aware of new information. In particular, the expiry
information given above does not account for possible extension of any United
States or foreign patent to recapture patent term effectively lost as a result
of FDA or other health authority regulatory review. We intend to seek
such extensions, as appropriate to approved product(s), which may be up to a
maximum of five years (but not extending the term of a patent beyond 14
years).
The
actual protection afforded by a patent, which can vary from country to country,
depends upon the type of patent, the scope of its coverage and the availability
of legal remedies in the country. We have either been issued patents
or have patent applications pending that relate to a number of current and
potential products including products licensed to others. In general,
we have obtained licenses from various parties that we deem to be necessary or
desirable for the manufacture, use or sale of our products. These
licenses (both exclusive and non-exclusive) generally require us to pay
royalties to the parties. The terms of the licenses, obtained and
that we expect to be obtained, are not expected to significantly impact the cost
structure or marketability of the Company’s products.
March 22,
2010
Page 7 of
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In
general, the patent position of a biotechnology firm is highly uncertain and no
consistent policy regarding the breadth of issued claims has emerged from the
actions of the U.S. Patent Office and courts with respect to biotechnology
patents. Similar uncertainties also exist for biotechnology patents
in important overseas markets. Accordingly, there can be no assurance
that our patents, including those issued and those pending, will provide
protection against competitors with similar technology, nor can there be any
assurance that such patents will not be legally challenged, invalidated,
infringed upon and/or designed around by others.
International
patents relating to biologics are numerous and there can be no assurance that
current and potential competitors have not filed or in the future will not file
patent applications or receive patents relating to products or processes
utilized or proposed to be used by the Company. In addition, there is
certain subject matter which is patentable in the United States but which may
not generally be patentable outside of the United States. Statutory
differences in patentable subject matter may limit the protection the Company
can obtain on some of its products outside of the United
States. These and other issues may prevent the Company from obtaining
patent protection outside of the United States. Failure to obtain
patent protection outside the United States may have a material adverse effect
on the Company’s business, financial condition and results of
operations.
No one
has sued us for infringement and no third party has asserted their patents
against us that we believe are of any merit. However, there can be no
assurances that such lawsuits have not been or will not be filed and, if so
filed, that we will prevail or be able to reach a mutually beneficial
settlement.
We also
intend to continue to rely upon trade secrets and improvements, unpatented
proprietary know-how, and continuing technological innovation to develop and
maintain our competitive position in research and development of therapeutic and
diagnostic products. We typically place restrictions in our
agreements with third parties, which contractually restrict their right to use
and disclose any of the Company's proprietary technology with which they may be
involved. In addition, we have internal non-disclosure safeguards,
including confidentiality agreements, with our employees. There can
be no assurance, however, that others may not independently develop similar
technology or that the Company's secrecy will not be breached.”
Risk
Factors
"Our dependency on our
radiolabeling suppliers may negatively impact our ability to complete clinical
trials and market our products." page 30
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3.
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We
note the above listed risk factor on page 30 of the
filing. Based on your disclosure it appears that you are
substantially dependent on your agreements with Iso-tex Diagnostics, Inc.
and the Board of Radiation & Isotope Technology. Therefore,
please file each as an exhibit pursuant to Item 601(b)(10) of Regulation
S-K. Also, please revise the Business section to discuss the
material terms of each agreement, including the term and termination
provisions thereof. In the event you do not believe you are
substantially dependent on one or both of these agreements, please provide
us with an analysis supporting your
determination.
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March 22,
2010
Page 8 of
11
The Company notes the Commission’s
comment and advises the Commission that the Company is currently conducting a
phase II study for Cotara® which is enrolling patients in the United States and
India. As such, the Company procures radiolabeling services from both
Iso-tex Diagnostics (“Iso-Tex”) and the Board of Radiation & Isotope
Technology (“BRIT”) in connection with this study. In the event the
Company could no longer procure radiolabeling services from either Iso-tex or
BRIT, it would shift all patient enrollment under the phase II study to the
location where it was still procuring radiolabeling services. If,
however, both Iso-tex and BRIT ceased providing radiolabeling services to the
Company, the phase II study would experience a twelve to eighteen month delay in
patient enrollment while the Company procured a new provider of radiolabeling
services. As such, while not substantially dependent on either
supplier individually, the Company is dependent upon both
suppliers.
The Company advises the Commission that
it does not have written agreements with either Iso-tex or BRIT for the
provision of radiolabeling services. If the Company requires
radiolabeling services, it will send a purchase order to either Iso-tex or
BRIT. If Iso-tex or BRIT decides to accept the purchase order, then
it will provide the requested radiolabeling services and invoice the Company for
such services based upon its then current rates for such
services. Neither Iso-tex or BRIT is obligated to accept a purchaser
order nor has agreed to any fixed pricing arrangement for its services.
Consequently, there is no written agreement to file as an exhibit nor fixed
material terms which may be accurately summarized for disclosure in the
Company’s filings with the Commission. The Company proposes to
include the following revised disclosure to the third paragraph under the
subheading “Manufacturing and Raw Materials” in the Business section of its
FY2010 Form 10-K (see page 12 of the FY2009 Form 10-K):
“Our bavituximab product is shipped
directly from our facility to the clinical trial sites or to contract research
organizations that distribute the clinical trial materials to clinical
sites. Our TNT antibodies are shipped to a third party facility for
radiolabeling (the process of attaching the radioactive agent, Iodine 131, to
the antibody). From the radiolabeling facility, Cotara® (the
radiolabeled-TNT antibodies) is shipped directly to the clinical site for use in
clinical trials. We do not have a written agreement with either third
party radiolabeling facility guarantying such services nor any agreed upon
pricing for such services. Rather, the radiolabeling services are
provided upon such third party’s acceptance of our purchaser order and are
billed at the then current rates charged by such provider for such
services.”
March 22,
2010
Page 9 of
11
In addition, the Company will include
in its FY2010 Form -10-K the following revised risk factor
disclosure:
“Our Dependency On
Our Radiolabeling Suppliers May Negatively Impact Our Ability To Complete
Clinical Trials And Market Our Products.
We have
procured our antibody radioactive isotope combination services (“radiolabeling”)
for our Cotara® Phase II study with Iso-tex Diagnostics, Inc. (for
patients enrolled in the U.S.) and with the Board of Radiation & Isotope
Technology (“BRIT”) (for patients enrolled in India). Although we
order radiolabeling services on an as needed basis through an agreed upon
purchase order, we do not have any arrangements with either Iso-tex Diagnostics,
Inc. or BRIT that would require either supplier to radiolabel our
product. In the event that either supplier was unable to provide the
radiolabeling services, we would have to temporarily shift patient enrollment to
the country (U.S. or India) able to continue providing the radiolabeling
services which could significantly delay patient enrollment. If both
of these suppliers is unable to continue to qualify its 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. and India, 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
facilities that can 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.”
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Notes to Consolidated
Financial Statements
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2. Summary
of Significant Accounting
Policies
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Revenue Recognition,
page F-11
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4.
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We
note that you are recognizing revenue from the U.S. Department of
Defense's Defense Threat Reduction Agency in accordance with ARB 43
Chapter 11 (FRC 912-605-25). Please revise your disclosure to
clarify how you recognize the "fixed fee" portion of your revenues and
tell us why your recognition method for this component is appropriate
under the authoritative guidance.
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The Company notes the Commission’s
comment and advises the Commission that it will revise its Government Contract
Revenue disclosure regarding the “fixed fee” portion of its revenue in its
FY2010 Form 10-K as follows:
“Government Contract Revenue –
On June 30, 2008, we were awarded a five-year government contract (the
“Government Contract”) potentially worth up to $44.4 million to test and develop
bavituximab and an equivalent fully human antibody as potential broad-spectrum
treatments for viral hemorrhagic fever infections. The contract was
awarded through the Transformational Medical Technologies Initiative (“TMTI”) of
the U.S. Department of Defense's Defense Threat Reduction Agency
(“DTRA”). This Government Contract is expected to provide us with up
to $22.3 million in funding over a 24-month base period, with $19.4 million
having been appropriated as of January 31, 2010. The remainder of the
$22.3 million in funding is expected to be appropriated over the remainder of
the two-year base period ending June 29, 2010. Subject to the
progress of the program and budgetary considerations in future years, the
contract can be extended by the TMTI beyond the base period to cover up to $44.4
million in funding over the five-year contract period through three one-year
option terms.
March 22,
2010
Page 10 of
11
The
Government Contract is classified as a “cost-plus-fixed-fee”
contract. We recognize government contract revenue in accordance with
the authoritative guidance for revenue recognition including the authoritative
guidance specific to federal government contracts. Reimbursable costs
under the contract primarily include direct labor, subcontract costs, materials,
equipment, travel, and indirect costs. In addition, we receive a
fixed fee for our efforts equal to 9.9% of the reimbursable costs incurred under
the Government Contract, which is unconditionally earned as allowable costs are
billed and is not contingent on success factors. Reimbursable costs
under this Government Contract, including the fixed fee, are generally
recognized as revenue in the period the reimbursable costs are incurred and
become billable. However, when amounts billable, including the fixed
fee, are not reasonably related to the proportionate performance of the total
work or services to be performed, we recognize revenue on a proportional
performance basis. In addition, reimbursable costs, including the
fixed fee, associated with manufacturing services are recognized as revenue once
delivery (or passage of title) has occurred. Amounts billable
(including the fixed fee) prior to satisfying revenue recognition criteria are
classified as deferred government contract revenue in the accompanying
consolidated financial statements.”
The Company hereby advises the
Commission that it believes its recognition of the fixed fee as described above
is appropriate and in accordance with FASB Accounting Standard Codification
(ASC) Topic 912-605-25 since the fixed fee is
unconditionally earned as allowable costs are billed and is not contingent on
success factors as the Company is responsible for performing biotechnology
research under the Government Contract with no guarantees of technological
success. In addition, the Government Contract does not include any
additional fixed fees for success. Under the Government Contract, the
Company receives a fixed fee for its efforts equal to 9.9% of the allowable
costs incurred and billed. Therefore, based on the fixed fee
structure of its Government Contract and on the authoritative guidance
prescribed under ASC 912-605-25, the Company finds it appropriate to recognize
the fixed fee for the Company’s efforts as revenue as related allowable costs
are incurred and becomes billable except under circumstances when amounts
billable are not reasonably related to the proportionate performance of the
total services to be performed or prior to when amounts billable for
manufacturing services become unconditional, that is, when the product has been
delivered and/or accepted. In addition, the Company finds it to be
appropriate to classify payment for fixed fees associated with reimbursable
costs incurred and billable prior to satisfying the revenue recognition criteria
outlined in ASC 912-605-25 as deferred government contract revenue.
The
Company hereby acknowledges that:
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the
Company is responsible for the adequacy and accuracy of the disclosure in
the filing;
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staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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the
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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March 22,
2010
Page 11 of
11
If you
have any questions, please do not hesitate to give me a call at (714)
427-7402.
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Very
truly yours,
Snell
& Wilmer
/s/ Mark R.
Ziebell
Mark
R. Ziebell
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cc: Paul
J. Lytle